Gary, Hudson & Co. v. G. Jacobson

Chalmers, J., delivered the opinion of the court. The instrument sued on was executed in part payment of a ¡stock of goods sold by one Carter to the defendant, Jacobson. It was by Carter transferred to plaintiffs. Some proof having been made tending to show that the sale by Carter to Jacobson was made with the connivance of Jacobson, with intent to hinder, delay, and defraud the creditors of Carter, and that ■plaintiffs knew, or had cause to suspect, this at and before the "time when they received the- paper, the court below instructed ■the jury that if they believed that the sale was made with ¡such intent, and that plaintiffs knew, or had reason to believe, it before the paper was assigned to them, no recovery could be had upon it. Is this a correct enunciation of the law? Can the purchaser of property which has been sold to defeat the •creditors of the seller resist payment of the price, on the .ground of the illegality of the transaction, where he is in the undisturbed possession of the property sold ? The question is -of first impression here, but has been much discussed elsewhere. It is answered in the affirmative by the courts of last Tesort in New York, Kentucky, Alabama, South Carolina, North Carolina, and New Jersey, and this view is adopted in Bump on Fraudulent Conveyances. Nellis v. Clarke, 4 Hill, 424; s. c., 20 Wend. 24; Norris v. Norris, 9 Dana, 317; Walton v. Bonham, 24 Ala. 513; Hurvin v. Weeks, 11 Rich. 601; Powell v. Inman, 8 Jones, 436; Church v. Muir, 33 N. J. 318. It is admitted by these authorities that the statutes of 13th ■and 27th Elizabeth, as well as the American statutes of frauds and perjuries, declare conveyances in fraud of creditors void •only as against creditors of the grantor, but they contend that the implied validity of them, thus recognized, or rather not negatived, as between the parties, applies only to executed, [206] and not to executory, contracts. They insist that behind these statutes stands the common law, which ever placed the stamp of illegality and invalidity upon such dealings. They assert that by the common law such contracts were void as to everybody, and that the only effect of the statutes was to declare that, as to executed conveyances, they should be good between the parties, leaving them void so far as they were executory, both as to creditors and as to the parties themselves. Hence, whether the parties to such conveyances call upon them to render an executed, orto enforce an executory, contract, these courts apply alike to either demand the maxims ex turpi causa nulla actio oritur, and in pari delicto potior est conditio defendentis. They permit either party to set up the fraud, and when it has been established, they deny to either any relief. We are unable to concur in this view. It is by no means certain that, by the common law, conveyances in fraud of creditors were held void between the parties, and that it was only by virtue of the statutes that their invalidity was limited to the creditors of the grantor. Though it seems to have been so regarded in Twynes’ Case, and in Upton v. Bassett, Cro. Eliz., 445, it was denied by Lord Mansfield (Cowp. 434), by Chief Justice Marshall (1 Cranch, 316), and by Chancellor Kent (9 Johns. 339). These eminent jurists were of opinion that the English statutes of frauds were simply declaratory of the common law. Dating back, as the earliest of these statutes do, to 3 Henry VII. and 50 Edward III., before which periods there are few reported cases, the point is necessarily involved in much obscurity. It is not perceived how a settlement of it is material to the question at issue. Whatever view the common law may have taken of covinous conveyances, the statute law of England for more than 300 years, and of America since the origin of our jurisprudence, has declared that they shall be deemed void only against those whom they are calculated to injure, to wit, the creditors of the grantor. That this applies both to executed and executory contracts [207] seems apparent from the language of the statutes. Not only are “ gifts, grants, and conveyances of lands, or of goods and. chattels,” which are executed contracts, embraced both by the English and American statutes, but also “ bonds, suits, judgments, and executions,” which are things executory in their nature. Code 1871, sec. 2893. As to all of these, it is declared that, when entered into for the purpose of defrauding creditors, they shall be void “ only as against the person or persons, his, her, or their heirs, successors, administrators, or assigns, and every of them, whose debts, suits, demands, estates, or interests, by such guileful and covinous devices and practices aforesaid, shall or might be in anywise disturbed, hindered, delayed, or defrauded.” What sound principle demands that the fraudulent vendee shall be allowed to remain in possession of the property conveyed, and refuse to pay the price agreed on ? The transaction is harmful only to the creditors of the vendor. If they do not complain — if they acquiesce — why should he be permitted to escape payment of his ill-gotten gains? There is a-manifest distinction between conveyances in fraud of creditors,, and offenses against the penal law. By one the body politic, the sovereign commonwealth, is wronged; by the other, those only who have an interest in undoing the fraud, and this number is limited in our state to pre-existing creditors. As to them the transaction is void, or rather, voidable at their election. As to all others it is valid and obligatory. Even where’parties have been mutually engaged in dealings clearly illegal and prohibited by law, but which have ceased, it has been twice held in this court, after full argument and careful review of the authorities, that the one who had reaped the profits might be compelled to a settlement by his co-participant. Gilliam v. Brown, 43 Miss. 641; Walker v. Jeffress, 45 Miss. 160. The views announced above are sustained in well-considered-opinions by the courts of Maine, Vermont, Massachusetts, Pennsylvania, Missouri, and Indiana. The reasoning of these= [208] decisions seems to us conclusive, both upon principle and precedent. Dyer v. Homer, 22 Pick. 253; Carpenter v. McClure, 39 Vt. 9: Telford v. Adams, 6 Watts, 429; Harvey v. Varner, 98 Mass. 118; Nichols v. Patten, 18 Me. 231; Moore v. Thompson, 6 Mo. 353; Findley v. Cooley, 1 Blackf. 262; Springer v. Drosh, 32 Ind. 486. The fifth instruction given for defendant in the court below ■was not in accordance with these views, and was, hence, •erroneous. Upon the facts in controversy the testimony was .so conflicting, and apparently so equally balanced, that the erroneous charge must produce a reversal.