Rochester v. Sullivan

BARNES, J. This was a suit to set aside a conveyance made by the appellees of the property described in the conveyance, on the ground that it was executed to hinder delay, and defraud creditors, in violation of section 20 of chapter 36 of the Compiled Laws of the territory of Arizona. The appellees, it appears, were indebted to L. Zeckendorf & Co. in the sum of about $1,500, and to the appellant in the sum of $960, and to two other creditors to the amount of about $800. The deed conveys to Albert Steinfield, of the firm of L. Zeckendorf & Co., in trust to secure the payment of the said indebtedness. It provides that six months from its date sufficient of the property is to be sold at public sale to pay one-half of the indebtedness, and, at the expiration of one year, the remainder is to be sold, and the proceeds to be paid on the remainder of the indebtedness. The grantors were to retain possession of the property until sales were made. The deed was executed on the first day of July, 1885, and on the seventh day of September, 1885, appellant obtained judgment against appellees for the amount of their debt. Execution was issued and retained nulla bona. Appellant then commenced this suit to set aside the deed of assignment, on the ground that it was made with the intent to hinder, delay and defraud creditors. No evidence was introduced outside of the deed, and it is not claimed that there was any fraud in fact in the execution of the deed; but it is insisted that [79] the deed upon its face, as a matter of law, is fraudulent and void. Section 20 of chapter 36 of the Compiled Laws of Arizona is similar to statutes which have been enacted in nearly all the states, and is an enactment of the statute 13 Eliz. c. 5, commonly known as the “Statute of Elizabeth.” Probably there is no legislation which has been engrafted onto the common law of England which has been more discussed by the bar, and considered by the courts, and written about by the commentators of the law. Prior to that statute the owner had absolute dominion over his own property, to do with it according to his own good will and pleasure; and, within the limits prescribed by law, might make any disposition of it. He might sell it or give it away; he might contract debts to be satisfied out of it; confess judgments and create liens upon, it. Bump. Fraud. Conv. 13. This act of 13 Eliz. is a limitation upon that right, and the owner may not sell and convey his property if in so doing he have the express or implied intent to hinder, delay or defraud his creditors. Where it is charged that a conveyance is of this character, the onus is upon the creditor who assails the assignment to show that it is in plain violation of the law. Townsend v. Stearns, 32 N. Y. 209; Kruse v. Pringle, 8 Or. 158. The same fair and reasonable rules of construction must be applied to such conveyances as are adopted in ascertaining the meaning of other instruments. Whipple v. Pope, 33 Ill. 334; Bump. Fraud. Conv. 365. This statute was carefully construed in Meux v. Howell, 4 East, 1, 13. In the court of the king’s bench Lord Ellenborough there held that “while every assignment of a man’s property, however good and honest the consideration, must diminish the fund out of which satisfaction is to be made to his creditors, yet that assignment must be devised of malice, fraud or the like to bring it within the statute.” In the case of Pickstock v. Lyster, 3 Maule & S. 371, it was held that “the actual intent to defeat the particular creditor of his execution was not considered of itself sufficient to defeat the statute, the assignment being for the benefit of all the creditors.” The supreme court of the United States in Reed v. McIntyre, 98 U. S. 507, quotes this ease with approbation, and lays down the doctrine that [80] where the provisions of the assignment are consistent with an honest purpose to deal honestly and fairly with the creditors, the assignment reserving for the benefit of the debtor or his family no interest in the property, and imposing no improper restrictions upon its speedy sale and satisfaction of the debts, the consequent temporary delay in the prosecution by particular creditors of their claims by .the ordinary legal remedies was regarded as a necessary and unavoidable incident of a discharge, by a debtor of his duty to creditors. In Pickstock v. Lyster, 3 Maule & S 371. Lord Ellenborough held that the deed was not fraudulent, but was for the fair purpose of equal distribution, and Bagley, J., said: “It seems to me that this conveyance, so far from being fraudulent, was the most honest act the party could do.” To the like effect are the authorities generally, as will be seen from an examination of the adjudicated cases cited in Burrill, Assign, § 319, and 1 Amer. Lead. Cas. 71, and Reed v. McIntyre, 98 U. S. 507. The same doctrine has been decided in New York, Wilder v. Winne, 6 Cow. 284; Wilder v. Fondey, 4 Wend. 100; in Louisiana, United States v. United States Bank, 8 Rob. (La.) 262; in Mississippi, Farmers’ Bank v. Douglass, 11 Smedes & M. 469; in North Carolina, Hafner v. Irwin, 23 N. C., (1 Ired.) 490,—in that ease a portion of the creditors were excluded from the benefits of the assignment, and yet the court held that it did not fall under the operation of the statute; in Virginia, in Dance v. Seaman, 11 Grat. 778; and in Florida, Cotton v. County Commissioners, 6 Fla. 610; in Michigan, Hollister v. Loud, 2 Mich. 316; in Indiana, Church v. Drummond, 7 Ind. 17; in Illinois, Gardner v. Commercial Bank, 95 Ill. 298; in Ohio, Hoffman v. Mackall, 5 Ohio St. 124, 64 Am. Dec. 635. The doctrine that a man in failing circumstances, unable to pay his debts, may assign his property for the benefit of all of his creditors, provided he did so in good faith, has become too well established to now be questioned. If, however, a fraudulent intent be proved, or if the terms of the assignment itself show that a fraud has actually been committed, the assignment is in violation of the statute and void. It is claimed that this conveyance is fraudulent for the reason that it leaves the possession of the property from the [81] time of the assignment to the time of the sale provided for, in the grantors. This would of itself be fraudulent if personal property were assigned in the conveyance. The rule, however, is different with reference to real estate. Burrill, Assign. §§ 276, 277 and notes and eases cited; Bump. Fraud. Conv. 121, 122 and eases cited. “To hold that the possession of real estate by the vendor is per se presumptive evidence of fraud would be in effect to abolish the distinction known and acknowledged between personal and real property, and to lose sight of the different methods of conveying the title to the two kinds of property.” It is contended, further, that the deed is fraudulent on account of an unreasonable delay of the time of the sale. The deed provides that after sis months enough of the property shall be sold to pay one-half of the indebtedness, and at the end of' twelve months the balance shall be sold. It is the law that the postponement to an unreasonable time of the time of sale will avoid the assignment. If the period be reasonable, however, such a stipulation will be valid. There has been much discussion as to what constituted unreasonable delay to avoid the assignment. The authorities will be found in Burrill, Assign. §§ 214, 215 and eases cited: The overwhelming weight of authority has agreed that less than one year is not unreasonable. While cases may be found holding that a longer term than one year does not invalidate the assignment, yet those cases are based upon peculiar circumstances, and are against the great weight of authority. See Bump. Fraud. Conv. 412 and eases cited. The assignment before us places the property in the hands of a trustee, to be devoted, so far as this evidence shows, to the payment of all the debts of the grantors, with no evidence of fraud in fact. The court must assume that this conveyance was made in good faith, for the benefit and for the protection of the creditors, rather than for their injury, and the court cannot say that this conveyance is fraudulent as a matter of law. The judgment of the court below is affirmed. Porter, J., concurs.