Craft v. Bloom

Chalmers, C. J., delivered the opinion of the court. The court below properly held that the deed of assignment in this case was not fraudulent upon its face; and the jury properly found, as we think, that it was shown by the testimony to have in fact been executed by the grantor with intent to defraud his creditors. It is urged however by the appellant that the verdict and judgment must be reversed because of erroneous rulings of the court in giving and refusing instructions to the jury. Thus it is said that the court erred in charging the jury that if they believed that the assignment was made with fraudulent intent on the part of the assignor, the assignee obtained no title, though he himself was ignorant of such intent; and refused a charge asked by the assignee to the effect that he was to be deemed a purchaser for value and therefore acquired a good title by virtue of his own good faith, even though the instrument was made with fraudulent intent on the part of the grantor. Whatever contrariety of opinion may elsewhere exist as to the merits of these conflicting propositions, nothing is better settled in this State, than that he who merely receives a security for a pre-existing debt without the advance of any new consideration, is to be regarded and treated as a volunteer, and not as a purchaser for value. Surget v. Boyd, 57 Miss. 485. All the debts secured by the assignment in the present case except one (to be presently considered) were pre-existing debts, and it is not pretended that any new consideration was advanced either by the assignee or by the creditors, whose trustee he was. The instructions of the court were therefore correct on this point. [77] It is said, that the court erred in instructing the jury that if they believed that one unfounded and fictitious debt was secured by the assignment, this rendered the entire instrument void, even as to those creditors whose claims were honest and who had no connection with or knowledge of any fraud on the part of the assignor. We do not so understand the charges granted by the court. Four charges were given on this point, and while one of them seems, as copied in the bill of exceptions, ambiguous and perhaps susceptible of this construction, the others quite plainly and unmistakably tell the jury that the insertion of false and fictitious debts in an assignment for the benefit of creditors is only a badge or evidence of fraud to be considered and weighed by them in connection with all the facts of the case, in determining whether in truth the instrument was executed with a fraudulent intent. We know of no authorities which announce a rule on this subject more favorable for the appellant in this ease. The weight of authority seems to be in favor of the doctrine that the insertion of fictitious debts in a deed of assignment avoids the instrument only as to the fraudulent debts, leaving it intact in favor of the honest creditors whose debts are secured by it, and who had no privity with the fraudulent intent on the part of the assignor. But, for several reasons, the question is not presented by the case before us. As before remarked, the most favorable doctrine was announced for the appellant, who alone assigns error, and who, of course, is not aggrieved by the rulings upon this subject. In the second place, the doctrine that, though the inducing cause of the assignment on the part of the maker was the fraudulent intent to secure payment of a fictitious and unfounded debt, the instrument will nevertheless be valid as to all holders of just debts who had no connection with this dishonest purpose, can have no application in this State, in cases where all the just debts secured are pre-existent ones, and no new consideration has been advanced, for the reason that the holders of such debts are deemed with us mere volunteers in accepting new securities, and, as such, bound by the fraud of the grantor, though they have no actual knowledge of it. The deliberate and intentional insertion by an assignor of a debt known by him to’ be [78] unfounded must ever be a strong badge of fraud, and wherever a court or jury is satisfied from this or other circumstances, that the intent and object in making the conveyance was to defraud creditors, the instrument will be void as to all preexisting debts secured by it, regardless of the knowledge or participation of the creditors. It is said, however, that there is one debt secured by the assignment in this case which is not of this character, and that the bona fides of the holder of that claim will uphold the instrument at least to the extent of protecting this demand, without regard to the intent of the assignor. This is the fee due the attorneys, who advised the execution of and prepared the assignment. When called upon for their advice -and assistance in the matter, they demanded a fee of five hundred dollars, and when the debtor professed his inability to pay so large a sum they proposed to release him from all personal liability, and to accept in lieu of it a stipulation in the deed that the fee should be a preferred debt and should be paid by the assignee out of the assets among the first debts secured. This proposition was accepted, and the instrument was drawn accordingly. It is admitted that the attorneys had no knowledge or suspicion that the debtor had any intention of defrauding his creditors in making the assignment, and the entire good faith of the attorneys themselves is conceded. It is hence argued that inasmuch as theirs was a contemporaneously contracted debt, and they gave up all personal demands against the debtor in consideration of being included in the assignment, they are to be regarded as' purchasers for value, and their good faith must protect the instrument so far at least as their own demand is concerned. We cannot assent to this view. We think that the testimony shows an agreement on the part of the attornej^s to risk their fee on the integrity of their client and the validity of the instrument prepared by themselves. But apart from this, we think it unsafe to declare that an instrument intentionally executed by the grantor for the purpose of swindling his creditors is to be upheld in any court for any purpose, by the good faith of the attorney who prepared it, even to the extent of upholding the fee of the attorney. Such an announcement [79] would certainly lead at once to the insertion of a stipulation in every assignment similar to the one here, and there would be an eud of all fraudulent assignments. Every deed would be upheld by the good faith of the attorney who prepared it, and as the communications that pass between client and counsel are confidential, it would be impossible to detect the fraud where any existed. The relations between the parties are too intimate and confidential, and too jealously guarded by the law to admit of the doctrine that the fraud of the client can be purged by the good faith of the lawyer. It is true, as urged by counsel, that under the bankrupt law the fee of the attorney who acts for a voluntary bankrupt is allowed even in cases where a discharge is denied to the applicant, but there is no analogy in the illustration. The fee is allowed there for services rendered in court and in accordance with its rules of procedure. Here, it is an outside matter with which the court has no connection and over which it has no control. The true analogy is found in a case where a person has been forced into involuntary bankruptcy, because of the execution by him of some fraudulent conveyance. Certainly in such a case the bankruptcy court would not uphold the conveyance for the purpose of paying the lawyer who drafted it, no matter how innocent he might be in the matter. The second instruction given for the plaintiffs in attachment was too broad. By it the jury were told that the instrument should be avoided, if the grantor was induced to make it by the expectation and hope of subsequent benefits held out to him by any of the creditors secured by it. This is erroneous. An instrument will be avoided which has been induced by the promise that the grantor shall enjoy some secret benefit in the thing conveyed, because this is inconsistent with the professed object of the conveyance, and operates as a fraud upon the other creditors whose pro rata share is thereby diminished. But no promise of future benefits unconnected with the property transferred will avoid the deed, though it constituted one of the principal inducements to its execution. It is the reservation of a benefit in the thing conveyed, not the expectation of some reward independent of it, of which other creditois can complain. [80] We shall not reverse the case because of this erroneous instruction. Averse as we are to affirming verdicts despite erroneous charges, we will not hesitate to do it where, leaving wholly out of view the subject-matter of the erroneous charge, the finding is so plainly right on the other matters involved that any other verdict than the one rendered should be set aside. Such we think is the case before us. If a fraudulent intent on the part of the assignor was not established in this case, it is impossible to see how it is ever to be shown. Pie started out by deceiving his own lawyers, pretending to seek their advice and put himself in their hands as to what course he should pursue in his financial embarrassments, when it was shown that he had made up his mind weeks beforehand that he would make the assignment. Professedly acting in obedience to his lawyers’ instructions, he refused to follow their advice by making a conveyance for the equal benefit of all his creditors, and made one by which he preferred his wife and other near relatives. One of the debts thus preferred was undoubtedly simulated, none of them were shown to be genuine, while all of them were probably fictitious. It is admitted that goods were abstracted from the storehouse after execution of the assignment for the benefit of himself and clerks, the only dispute being as to the amount of these abstractions. All this was wholly independent of and disconnected from the matters alluded to in the erroneous instruction. If the verdict had been in favor of the good faith of the assignment, it would have been the duty of the court below to have set it aside. We therefore affirm it, despite the erroneous instruction. Judgment accordingly.