Catchings v. Manlove

Handy, <!., delivered the opinion of the court: This bill was filed by, and on behalf of, certain creditors of Cavil O. Jackson, deceased, for the purpose of subjecting to the payment of their debts against him the proceeds of a policy of insurance upon the life of the decedent obtained by him in his lifetime. It appears by the statements of the bill that Jackson died in September, 1855, having on the day of his death made his last will and testament; that he was indebted to the complainants, Catchings & Putnam, in the sum of $6,858.56, and to the complainants, Miles & Adams, in the sum of $13,867.43, which debts were duly proved; and that the executor named in the will, soon after his qualification, reported the estate insolvent, and it was so declared by the Court of Probates, and all the claims against it were referred to commissioners, who reported the same, showing their amounts and the names of the various creditors, among [667] which are the complainants above named, which report was confirmed; that the assets of the estate, as shown by the report, amounted to about the sum of seven thousand dollars, exclusive of the policy of insurance; that, at the time of the execution of his will by said Jackson, he executed an assignment of said policy of insurance, which was for the sum of five thousand dollars, to his wife and two children, transferring the same in writing to his wife and two children; that doubt having arisen as to who was entitled to receive the money due upon said policy of insurance, the insurance company paid the same to the executor, under an agreement made by the parties claiming under the assignment, that he should hold the same until the rights of the parties, creditors and assignees, should be settled by law, and that the executor now holds the money under that agreement; that the assignment of said policy was made by the testator without consideration, and is voluntary, and that the executor refuses to return the fund in his hands, as a part of the testator’s estate, because of the claim of the parties under the assignment. A demurrer to this bill was sustained, and the bill dismissed, and from that decree this appeal was taken. In the argument of the case here, two questions have been presented for consideration: First. Whether the transfer of the policy can be held to Re fraudulent as to creditors, upon the mere ground that it was voluntary and without valuable consideration, and that the assignor was indebted to insolvency at the time, without the allegation or proof of fraudulent intent in making it. Second. Whether the fund received upon the policy can be subjected to the claims of creditors, as the policy was a mere chose in action, and not subject to execution, when it was assigned. The first question arises upon the objection to the bill, that it merely alleges that the assignment was voluntary and without consideration, and does not allege that it was made with a fraudulent intent. It sufficiently appears, by the statements of the bill, that Jackson was largely indebted, even to insolvency, at the time of the assignment, and that it was a mere gift for the benefit of his wife and children; and it is well settled that a conveyance or assign668 meat, under sucb circumstances, is fraudulent as to creditors and void in law, as to them, whether it was made with an actual fraudulent intent or not. The fact that the party was insolvent at the time of the transfer renders the mere voluntary assignment to a wife or children void in law as to creditors, because the debtor has no right to withdraw his property from liability to pay his debts, to the prejudice of his creditors. 1 Fonbl. Eq., B. 1, ch. 4, sec. 12, note a. In such a state of case, it results, as a conclusion of law from the facts, that the conveyance is fraudulent as to creditors. Gilmore v. North Am. Land Co., 1 Peters C. C. R. 460; Thompson v. Dougherty, 12 S. & R. 448; Reade v. Livingston, 3 John. Ch. R. 500; 1 Story Eq. Jur. sec. 355. Hence it is not necessary, in such a case, to aver that the conveyance or assignment was made with a fraudulent intent; for it is a rule of pleading, that a party is only required to state the facts necessary to make out his claim or to sustain his action, and the law will draw the legal conclusion from those facts. The rule is otherwise in the case of a conveyance made upon a valuable consideration; for there the conveyance being prima facie fair and valid, it is incumbent on the party impeaching it to aver and- prove that it was made with a fraudulent intent. The assignment in this case appears to have been of a very considerable part of the property of the assignor; and though a party may lawfully make a gift, to his wife or .child, of a reasonable part of his property, if he be not insolvent at the time or largely indebted, and such gift will be valid, if made bona fide, as against subsequent creditors, yet, if he be insolvent at the time, the gift cannot stand against the claims of creditors then existing, whether made with an actual fraudulent intent as to them or not. Salmon v. Bennett, 1 Conn. R. 525; Hinde's lessee v. Longworth, 11 Wheat. 199-213; 1 Story Eq. Jur. sec. 356, 357. Upon the second question, it is insisted that the assignment is not within the statute against fraudulent conveyances, because the thing transferred was a mere chose in action,, which could not be taken in execution, and that the statute applies only to property which could be reached by execution. The adjudicated cases upon this question are conflicting. In England, the early decisions held that such property was within [669] the statute; hut the later cases appear to settle the rule to the contrary, and hold that the conveyance or assignment cannot be declared void and the property subjected to the claims of creditors, under the statute, unless it be property liable to be taken under an execution at law. 1 Story Eq. Jur., sec. 367, and cases there cited. The former rule is sanctioned by the American decisions : 4 Johns. Ch. 450; 20 Johns. 554, 555; Barbour, 433; 11 N. H. R. 312, 326; 27 Maine R. 539; and has been followed by the chancellor of this State in the case of Wright et al. v. Petrie et al., S. & M. Ch. 320. This rule we consider to be founded on the better reason. The right of the creditor to subject the property of his debtor to the payment of his debt applies to whatever is in law the prop‘erty of the debtor, except such parts of it as are specially exempted by law; and if this right be not available at law by reason of the nature or condition of the property, that is a sufficient reason why it should be enforced by a court of equity. It is upon this ground that a court of equity subjects equitable assets to the payment of debts, when the remedy at law has been exhausted and is ineffectual. And it would, indeed, be strange, that a court of equity, which is competent to give relief against equitable assets on the mere ground that they could not be reached at law, should be incompetent to give relief against assets fraudulently transferred by the debtor, so as not to be within the reach of an execution at law; considering that the fraud itself is one of the very grounds of the jurisdiction of that court. The statute has generally received a liberal construction for the suppression of fraudulent arrangements against the rights of creditors; but to restrict its operation to cases of fraudulent gifts or conveyances of -such property as might be seized under execution, would be to destroy its beneficial effect, and to allow its policy to be evaded. It would give the debtor the perfect power to dispose of his property so as to defeat the rights of creditors, by conveying it for negotiable securities, for the purpose of defrauding his creditors, and then transferring the securities and placing them beyond the reach of creditors. If the conveyance was made to a party who purchased the property in good faith and without notice of the fraudulent intent, it might’ be impossi [670] ble for the creditor to subject either the property conveyed or the securities given for it to his debt, and the statute would be ineffectual against such a fraudulent arrangement. This would open a wide door for fraudulent conveyances, and would frustrate the manifest policy of the statute, unless the plain rights of creditors, which it was the object of the statute to protect,_could be enforced, in such cases, in equity. If such a rule were sanctioned, it would produce the strange result, to deny to the creditor his right to subject his debtor’s property to the payment of his debt by resort to a court alone competent to give the relief required by the circumstances, and to deprive a court of equity of one of its clearest branches of jurisdiction — to give relief against fraud. The rule under consideration appears to proceed on the ’ idea that a court of equity has no power to do more upon a bill to set aside a fraudulent conveyance than to declare it void, and thereby remove the obstacle to an execution at law; and inasmuch as, after such a decree, the execution could not be levied of the chose -in action, therefore that the court is incompetent to give relief. But there appears to be nothing -in the statute to justify this view. The mode of proceeding to give to creditors the benefit of the debtor’s property fraudulently conveyed appears not to be indicated, nor' in anywise restricted, by the statute; and he must, therefore, be left at liberty to resort to that mode which the nature and circumstances of the fraudulent arrangement may render necessary to obtain his rights. The spirit of the statute plainly is, to enable the creditor to subject to the payment of his debt the property of his debtor fraudulently conveyed, whatever may be its form, and it appears to be an utter -subversion of that object to allow the fraudulent purpose to be consummated by denying to the creditor his substantial right, by reason of the form in which the property is placed by the fraudulent contrivance. And yet such would be the consequence, in many cases, unless a court of equity had power to subject the choses in action, fraudulently transferred, to the payment of debts. But according to the rule which we have held, and which is well supported by authority, this view is unsound; for a court [671] of equity has the power not only to set aside the fraudulent conveyance, but to subject the property conveyed to tbe payment of the debt, under its own jurisdiction. Hunt v. Knox et al., 34 Miss. R. 655. And the principle is there sanctioned “ that every species of property belonging to the debtor may be reached and applied to the satisfaction of his debts,” and that “ the powers of a court of equity are perfectly adequate to carry that principle into effect.” It is urged, as an additional objection to the bill in this case, that the complainants do not show that they had a judgment at law or any thing equivalent to it, at the time of filing tbe bill. This appears to be an error of fact as to the statements of the bill. It alleges that the claims of the complainants were proved and allowed; that the estate was reported and declared insolvent; and that their claims were reported by the commissioners of insolvency as duly established claims against the estate; and all this was before the filing of the bill. These allegations are equivalent in law to a judgment and return of "Nulla bona” at law, and are a sufficient basis for the filing of the bill. We are of opinion, according to these views, that the court erred in sustaining the demurrer, and dismissing the bill; and the decree must be reversed, the demurrer overruled, and the cause remanded for answer within sixty days.