Irwin v. Keen

The opinion of the Court was delivered by Rogers, J. The fund which is in Court for distribution arises from a judicial sale. The money is claimed by J. Poulterer, the trustee, under a voluntary deed, from one of the debtors, William Seddon, in trust for the grantor, and his daughter Mary Seddon ; by William Baker, assignee of Brown and Seddon, in trust for certain creditors therein named; and by judgment creditors of the firm of Brown and Seddon, subsequent in date to the assignment. If, as is stated in the report of the auditor, the deed to Poulterer was a voluntary deed, (and we have no doubt of the fact,) intended to protect his property against the claims of creditors, there is no pretence to say, that he is entitled to any part of the fund. The Court are bound to award the money to creditors of the firm, in preference to him, in payment of debts. By the deed of assignment, Baker, the assignee, was in the first place to pay nine several creditors, the several amounts due to them; among whom Abraham Bown, the son of one of the firm, was one who was to be first paid; and second, all such other creditors rateably, as should within sixty days execute a release. For the reasons given by the auditor, on a review of the whole evidence, there is no room for doubt, that the pretended debt was a gross attempt at fraud. It is in evidence, that the preference of the son was intended to cover the property of the firm, from the just claims of creditors. But notwithstanding this, it is insisted that the assignee under the deed of the 5th of January, 1836, is entitled to the fund, in trust for the other [355] creditors, therein named, who executed a release *in aecorda¡jice with its stipulations. It is contended, that although tainted with much fraud, so far as concerned, yet, the creditors were not parties to the fraud, nor was there any thing on the face of the deed to affect them with notice. This argument is not without plausibility; but still, we think, that when a deed is tainted with fraud, no interest passes, as against creditors, whether .parties to it or not. This principle is distinctly asserted, in M'Clurg v. Lecky, (3 Penn. Rep. 94). When the assignment is affected, either with moral or legal fraud, the property does not pass; it remains in the debtor, liable to the execution of creditors. In M‘Clurg v. Lecky, it was attempted to distinguish a legal from a moral fraud. It was conceded, that actual fraud vitiated the whole assignment; but it was contended, that a legal fraud avoided the deed, only so far as to enable the creditor to take in execution the fund specifically applied, to the benefit of the debtor. In other words, that the deed was avoided in part, but not in the whole. But the Court overruled the distinction, on the ground of policy. The assignee represents all the creditors, and is bound to protect their rights. There is nothing therefore in the objection, that they are not parties to the controversy. We are further of the opinion, that the declarations of the grantor, Seddon, were properly received; but aside from the testimony derived from that source, there was enough to show the fraudulent character of the deed of assignment. In this view, whether the deed of the 12th March 1835, can be disputed by the claimants under the assignment of the 15th June, 1836, is wholly immaterial. The decree must be affirmed. Decree affirmed. Cited by Counsel, 6 Watts & Sergeant, 98 ; 3 Barr, 87 ; 2 Wright, 451. Cited by the Court, 2 Ashmead, 330; Brightley, 264.