Pettibone v. Stevens

Williams, Ch. J. The questions in this case arise upon the report of the committee, appointed on a bill of foreclosure, and were by them submitted for the opinion of the superior court, and by that court reserved for the advice of this court. — 24 — The plaintiff was one of the mortgagees in the first mort-gage, and also an assignee of personal property, for the benefit of himself and other creditors. The creditors in the second mortgage resist the claim of the plaintiff in three particulars only: 1. That Lawrence's debt ought not to be allowed ; 2. that the expenses incurred for an action of trespass for the goods assigned, ought not to be allowed; and 3. that the attaching creditors ought not to be allowed the costs incurred in those suits. 1. As to the debt of Lawrence. It appears, that on the day on which Stevens made the mortgage to the plaintiff and others, his preferred creditors, of his real estate, and the assignment of the goods in the shop, Lawrence made his note to Stevens, for the sum of 800 dollars, for the purpose of enabling Stevens to support himself and family, and to pay such of his foreign creditors as he should choose ; and at the same time, Stevens gave Lawrence a note for the same amount, which is one of the debts attempted to be secured. The question submitted, is, whether Lawrence can hold under these securities for the payment of this note. It is not claimed, that Lawrence has paid his note : but he has paid the sum of 200 dollars in part thereof. Is a debt thus created, a valid debt, as against other bona fide creditors ? In other words, can a debtor in failing circumstances, thus provide for himself the means of support, and withdraw so much of his property from the reach of his creditors ? Our law provides, that the property of a debtor, with certain exceptions, shall be liable to be taken for the payment of his debts; and every attempt to draw property from the creditor, with a view to prevent or hinder its being taken by attachment or execution, is, in effect, an attempt to defeat that law. If, therefore, a man sells his property, and converts it into money, the more easily to conceal it from his creditors, the person who purchases, knowing of this fact, cannot hold it; but the sale will be considered invalid. In the case before us, the debtor has sold no property ; but he has given Lawrence his note, in consideration of Lawrence’s having given him his ; and the claim is, that this note, thus given, should be paid from the goods assigned for its security. Other creditors having an interest in this property, contend, that this transaction is, as against them, fraudulent and void. And the court are of that opinion. — 25 — Here is a debtor in failing circumstances, reserving, in this way, a considerable fund, for his own support, or at least-subject to his own controul, while in appearance he is giving up his property for the payment of his just debts. In form, he is securing a debt to E. G. Lawrence ; in fact, he is appropriating so much property for his own use. If this was, by the terms of the agreement, to have been appropriated entirely to his support, it could hardly be denied, that it would have been invalid. But as it remains at the option of the debtor how much shall be applied to that object, and how much to his creditors, he must have the right to direct in what manner the apportionment shall be made, and he alone. Of course, it may all be appropriated for his own benefit. But had the object been, to leave this fund in the hands of the debtor, to appropriate it for distribution among creditors not named, we cannot think it could have been supported. It would be a secret trust for persons unknown, under the form of a debt to Lawrence. He would, in effect, be a trustee for Stevens, or certain unnamed creditors of Stevens. The mortgage would furnish no evidence of the real nature of the transaction; and such conveyances would become dangerous channels of fraud. If the intention was really such as was suggested, the means of carrying it into effect are such as the law cannot tolerate. No creditor is named; no amount is given; nothing, in short, to give any clew to the real transaction, or to limit the discretion of the trustee. If the real character of this transaction appeared upon the face of the instrument, it would appear that Lawrence was in fact holding so much of this property to await the order and disposition of Stevens, the debtor himself. Such a deed of assignment was holden void, in Massachusetts. Harris & al. v. Sumner, 2 Pick. 129. And it could not stand upon higher ground, because the transanction was more covert. Platt v. Brown, 16 Pick. 553. It has been decided in this court, that if an insolvent debtor makes an assignment for the benefit of his creditors, with a condition that it shall be void, as to those creditors who neg. lected to sign a discharge, such assignment is in law fraudulent. And one reason given, is, that if a creditor refuses to accept it, there is a trust resulting to the debtor. Ingraham — 26 — v. Wheeler, 6 Conn. Rep. 283. The same principle is reeog--nized in Massachusetts. Widgery & al. v. Haskell, 5 Mass, Rep. 144. 151. And in New-York. Hyslop & al. v. Clarke 6 al. 14 Johns. Rep. 458. Grover & al. v. Walternan, 11 Wend. 187. Here is clearly a trust for the assignor, and is, therefore, within the principle of those cases. It is objected that the committee do not find, that it was done fraudulently. But they find the facts, and submit to the court, for their opinion, what is the legal inference from them ; and the rule of law is, that when the facts are ascertained, fraud is a question of law from, those facts: it is the judgment of law on facts and intents. 9 Johns. Rep. 342. 7 Cowen 304. This principle must have been recognized in the cases cited above of Harris v. Sumner, and Ingraham v. Wheeler. This is not a question whether there was actual fraud, but whether the transaction is not one of the kind calculated to delay, hinder or defraud creditors; and we have no hesitation in saying, that “ if tolerated, it would become an inlet to fraud, and lead to all imaginable abuse.” But it is claimed, that the 200 dollars, which Lawrence has paid, should be allowed. The consequence of this would be, to encourage the party to go on, and perfect the work which we have pronounced fraudulent, and to compensate him for doing the act, which, we say, he never ought to have undertaken. No part of this claim can be allowed,. 2. As to the expenses incurred in the action of trespass. It is to be remarked, that the creditors in the second mortgage, who defend here, have nothing directly to do with the goods assigned. But as they have an interest in reducing the debts of the creditors named in the first mortgage, they are permitted to show what the debts are, and what ought to be deducted from them, as they, in this way, lessened the claim upon the real estate in which they are interested. They may show, that the property has been wasted, or not managed with good faith. In this case, they show, that the assignees have brought an action of trespass for the goods assigned, which were attached by creditors, and have failed to recover; and therefore, they say, they ought not to be allowed their costs and expenses. Pettibone, one of these assignees, had a fair and bona fide debt; and it is not claimed he knew of any fact in the assignment, which would tend to make it void, It — 27 — would seem, therefore, to be his duty to try the question, both for his own sake, and that of the other creditors in the assignment, for whom he acted ; and if his co-assignee is not equally faultless, this does not seem to be the mode of trying that question. If this suit was brought and prosecuted in good faith, for the creditors, we think that the attending expenses should be allowed, although the trustees have failed in the suit. It is said, however, that one ground of defence, by the attaching creditors, was, that the assignees left those goods in the possession of Stevens; in consequence of which, their action was defeated. All that appears before us, upon that point, is, that this was one of the grounds of defence. If proved, it would tend to show, that the assignees had not conducted bona fide. That fact, however, ought to appear: we cannot presume it, because it was claimed. 3. Another question is, whether the creditors named in the mortgage deeds, who have brought suits, are entitled to their taxed costs. It has always been holden, that a creditor having a mortgage, might pursue his several remedies, or elect one, at his pleasure ; and when he has pursued his remedy upon his note, the costs have been considered and allowed, as part of the mortgage debt; and we see no reason, in this case, for adopting a different rule. We have thus disposed of the questions submitted to us ; but we would not be understood as impliedly deciding any other question which might have been made upon this report. We have not thought it our duty to inquire, whether any other question fairly arose upon this record, than those expressly presented for our consideration. In this opinion the other Judges concurred. Decree accordingly.