Whedbee v. Stewart

Bartol, C. J., delivered the opinion of the Court. The attachment proceedings in this case were instituted by the appellants, under the Act of 1864, ch. 306. Their affidavit alleged “that they have good reason to believe that (their debtors,) Ahlsleger & Hopper, have assigned and disposed of their property, or some portion thereof, with the intention of defrauding their creditors.” The attachment was laid in the hands of the appellees, as garnishees, who appeared and pleaded. First.—“ Nulla Bona.” Second.—They denied the fraud, and the intent to defraud, alleged by the plaintiffs to have been committed against the creditors generally of said Ahlsleger & Hopper. Third.—They denied the fraud, and intent to defraud, in regard to the alleged debt of the plaintiffs. On these pleas, issues were joined, and the case was tried by consent, before the Court without a jury. There was no dispute as to the validity and amount of the debt due the appellants by Ahlsleger & Hopper. The only evidence offered was the deed of trust from Ahlsleger & Hopper to the appellees, and the admission of counsel that the garnishees have now in their hands, from the proceeds of property mentioned in the deed of trust, a sum of money more than sufficient to pay the plaintiffs’ claim and costs. The appellants offered a prayer to tbe effect that the deed was fraudulent upon its face. The garnishees offered a prayer, that “there was no evidence that the defendants intended to defraud their creditors, within the meaning of the Act of 1864, ch. 306, in mating the deed; and that therefore the finding of the — 421 — Court must he for the garnishees.” This last prayer was granted, and verdict and judgment were rendered in favor of the garnishees. The deed recites that the grantors are unahle to pay their creditors in full, gives what purports to he a list of all their creditors, and conveys to .the trustees all their property and estate of every kind belonging to them individually and to the firm: in trust for the benefit of their creditors, who shall, within a period of sixty days from the date of the, deed, accept the benefit of the instrument, and release the grantors from their claims and, demands. The deed makes no disposition of the surplus that may remain in the hands of the trustees, after paying the creditors who may execute releases within the time prescribed ; such surplus is not appropriated to the creditors; but results by implication to the grantors. That such a deed is fraudulent against creditors under the 13th of Elizabeth is no longer an open question in this Court. In Sangston vs. Gaither, 3 Md., 48, 52, where the deed provided in express terms, that the balance after paying the releasing creditors, should he paid to the grantors, the instrument was held to be fraudulent in law and void. In Malcolm vs. Hodges, 8 Md., 418, 426, 427, it was decided “that an implied reservation of the surplus to the grantor, after paying the releasing or preferred creditors, avoids the deed equally with an express reservation, and the Court cannot look outside of the deed to ascertain whether there will he a surplus or not.” This ruling was affirmed in Bridges vs. Hindes, 16 Md., 101, 104. It is contended on the part of the appellees that deeds of trust, like the one under consideration, are made valid by the provisions of the Code, Art. 48, sec. 13, which provides that “Eo deed or conveyance to a trustee for the benefit of creditors generally, shall he deemed fraudulent, or a fraudulent or undue preference, because of a condition requiring the creditors to release the debtor, and depriving — 422 — any creditor who refuses to release, of all benefit from property so conveyed in trust, hut all such d.eeds of trust are hereby declared to he valid, and shall not be set aside either at the suit of a trustee under this Article, or at the suit of any creditor.” This section is identical with the 13th section of the Act of 1854, ch. 193, which was in force at the time when the deed was executed, that came before the Court in Bridges vs. Hindes, 16 Md., 101, and yet the Court held the deed to he fraudulent and void upon the authority of Sangston vs. Gaither, 3 Md., and Malcolm vs. Hodges, 8 Md. The Act of 1854, though not mentioned in the report, either in the arguments of counsel or in the Court’s opinion, was not overlooked. But was construed merely as embodying in the written law what had been decided by the Court of Appeals in Green and Trammell vs. Trieber, 3 Md., 11, namely, that deeds of trust made bona fide for the benefit of all the creditors generally, if otherwise free from objection, should not he declared invalid by reason of their containing a provision requiring releases from creditors to entitle them to preference. Upon the effect of such clauses in deeds of trust, there had been much conflict in the decisions, as will he seen by reference to Albert vs. Winn and Ross, 7 Gill, 447 ; Kettlewell vs. Stewart, 8 Gill, 472 ; Green and Trammell vs. Trieber, 3 Md., 11; Sangston vs. Gaither, 3 Md., 40. The Act of 1854, ch. 193, sec. 13, and the Code, Art. 48, sec. 13, which are in the same words, do no more than give the legislative sanction to such a deed as had been declared void in 7 Gill, 447, and decided to he valid in 8 Gill, 472, which contained a clause providing for a release, as a condition precedent, to entitle the creditors to the benefit of the preference thereby secured. Article 9 of the Code constitutes the insolvent system, its several parts must he construed-together. The seventh section declares that any conveyance made by an insolvent, for the purpose of giving — 423 — an undue preference, shall be void. This is qualified, and its meaning defined by the 13th section, which allows an insolvent to prefer such creditors as may release, and declares that such is not an undue preference, within the meaning- of the seventh section. The 13th section refers in terms, to deeds of trust “for the benefit of creditors generally,” that is to such deeds as indicate the debtor’s property to all his creditors, and cannot be construed to sanction a deed like the one now before us ; which is not for the benefit of creditors generally, but only for the benefit of such creditors as may release, and which secures the surplus (after they are paid) to the use of the grantors. It is immaterial whether this be accomplished by express words, or results from the legal operation of the deed. That this deed is, on its face, fraudulent and void against creditors under the Statute of Elizabeth, is, as we have before said, no longer an open question in Maryland. Is it fraudulent, within the meaning of the Act of 1864, ch. 306, so as to entitle the appellants to proceed by attachment under that Act ? The argument on the part of the appellees is that “the Act contemplates an actual clandestine fraud, and not a constructive technical fraud.” That is, as we understand the proposition, in order to entitle the creditor to the remedy by attachment, under the Act of 1864, it is not sufficient for him to prove that the-debtor has assigned his property by a deed which is condemned by the statute as on its face fraudulent and void against creditors ; but he must show by proof aliunde that there existed in the mind of the grantors a fraudulent or dishonest purpose, and that the deed was in fact executed with that design. We find nothing in the words of the Act to justify this construction. They are very similar to those employed in 13th Elizabeth, which declare to be void, deeds, &c., made with intent to hinder, delay, or defraud creditors ; and have always been construed to render void all deeds, Ac., which — 424 — by their terms have that operation and effect, without reference to what may have been the real purpose in the mind of the grantors, or any inquiry outside of the deeds to ascertain the real intent of the parties. Where a conveyance, by its terms, operates to hinder, delay or defraud creditors, the intent to do so is imputed to the parties. We see no good reason why a similar rule of construction should not apply to the Act of 1864, ch. 306, which gives to creditors the remedy by attachment against a debtor who has assigned or disposed of his property “with the intention of defrauding his creditors.” In this case, as we have seen, the deed of trust is condemned by the law as fraudulent upon its face; it therefore comes within the prohibition of the Act of 1864. The fraudulent character of the instrument is a presumption of law, not depending upon extrinsic evidence. Inloes vs. Am. Ex. Bank, 11 Md., 173. The counsel for the appellees, who certainly argued this case with great ability, has, as it seems to us, confounded intent with motive. In dealing with this subject, the law does not regard the motive of a party, unless it be evidenced by some illegal act. Thus in Horwitz vs. Ellinger, 31 Md., 492, 504, where the debtor had made a general assignment for the benefit of all creditors, and it was sought to maintain an attachment under the Act of 1864, by evidence that the grantor had made the deed with a dishonest motive, this Court said: “We are dealing with the act of the parties, and if that be such as the law authorizes and approves, the secret motives that prompted it are wholly immaterial. ’ ’ So, on the other hand, the correlative proposition is equally true. If the act is one which the law condemns; if the deed, by its legal operation and effect, hinders, delays and defrauds creditors, the intent to do so is imputed to the parties. As was said in Gardner vs. Lewis, 7 Gill, 379 : “When any transaction necessarily produces the effect which a statute declares fraudulent as against creditors, the Court may pronounce such act fraudulent. Whatever is — 425 — the necessary consequence of an act deliberately done, that the law presumes every man to intend.” (Decided 23rd June, 1874.) In holding that the deed of trust, in this case, is fraudulent under the Statute of Elizabeth, and within the meaning of the Act of 1864 ; we are not to be understood as imputing turpitude to the grantors. The statutes, as we have said, do not deal with the secret motives of parties; but regard only the practical operation and effect of the instrument. Being of opinion that there was error in refusing the prayer of the appellants, and in granting that of the appellees, the judgment will be reversed, and the cause will be remanded, to the end that judgment may be entered in favor of the appellants. Judgment reversed, and cause remanded. Robinson, J., dissented.