Gregory, Tilton & Co. v. Harrington

Pierpoint, J. The only question presented for our consideration is, as to the validity of the sale of the store and goods, by the principal debtor, to the trustee, and for which the notes were given, that were subsequently transferred to the claimants. The case shows that the notes were regularly transferred to the claimants for valuable consideration, and without any knowledge on their part, at the time of receiving them, of any of the facts, that are now urged as tending to impeach the transaction as to the creditors of the principal debtor ; hence, whatever conclusion we may arrive at, as to the character of that transaction, as between the original parties to it, and such creditors, the right of the claimants to hold, and enforce the notes against the trustee, is [244] unquestionable; indeed the plaintiffs do not claim to hold the trustee by reason of these notes, but on the ground that the sale and transfer of the property was fraudulent as to the creditors : so that although the sale may be binding between the parties to it, and the trustee holden to pay the notes, still, it being fraudulent as to the creditors, they have the right to charge him as trustee, the same as though he had the property in his hands without auy agreement to purchase ; and this claim is undoubtedly well founded if the transaction was in fact a fraud upon the creditors. Was the transaction fraudulent? The commissioner has reported the facts as they transpired between the principal debtor and the trustee, together with the intent, object and purpose, in pursuance of which they acted in making the sale, and the use to which the principal debtor put the avails, and concludes with the statement, that he believed that the sale was coverable and that thereby the defendant designed to put his property beyond the reach of his creditors generally, so that he could turn it out to particular ones as he saw fit. The commissioner has also found that he did turn out the avails to pay debts, and to secure those who had signed with him, and who were holden for him as surety. Some of the language made use of by the commissioner would seem to convey the idea that he thought the transaction was fraudulent, but when the whole is taken together, and in connection with the fact that he adjudged the trustee not liable, it is apparent he entertained no such idea. All that the commissioner can fairly be said to mean, is, that it was the intention of the principal debtor to prefer some of his creditors to others, and that he did so, and he finds that all of the avails of his property so sold, were applied in payment of, and to secure honest, bona fide debts. Can such a transaction be fraudulent as to the other creditors ? We think it clear that it cannot. The doctrine has ever been recognized in this State, that a debtor may pay or secure one creditor, to the exclusion of another. Under any other rule it would be unsafe for a debtor to pay one debt unless he was able to pay all, or for a creditor to take his pay until he had first ascertained that his debtor was able to pay [245] all his other creditors, as to do so might subject him to the penalty imposed by the statute. In this case, if the principal debtor had transferred the property itself to the same persons to whom he transferred the notes he took for it, and for the same purpose, no person would claim that he had not a perfect legal right to do so ; or if he had sold the property and taken the money for it, and had applied the money in the same manner, it would not have been fraudulent. The purpose was not to keep his property away from his creditors, but to pay it to his creditors, he exercising his legal right to prefer such as he chose. Fraud does not consist in transferring property with a view to prefer one creditor to another, but in transferring property with the intent to prefer one’s self to all his creditors. The statutes regulating assignments have no application to a case like the present; there was no' attempt to make an assignment for any purpose; it was a simple sale of the property, and a transfer of the proceeds to his creditors. This, we have already seen, he had a legal right to do. We find, therefore, no error in the judgment of the County Court discharging the trustee, and declaring the claimants entitled to hold the notes. Judgment affirmed.