Richards v. Hazzard

Crenshaw, J. :In this case it appears that Daniel Stowe made .an. assignment of all his lands in Alabama, and of all his personal estate, to James T. Franklin, in trust, to pay certain preferred creditors in the first instance, and then the residue, if any, to pay his other creditors generally, reserving to himself the right of receiving from the trustee, during the' ■continuance of the trust, a sum not exceeding two thousand dollars por annum, for the support of himself and family. Some time after the making of the deed of trust, John B. Hazzard, cashier of the Tomhecbee Bank, levied an attachment on the estate of Stowe, and summoned Wm. S. Richards as garnishee. On the return of the attachment, Richards admitted that he was indebted to Stowe, but further stated in his answer, that before service of the garnishment he had received notice of the assignment, and that Hazzard, the plaintiff, was a creditor not provided for in the deed of trust, and that there were other creditors for whom no provisions'had been made; and concluded his answer by praying judgment on the validity of ■the deed of trust. / By consent of parties, and pro forma, the Court decided that the deed was void in law, a,nd gave judgment against Richards the garnishee. The correctness of this judgment is now called in question. — 150 — In the argument of the case, three propositions, were taken and mainly relied on, in behalf of the-plaintiff in error. 1. That fraud consisted in intention, and could not be inferred from the face of the deed without the intervention of a jury. 2. That the deed was not void, there being no-fraud in law, or in fact. 3. That if void as to the reservation, it was good as to the balance. As to the first proposition, whether the question of fraud is to be determined by the judge or by the jury, depends entirely upon the state of the pleadings. If an issue in fact involving the question of fraud were joined to the country, it would according to the established practice be determined by a jury; but even on the trial of an issue in fact, it is the peculiar province of the judge to interpret and expound to the jury the legal effect of any instrument of writing offered in evidence. If the instrument offered be impeached for fraud, or if from its face it was apparently against the provisions of the statute of frauds, it would be the duty .of the Court to inform the jury whether the marks and badges of fraud apparent on the face of the instrument, were, or were not-of themselves sufficient to avoid the deed. But where an issue in law is joined, and the validity of a deed or other contract, is drawn in question by the state of pleadings-for fraud or other cause, it is surely the province of the Court to declare the law arising on the facts presented by the pleadings, and if the deed on its face is obviously against the sense and spirit of the statute of frauds, or is void at Common Lawr; or if the conclusion of fraud natural — 151 — ly flows from the facts of the case, the Court is clearly competent, and is bound to pronounce the deed fraudulent and void. And even admitting, that intention is of the essence of fraud, when the question is involved in an issue of law, the Court is competent and may infer the fraudulent intent, either from the face of the contract or from the facts of the case, if the marks of fraud be distinct and clear. In the case of a demurrer to evidence, to the pleading, or to the declaration, or in a case agreed, I know of no other legal rule by which the Court could be governed, and any other course which the Court might pursue, would be unlawful and erroneous. The case before us is in the nature of a case stated or agreed, and it is our duty to pronounce the law arising on the facts contained in the answer of the garnishee. The parties have made no issue in fact for a jury to try, but have submitted the law of the case to the judgment of the Court. Had the answer of the garnishee, or any material fact, been controverted on oath, the Court would then have ordered an issue in fact, to be tried by a jury. As to the first proposition, that fraud consists in intention, and should in all cases be tried by a jury, I would be content to stop here with what I have already said; but it is due to the talent and character of the counsel, that I give some attention to the principal authorities by them commented on, in the argument, before I leaye this branch of the subject. Of the adjudications of this Court which were cited, the first in order was that of Gayle, et al. vs. Singleton. In that case the only principle settled, and which can have any bearing on the question in debate, — 152 — was, “ that where properly is sold by an administra-trix, subject to a mortgage, and bought by herself at an inadequate price, and which mortgage is after-wards determined to have lost its lien in equity, the sale will be set aside.” This principle lias no direct application to the question before us. In my opinion it establishes nothing in favor or against the proposition attempted to be maintained. The next is, the case of Toulmin vs. Buckanan's ex’rs. The opinion pronounced in. that case, so far from recognising the maxim. “ that no contract or instrument of writing, is in law fraudulent and void per sc,” does in express words declare that fraud may be legally inferred from the face of the instrument, without proof aliunde of a fraudulent intent, It is there said, “ that if a man in debt, equal to the value of his estate, malte a gift of the whole of his property, the gift, in law, would be fraudulent and void, per sc, as against creditors.” The opinion fully recognizes the distinction between a fraud arising from the face of the instrument, and a fraud made out by proof aliunde, or in the language of some eminent J udges, the distinction between a fraud in law, and a fraud in fact. The case of Brannon vs. Oliver, is to the same effect. The principle decided in that case was, “ that a purchase made by an administratrix at her own sale, was not voidyer 56, but was prima facie valid, if no unfairness appear.” The entire opinion is predicated on the implied admission, that instances of fraud in law, are numerous, and intimates a determination, not to enlarge, but to restrict them within the bounds of reason and just ico. In the ease of Hobbs vs. Bibb, the question grow — 153 — ing out of the case presented, was whether possession of property remaining with the vendor after the sale did of itself render the sale void in law ? The Court decided that it was not fraudulent and void of itself, because the fact of possession might be ex--plained by testimony, and the presumption of fraud arising from that circumstance might be repelled, but that it was a badge which in the absence of proof would be presumptive of a fraud. 1 admit that in the opinion pronounced, there is a strong leaning against the distinction between a fraud in law and a fraud in fact; yet it will be Remembered that the opinion contains the reasoning of the judge who pronounced it, and not of the Court; that though the Court may concur in the result of the opinion, it is not to be understood that they adopt all the reasoning and dicta of the judge who gave the opinion : they adopt so much only as necessarily leads to the result. To a decision of that case, it was not neces-ry to doslroj'' the distinction, or to enquire whether there was any distinction, 'between a fraud in fact and a fraud in law. The question to be decided was whether possession remaining with the vendor, was-a fraud per se. Entertaining much respect for the opinion of the Chief Justice, and acknowledging that I was once inclined to the same opinion, in this particular I must now differ. In the cases of Murray vs. Riggs, and Austin vs. Bell, reported in the 15th and 20th of Johnson, and so much relied on by the plaintiff in error, the principle of a legal fraud, or fraud per se, to be inferred-from the face of the instrument, is emphatically and fully recognised. — 154 — In one of the cases, Thompson, Chief Justice, expressly says, “Whenever the fraud,' if it exists at all, ■is to be collected from the deeds themselves, it then becomes a question of fraud in law.’-“that no moral turpitude is attached to this species of fraud; or, if any, it is in a much less degree than where actual fraud, or fraud in fact, is imputable to the transaction.” In the other case, Chief Justice Spencer says,— “ That a deed which does not fairly devote the property of a person overwhelmed in debt, to the payment of his creditors, but réserves. a portion of it to himself, unless the creditors assent to such terms as he shall prescribe, is in law fraudulent and void.” The case of Leonard vs. Jackson & Cowan, does not maintain a contrary doctrine. But on this branch of the subject, I deem it unnecessary to pursue the authorities any further, being fully convinced that the distinction between fraud in law and in fact is well sustained by reason and authority. The remaining inquiry is, whether from the facts presented by the pleadings, and contained in the answer of the garnishee, we are warranted in declaring the deed of trust to be fraudulent and void. The consideration of this question will necessarily embrace together the second and third propositions, and which is truly an important inquiry, at least to the parties interested in the event; and as a precedent, in some degree settling the law, it may be important to the rights of many. If we have bestowed upon the subject much labor and reflection, we have done no more than the duties of our station required of us. The subject was worthy of the most profound consideration. — 155 — That a debtor in failing circumstances, may by assignment of his estate in trust, and made in good faith, prefer one creditor to. another, is too well settled to be now disputed. And that he may, with the assent of his creditors, reserve a portion of his property to himself, is a proposition equally plain. But whether he can make such a reservation at the expense of his creditors, and without their consent, is quite a-different matter. In the 2d of Kent's Com. 422, the Chancellor says, “ that the debtor in such an assignment cannot make a reservation at the expense of his creditors, of any part of his property or income for his own benefit, and that modern authorities have given to such reservation the decided effect of rendering fraudulent and void the whole assignment. And no favored creditor or grantee can be permitted to avail himself of any advantage over other creditors under an assignment, which by means of such a reservation, is fraudulent on its face; and that if an insolvent debt- or may make sweeping dispositions of his property to select and favorite creditors, yet loaded with durable and beneficial provisions for the debtor himself, and encumbered with onerous and arbitrary conditions, it would be impossible for Courts of Justice to uphold credit, or exact the punctual performance of contracts.” The case of Murray vs. Riggs, reported in 15 Johnson 571, was in some respects denied to be law, by the decision in the case of Austin vs. Bell, reported in the 20th of Johnson 442; and in the case of McKie vs. Cairns, reported in the 5th of Cowen 548, the doctrine is now settled in accordance with the views of Chancellor Kent. — 156 — In that case it was decided, “that an insolvent debtor might prefer some creditors to others, but could make no assignment of any part of his property in trust for himself, and that such assignment was void not only in part but in toto, both in law and equity, as being a fraud on creditors, and against the provisions of a positive statute. The weight of modern authorities is clearly on the side of Chancellor Kent. They have been all examined and considered, and to my rnind, none of them are sufficient to impeach the law as laid down by the Chancellor and settled by the decision in 5th Cowen. This law is not only sustained by authority, but has reason and justice for'its foundation. It cannot comport with reason and. justice, that a man, in failing circumstances and overwhelmed with debt, should be permitted to make large reservations of his property, to himself thereby diminishing the fund for the payment of his debts, without the consent of his creditors. Such reservation must render the whole assignment fraudulent and void, as against the best policy of the law, and against the statute of frauds, being obviously made with intent to delay, hinder or defraud creditors of their just and legal actions. To bring the case at bar, to the test of these rules and principles of law, it is fairly deducible from the answer of Richards, the garnishee, that Stowe the debtor “was insolvent, because the assignment was of his whole estate, at least within the jurisdiction of this Court, and such occurrences seldom happen except in cases of men in failing or insolvent circumstances. The schedule annexed to the deed of trust, shews — 157 — that he' was overwhelmed with debt, yet he has made, a reservation of two thousand dollars per annum for his own benefit during the continuance of the trust, and which may continue for an indefinite period of time. It does not appear that the postponed creditors will ever receive a cent of the debtor’s property, and Richards in his answer expressly states that Haz-zard and other creditors were not provided for. There is no evidence that any of the creditors ex? cept the trustee, has accepted the terms of the assignment, and Hazzardhas expressed his dissent by instituting his action at law. From the whole face of the deed, the intent to hinder and delay creditors is manifest. We are all of. opinion that this is evidently the case of a man overwhelmed with debt and in failing or insolvent circumstances, making an attempt to place his property out of the pale of the law and beyond the reach of his creditors. That by reason of the reservation contained in the deed, it must be considered fraudulent and void as against the sound policy of law, and against the statute of frauds, being obviously made with intent to delay, hinder or defraud creditors of their just and legal actions. We are unanimous in affirming the judgment of-the Circuit.Court. Lipscomb, C. I. and Saffold, J. and Collier, J. not sitting.