Garretson v. Brown

Potts, J. The plaintiff below, John J. Brown, assignee of Brown and Demarest, obtained a judgment in the Hudson Circuit against Jasper Garretson, who was the sheriff of Hudson, for the sum of $6902.31, in an action of trespass. The alleged trespass was the taking and carrying away of certain goods and chattels, which the plaintiff, John J. Brown, claimed title to under and by virtue of an assignment made and executed to him by Brown and Demarest, for the benefit of their creditors. The sheriff justified the taking by virtue of sundry executions in his hands against said Brown and Demarest, upon judgments subsequent to the assignment. The principal question in the cause was as to "the validity of the assignment; the plaintiff’s title to the goods, and consequently his right of action depending upon this, and the defendant insisting it was fraudulent and void as against creditors.- The first section of the “act to secure to creditors an equal and just division of the estates of debtors who convey to assignees for the benefit of creditors” (Nix. Dig. 27), provides that “every conveyance or assignment made by a debtor or debtors, of his, her, or their estates, real or persona], or both, in trust to the assignee or assignees, for the creditor of such debtor or debtors, shall be made for their equal benefit, in proportion to their several demands, to the net amount that shall come to the hands of said assignee or assignees for distribution ; and all preferences of one creditor over the other, or whereby any one or more shall be first paid, or have a greater proportion in respect of his, her, or their claim, than another, shall be deemed fraudulent and void, excepting mortgage and judgment creditors, when the judgment has not- been by confession far the purpose of preferring creditors.” The deed of assignment of Brown and Demarest is dated the 18th of October, 1854. It purports to be for the equal benefit of all their creditors. It embraces not only — 435 — the property held by them as a firm, but also the individual properly of each of them. It is assigned in trust for the equal benefit of both their partnership and individual creditors; directs that the creditors of the firm be first paid out of the property of the firm, and the creditors of each of said parties to bo first paid out of the individual and separate property of said parties; and then the residue of the individual property of said parties to be paid upon the debts of the firm, and not for the individual debts of the other partner; and that the debts be paid, in proportion to their respective amounts, out of the net amount that shall come to the hands of the assignee, &e., according to the form of the statute, &c. The assignment, therefore, appears to be unexceptionable upon its face; it is made in accordance with the provisions of the statute, covers in terms all the property of the assignors, is for the equal benefit of all their creditors, and directs distribution among them according to the well-settled principles of lav/ in such eases* But it is contended that this assignment is fraudulent and void on several grounds, to wit; 1. That the said Thomas C. Brown, previous to the assignment, confessed a Judgment to John J. Brown, the assignee. 2. That Demaj’est had, previous to the said assignment, conveyed a house and lot to one Pharo, to secure a debt due Pharo and Dolson from the firm. 3. That the assignors had, shortly before the assignment, disposed of a large portion of their assets, and applied the proceeds to the payment of certain favored creditors ; and that all these acts were done in contemplation of the assignment, with full knowledge, by the assignors, of their insolvency, and with the view to prefer certain of their creditors. Assuming that the defendant below established all these facts upon the trial, are they sufficient to render the deed of assignment void in law? The act does not say so. The first section of the act says the assignment shall be for the equal benefit of the creditors; and if it is not so, if it — 436 — is made for the distribution of the assignor’s property unequally among the creditors, that will render it inoperative and void under the statute. Varnum v. Camp, 1 Green 326. The same section of the act declares that all preferences of one creditor over another, &c., shall be fraudulent and void ; that is, as I apprehend, preferences made in and by the assignment. But whether it be so or not, is immaterial to the question here. It is, at all events, elear that it is only, the preferences that are declared void, and not the assignment, unless they are incorporated in the instrument itself, in which case it is not such an assignment as the law permits. I do not understand the court, in the case of "Varnum v. Camp, to hold that preferences made in contemplation of an assignment will avoid the deed. What the court says is, that to make a valid assignment under the statute, it is necessary — 1. “That it,” the assignment, “should be for the equal 'benefit of the creditors, for the statute directs that it shall be so made.” 2. “That it,” the assignment, “creates no preferences, for all preferences are declared fraudulent and void; and consequently the instrument whereby they are attempted must be of the like character.” In answer to the argument that a preference given in and by the assignment did not make void the instrument, but only the preference, the eourt said, “An assignment made in a manner prohibited and forbidden must be invalid. The express denial of preferences, is in truth but an amplification of the antecedent clause of the .statute, and without really adding anything to its extent, or perhaps its force, serves to express in distinct terms the legal effect and operation of that prior clause.” And “it follows, then, .that where an assignment, not made for the equal benefit of the creditors, but whereby,” (bat is by the assignment, “a preference is sought to be given to any one, not a creditor by mortgage or judgment, over another, it (the assignment) is in contemplation of law fraudulent and void.” This was the case of a preference given in — 437 — the assignment itself. The other question, as to what would he the effect of preferences made before the a-signment, and not incorporated in the instrument, but made in view of the assignment, was not before the court at all. A careful examination of the statute must, I think, result in the following conclusions : 1. That if the deed of assignment contains upon its face a preference or preferences of one creditor over another, except. as hereafter mentioned, the deed itself is void and inoperative, as being in contravention of the statute; and the preferences of course fall with the deed. 2. That the phraseology “ and all preferences of one creditor over the other,” &«., found in the first, section of the statute, means all preferences made in and by the deed of assignment. It. was not intended to abridge or lake away the common law right of every man, even when in failing circumstances, to dispose of his property, provided he does it honestly, or to pay one honest creditor in preference to another. In this respect the statute has no analogy to the English bankrupt acts. But the statute does intend that if a failing debtor seeks its benefit, liis assignment, must conform to its provisions ; and any attempt to elude them, it declares, shall be deemed fraudulent, and shall vitiate the instrument itself. 4 Griff. Reg. 1235. Until the debtor divests himself of the title to his property by assignment, his dominion over it is perfect, and he may use it for any honest and lawful purpose. The object to he gained by au assignment under (he act, is to get the benefit of the release which it provides. But while it is purely voluntary on the debtor’s part, it is also optional with the creditors to come in or not; if they do come in and take a dividend, they release all claim against the debtor for any balance. But if they do not choose to come in, if they are dissatisfied with the conduct of the debtor in any way, they may refuse to accept of the benefits offered them, and all their rights and remedies remain — 438 — unimpaired. And even if they come in and take a dividend, they may avoid the effect of the release, if they can subsequently show that the debtor has been guilty of fraud. The debtor, it is true, will have stripped. himself of his property. The assignment, as to that, will operate as a preference of such creditors as do come in ; but it is to be remembered that if the debtor had not chosen to make an assignment, he might still have paid his last dollar to favored creditors, and no exception could have been taken to it. 3. An assignment is not void because it gives a preference to mortgage creditors, or to judgment creditors, wheu the judgment has not been by'confession for the purpose of preferring creditors. But the statute was not to be evaded by the artifice of confessing a judgment with a view to an assignment, and giving it a preference in the deed. The inference, from the language of the act, is not that a judgment confessed for the purpose of preferring a creditor is to be deemed fraudulent-and void, but that the preference of such a judgment in the deed shall be deemed a fraud, and shall avoid the deed. It may be marked, in this connection, that when an assignment is once made, it operates to convey all the assignor’s property, real and personal, whether embraced in the inventory attached to the deed or not. Seetion 2. The provision of the statute that the debtor shall make and annex an inventory to the assignment, is directory merely; and no errors or omissions or statements in the inventory will affect the deed. They are in no way binding or conclusive. If the debtor has fraudulently conveyed away any part of his property, the assignee may sue for and recover it for the use of the creditors who present their claims. Section 13.- And any fraudulent conduct of the assignor, touching the disposition of his property with reference to the assignment, will enable the creditors who come in under the assignment to avoid the operation of the release. Section 14. And by the provisions of the — 439 — 9th section, the creditors who come in under the assignment have the means to compel the assignee to do his duty by citation and attachment. The argument, of the defendant’s counsel, that all preferences made by an insolvent debtor anterior to his assignment, but with a view to, or in contemplation of such assignment, are intended to be declared fraudulent and void by the statute, cannot be sound. At common law, the right to prefer creditors is undoubted. If the statute meant to abridge so important a right, it would have said so in plain terms. It says, indeed, that “all preferences,” &c., shall be deemed fraudulent and void ; but the words are referable, it seems to me, to the subject matter of which the statute was speaking, to wit, conveyances or assignments by debtors to trustees for creditors, and therefore may be properly construed as meaning only all preferences made in and by such assignments. This appears to have been Ch. Just. Ewing’s reading of the section in Varnum v. Camp, and of Ch. Just. Hornblower’s, in Vanderveer v. Conover, 1 Harr. 490, as it was of Mr. Griffith in the Register, above cited, if I understand him rightly. Should we not get afloat, on a sea of difficulty by adopting the defendant’s construction? What is to be understood by the phraseology, “ in view,” or “ in contemplation,” of au assignment? Suppose it can be proved, or the debtor admits that he contemplated making an assignment six months before he did it, are all his transactions for those six months to be ripped up? Are all the creditors who have been honestly paid or arranged with to he prosecuted, and the amounts they received to be recovered back, although they had known nothing of the debtor’s insolvency or of his ultimate designs, and dealt with him honestly and fairly? Clearly all such settlements and dealings, if honest and bona fide, were lawful when they were made. Dili the statute intend that the debtor should have the power, at any time afterwards, to annul, — 440 — and make them all constructively fraudulent and void, by the single act of carrying into effect a purpose contemplated before, but concealed from them, of making an assignment ? The debtor confesses a judgment for the purpose of preferring an honest creditor over other creditors, a thing done every day in fact. If the judgment was confessed for an honest debt, it is good and valid in law. But it was confessed for the purpose of preferring the creditor. Can the debtor make it constructively fraudulent and void by subsequently executing an assignment? The doctrine, it appears to me, would violate the clearest principles of common justice, and open a door for litigation, which was never contemplated by the framers of the law. The statute, as I understand it, makes the preference of such a judgment in the deed fraudulent and void, and not the judgment itself. It refers to preferences made in the assignment, and not to such as are made by the debtor antecedent to it, though he contemplated an assignment at the time. It did not mean to leave the validity of these transactions to depend upon the arbitrary will of the debtor, who, up to the moment of executing the deed, was at perfect liberty to complete the act he previously contemplated, or not. The question, whether any of the transactions of the debtors, antecedent to their assignment, are liable to be, avoided upon the doctrine of the statute of frauds, is not now before us. Recently, in the case of Owen v. Arvis, ante p. 22, the court went over the general subject, and .it is unnecessary to advert to it here. Then, if this construction of the statute is correct, it disposes of all that class of exceptions, on the part of the defendant, which relates to the question of the validity of the assignment. That instrument is not affected by any of the acts complained of. If there was a fraudulent confession of judgment, or a fraudulent conveyance of property, such judgment or conveyance is liable to be avoided — 441 — by the assignee; and if he has neglected his duty, it is in the power of the creditors to compel him to its performance • and so of any disposition the debtor may have made of his property. If fraudulent the remedy is in the hands of the assignee, and he is but the trustee for the creditors, who can compel him to perform his duty. But the deed is good, nevertheless, and vested all the debtor’s estate in the assignee. If the acts complained of amounted to nothing more than the payment or satisfaction of honest claims of actual creditors, they neither affect the assignment nor are they fraudulent in themselves. And so it is unimportant, in this view of the case, whether the exceptions taken by the defendant’s counsel to the rulings of the court below, in the rejection or admission of evidence, were correct or not. Eor no part of the evidence excepted to and. admitted, or offered and rejected, was material to the issue, which was, whether the legal title to the property taken by the defendant was in the assignee at the time. Nor was it material how many creditors liad presented their claims to the assignee, for the title' to the property did not depend on that; nor whether the inventory annexed to the assignment was correct or not, for the inventory was no part of the deed, and the assignee was not bound by it, either as to the property assigned or the rights of the creditors. A number of errors are assigned upon what the court charged, and what it declined to charge. But I find no error in these which can be made the foundation for a reversal. The court charged the jury, in effect, that the value of the property taken by the defendant was the true measure of damages. This is assigned for error. The defendant’s counsel insist that the plaintiff, if entitled to x’ecover at ail, could only recover sufficient to pay the creditors who had presented their claims within the time limited by the statute. But this involves the proposition that the trust terminates immediately on the expiration of the time — 442 — limited for the presentation of claims, as to so much of the trust property as is not required for their payment. The proposition cannot be conceded. The legal title to all the property of the debtor, and its proceeds, remains in the trustee, where the deed has vested it, until, by some proper judicial proceeding, it is disposed of. It cannot be seized and taken as the property of the assignor while the legal title to it is not in him. Upon the whole, the judgment should, in my opinion, be affirmed. The Chief Justice and Vredenburgh, J., concurred.