M'Clurg v. Lecky

The opinion of the court was delivered by Rogers, J. An insolvent debtor may, by a bona fide assignment of his estate, in trust, prefer one creditor to another, when there is no bankrupt, or other law, prohibiting such preference, so as not to interfere with any legal lien, binding on the property assigned. A debtor may also insert a condition in the assignment, that the creditors shall not be entitled to their order of preference; ,or he may exclude their claim altogether, unless within a given and ¡reasonable time, they execute a release to the debtor. 1 Bin. 502, Welt and Franklin. 2 Bin. 174, Lippencott v. Barker. 6 Bin. 338, McCallister v. Marshall. Wo s.pe pot without repeated efforts to extend the principle still further. In McCallister v. Marshall, 6 Bin. 344, the assignor made a reservation in favor of his family; but this attempt the court .(although perfectly satisfied of the entire honesty of the transaction in other respects,) unanimously decided, avoided the assignment. The same point is ruled in Passmore v. Eldridge, 12 Serg. & Rawle, 201; in Adlum v. Yard, 1 Rawle, 163; and in Johnson’s Heirs v. Harvey, 2 Penn. Rep. 92. In McCallister v. Marshall, a tacit agreement, to vest a part of the property in trustees for the benefit of the family, was held to avoid the conveyance, as to creditors, who had not assented to the arrangement. The statute of 13 Elizabeth, which avoids conveyances, with intent to delay,, hinder or defraud creditors, would be of little service, if a debtor might put his estate beyond the reach of his creditors, and still derive an advantage from it. The rule, clearly deducible from the cases, is, that no debtor can, in an assignment, make a reservation at tlje expense of his creditors, of any part of his income op [92] property, for his own benefit; nor can he stipulate, for any advantage, either to himself or family. This restriction seems to meso, necessary to set bounds to this species of transfer, that, I am unwilling to countenance any arrangement which,, in the smallest degree, interferes with' it,' We. have, then, to inquire, whether the deeds, (for I take'tliem all as an assignment,), contain a stipulation for the, benefit of J^dknap and family? and qn this part of the case, I cannot b/ing my mind, to, doubt. It is part of the contract, that Belknap shall be employed as manager, qr agent, for a compensation (of which he in the first instance is a judge,) syfficjent to cover the-expenses of himself and family, Nor does the agreement stop here. It is agreed, that on the, death of Belknap, or in case he shall be prevented, either by sickness or, other, good cause, from managing or superintending the factory, then it is made the duly of. Cltyrg. 8?. Cjq. and Ekinfy-Ledlie, to employ another agent, who shall be paid, a reasonable salary, out pf the one-third part of fb.q annus) profits allowed Bdknap, for thy purposes expressed in, the assignment,. ' ■ Athough the agreement is not ver}' explicit as regards what may be agood cause for withholding his'services from the' creditors-; or ■who are to'jud-.ge bfitbe amount of his compensation, hfmself, or the Trustees, yet 'W.e cannot fail to observe, the pnxip,us care which i$ takgrt to seguro employment for himself, ¡¡md subsistence to those, vyhoSlq Welfare he had-so mpcli at heart. The import pf the agreement, obviously is, that the fairdjy of Belknap, §hquld at all event#; receive support, even inf'the contingency of any of the, events, happening, which may make if'necessary to employ anq-; •¡.her agent. The payment of .the salary is to bp .entirely at the expense of the creditors; they are only entitled to the residue of the one third of the profits, after these necessary and indispensable expenses are paid. When we take into, view, that at th.o time of thé. assignment, Bdknap \yas insolvent," in' connection with thq fact, of the nu.rfiljér, ¡yid amoupt pf his debts, and that he, by the arrangeihent, secured to Kina self, I may say,' a, perpetual employment/ ‘together wRh,'a comfortable subsistences for himself -and thq. principal objects o'f his solicitude and care, even upon tije contingency of 'his sickness or death, we' cannot be ata loss to. discover the reason'of this extraordinary agreement. Extraordinary, I say, for without the pressure of these powerful and all prevailing motives, it is difficult to imagine, any satisfactory reason, which could induce Belknap 'la make "a contract, which is in every respect, so advantageous to’the assignees.' We cannot but suspect that the stipulations ini’ favor of the debtor wci/e the moving, cause, the s.i)\e qüa npn, of the contract. Witjhout these, to him’ indispensable;" stipulations, who can say that this contract would, ever havie been ■ made? Is not the probability altogether on the, [93] side of the plaintiffs in error, who maintain that these considerations, were the main springs of the assignment. If this arrangement be sustained, then, a powerful inducement will be afforded to such unjust, because unequal, preferences in future, introducing jn its train, as I verily b.elieve, a fruitful source of litigation and, fraud. The cases which have been cited would seem to cover the, whole ground, differing, merely, in the supcradded circumstance, that the debtor agree.s to giyehis services to the assignees asa, consideration for the benefit secured in the assignment. On this the defendant in error relies, but the agreement loses all itq plausibility, when we remember, that- the same compensation continues, although Belknap may. be unable from any of the causes enumerated in the assignment, to afford the services, for which these benefits are said to. fie the equivalent. It is another device, and ingenuity will furnish many such, if we yield to this', to elude, $he statute which prohibits coyin and-fraud. I shall not dwell on the argument, that Belknap constitutes himself his qjvn trustee, aq perhaps there maji be some doubt, whether this be the fair construction of the agppement. It may be entitled to some weight, that the compensation is left uncertain and undetermined,. The creditors might reasonably expect something, more definite, which •\vould serve as a guard against any- combination between the. trustees and the insolvent. If this assignment should be sustained, we have reason to fear that those creditors will fie preferred, who will give the most facilities to the debtor, and- when it is re, collected that friends are usualty selected, we oannot but, perceive, fiow much the interest of creditors are endangered. It is not uncharitable to suspect liberality exercised at the expense of others, But it is said that the jury haV.e negatived all idea of actual fraud; and this is true; but the answer readily suggests itself; that such arrangements are prohibited, because they are conceived to be against the policy of the law, wlyich discountenances all assignments containing, any such reservations, whether in the. shape of ¡employment or otherwise. These rules have, been adopted, and I am glad to say, have been strictly adhered to in Pennsylvania, to, prevent the temptation to fraud. However innocent the partícula? transaction may be (and I am bound to believe, that this was a case of that description, after the verdict of the jury) jmt it is dangerous in its consequences to society, and woydd furnish a precedent, a prolific parent of numberless attempts to elude the operations of the statute. In vain, will you attempt to set bounds io the enjoyment which an insolvent and fraudulent debtor may -derive, from the wreck of his fortune, if, after he is irretrievably ruined, he may effect an arrangement, which secures to himself a lucrative employment, attended, as it is here, with a comfortable provision for tho,se who are most dear to him, insured, against acc? [94] dent; and this so dexterously managed, as to be proof against any molestation either by execution against his property or his person. It is no answer, I say, that the jury may apply the corrective, where there is actual fraud. Those who are conversant with the proceedings of a court of justice know full well, ho\y difficult it is to prove fraud. We are all well aware how reluctant juries are, even where there is strong circumstantial proof, to infer the fraudu-, jent intent in the ease of an unfortunate, and in some respects, meritorious debtor. If the feelings and sympathies of juries can be enlisted on the side of misfortune, it presents an almost impassable barrier to a correct and proper decision. I would not wish to be understood to say that the policy pf the law forbids the pmploymgnt of the debtor; for this may not Qnly be an act of humanity, but in some cases, may be almost indispensable, to the proper management of the estate. I mean simply to object to its be¿.ng made a condition of the assignment, it should b„e left, as in ¿he case pf others, to tire sound discretion of the trustees, who will pf course be answerable to the creditors for any abuse of the tyust Jf this attempt should succeed, the creditors are without remedy! for as was justly observed in Johnson’s heirs v. Harvey, the or¿dinary consideration of an estate may be subjected to execution ¡specifically, or wrested from the debtor’s grasp by execution qf his body; but the reservation, of so much of the profits as was necessary fqr' fhe maintenance of Belknap, and his family, would be so inseparable from his person and the services he was to render, as that it could not be made liable in satisfaction in either of those ways, orpass by an assignment under the insolvent laws. And ¡this would be a sufficient answbr, if there were none other, to another point made by the defendant in error. That even if the assign* paent h§ fraudulent, it ayoids the deed only so far as to enable fhe creditor- to take into execution the fund specifically applied to ,the benefit of the debtor. But, although such a reservation in th.e absence of moral fraud, has, in some of the earlier cases, been supposed, not to affect the r.esidue of th.e property conveyed by the, assignment, yet later, and more wholesome decisions, have extended the principle still further, by rendering fraudulent and void the whole assignment, so as to prevent thp preferred creditor from availing himself of any advantage over other creditors. 1 Hop. 373, Marlin v. Cairns. Harris v. Summar, 5 Cowen, 547, 2 Pick. 120, and Passmore v. Eldridge, 12 Serg. & Rawle, 198. When the assignment is tainted with either moral or legal fraud, the property does not pass, but remains in the debtor, liable to the execution of those creditors who have not assented to the assignment. These positions I consider it necessary to uphold, as af-. fording the only check to the debtor’s power of assignment, which has already, in my judgment, been earried too far; for as was [95] justly remarked in Riggs v. Murray, if an insolvent debtor may make sweeping dispositions of his property, to select and favorite creditors, yet loaded with durable and beneficláí provisions for the benefit of himself, and incumbered with oneroüs and arbitrary conditions and penalties, it would be impossible for courts of justice to uphold credit, or to exact the punctual performance of Contracts. The opinion of the ciourt 'makes it unnecessary to Consider the Second point made by the plaintiff in' errdf. Judgment reversed*