Case ID: sc-eq_15/html/0071-01.html
Source: Caselaw Access Project
Author: {"author": "Dunicin, Ch. Johnston, Ch.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Daniel Jacot vs. James Corbett, Howland, Ward & Taft et al.
    
    Assignment, by a debtor, for benefit of such creditors as should accept a rateable proportion, but not to exceed 40 per cent, of their claims; the surplus, if any, to be returned to the debtor. Held, under all the circumstances of the' case, to be fraudulent and void under stat. 13 Eliz.
    Heard, at Charleston, before His Honor Ch. Dunkin, who decreed as follows:
    The defendant, James Corbett, being indebted to the complainant, a merchant of New York, in the sum of $10,898, a suit was instituted, for the recovery of the debt, in the Circuit Court of the United States, on 1st October, 1838; judgment was entered on 29th November, 1838, on which execution has issued, and been returned nulla bona. On 19th November, 1838, James Corbett executed a general assignment of his estate and effects to his co-defendants, Howland, Ward & Taft. After premising his insolvency, his desire, for reasons which he considers binding in conscience, to pay or secure some of his creditors in full, and to pay or secure 40 cents in the dollar to his other creditors, if they would accept the same in full, satisfaction and discharge of their demands, which he is satisfied is as much as his estate, except under the most judicious management, would pay, “but that, by reason of some of the creditors commencing suits against him,which are now pending, it is impossible for him to secure tcf all his creditors the benefit of such an arrangement,” without making an assignment of his estate and effects, for that purpose, it is declared that the stock in trade, slaves, &c., shall be sold by the assignees, át their discretion ; with power, out of the sales, to make new purchases and add to the stock, so as to render the remaining stock more saleableand then, after paying the expenses of the trust, commissions to the assignees,, and the preferred creditors, “ out of the surplus, to pay to all “ the other creditors, who would accept the same, in satisfac- “ tion of their demands, and execute a release thereof to the “said James Corbett, by the first January next ensuing the “ date thereof, 40 cents in every dollar of the amount of their “ claims, if the same was adequate thereto; and if not, to dis- “ tribute such surplus rateably, and in proportion, among such “ creditors. And after payment of the said 40 cents in every “ dollar, then if any surplus should remain, (which the said “James Corbett by no means expects, unless the assignees “ and creditors should avail themselves of his skill and servi- “ ces in disposing of the said effects,) to pay over the same to the said James Corbett, his executors, administrators, or as- “ signs.” The preferred debts amounted to $21,021; those not prefered, to $32,483. Some of the creditors not preferred, to the amount of $12,056, accepted of the the terms of the assignment: others, to the amount of $20,426, among whom is the complainant, did not become parties to the arrangement.
    At January term last, this cause was heard by Chancellor Harper, on a motion for injunction, to restrain the assignees from appropriating the funds according to the trusts of the assignment; and, on 15th February, an injunction was granted, for the reasons stated in the decree.
    The general right of a debtor to make a preference among his creditors, is not questioned. Corbett was indebted to the complainant in the sum of 10,898 dollars, for goods sold and
    
      delivered. He was indebted to his assignees in the sum of 6,207 dollars, also for goods sold and delivered. By the terms of distribution, the latter debt is to be paid in full, and less than 40 per cent is left for the other creditors. This seems inconsistent with the maxim, that equality is equity. Yet the right is well settled; and it is not less certain that, if the right were more doubtful, the successful exercise of the power could not be prevented. The principle is recognized by Chief Justice Marshall, in Brashear vs. West, (7 Pet 614,) “the preference given,” says he, “to favored creditors, though “ liable to abuse, and, perhaps, to serious objections, is the " exercise of a power, resulting from the ownership of proper- “ ty, which the law has not yet restrained. It cannot be treated “ as a fraud.” The objection of this complainant is of a different, and more formidable character. The assignment is said to be obnoxious to the stat. 13 Eliz. which declares all conveyances made with the purpose and intent to delay, hinder, or defraud, creditors, “ to be clearly and utterly void, frustrate, and of none effect.” In Cadogan and Kennett, (Cow. 434,) Lord Mansfield, commenting on the stat. 13 and 27 Eliz., says, that the principles and rules of the common law, as now universally known and understood, are so strong, that the common law would have attained every end proposed by the statutes. H-e says, also, “these statutes cannot receive too liberal a construction, or be too much extended, in suppression of fraud;*’ and further, “if the transaction be not bona Jide, the circum?-stance of its being done for a valuable consideration, will .not alone take it out of the statute.” It is very possible, (and the court would readily adopt that conclusion,) that Mr. Corbett may not have conceived that he was doing an improper act; yet, if be has done that, the intent, and purpose of which was to hinder and delay his creditors, the law has affixed a character to the transaction, and declared it, as to such creditors, void, and of no effect The complainant was prosecuting a legal remedy for a just debt. The defendant, adverting to these proceedings, and the expediency of providing against f;he effect of them, makes a general assignment of his estate, ten days before the entry of the complainant’s judgment. By the provisions of this assignment, no unpreferred creditor is, in any event, to receive more than 40 per cent, on his debt, and no such creditor is to receive any thing, unless he will execute a release, be the dividend what it might, within six weeks after the date of the assignment. The surplus, after payment of 40 per cent, to the releasing creditors, is to be paid to the assignor. On the part of the defendant, it was urged that the assigned effects would not pay more than 40 per cent, to the unpreferred creditors, and a statement, to that effect, was submitted to the court. The character of the transaction must be determined by the interest of the parties!, at the time, and not by subsequent events. If the defendant did not believe, and contemplate, that the assigned effects would realize more than 40 per cent, on the general or un-preferred debts, it is difficult to imagine for what purpose he fixed that amount, as the maximum consideration of the release tq be executed; or why, as in ordinary assignments, the surplus, be it what it might, after payment of the preferred creditors, was not made distributable among such of the general creditors as should not execute a release of their demands. Some cases were brought to the notice of the court, and especially that of Lynah vs. Lynah, decided at Charleston, April, 1828, and Murray vs. Riggs, (15 John. 571,) in which it had been held, that a certain sum, reserved by the assignment, for the use of the assignor, did not vitiate the deed. In a subsequent case of Machie vs. Cairne, (5 Cowen, 563,) Judge Sutherland says, that the question in Murray vs. Riggs, was, .“whether the reservation, by a debtor, of a moderate portion “ of his property, for the maintenance of his family for a limited time, in a general assignment, for the benefit of his credit “ tors, shall, in all cases, be conclusive evidence, in judgment “ of law, of an intent to delay, hinder, and defraud, his credi- “ tors, within the meaning of the statute of frauds, so as to “ vitiate and destroy the whole conveyance.” The decision in Murray vs. Riggs, restricted as it was, seems, from the subsequent cases, to have been rather treated as an exception to the general rule, or principle. Lynah vs. Lynah, regarded in the strongest point of view, for the defendant, does not proceed farther. Estwick vs. Caillaud, (5 T. R. 420,) was also cited; in which Lord Abingdon assigned his mansion house, park and pleasure grounds, together with the deer, cattle, &c., in trust, to receive the rents and profits, and pay one half to the grantor during his life, and the other moiety to Miss Barbara Harvy, and certain other scheduled creditors. Townsend, whose father had built a house for Lord Abingdon, obtained afi. fa., under which, part of the assigned estate was seized. In ah action of trespass, it was held, that the deed of Lord Abingdon was valid. Attempts have been frequently made to reconcile this decision with the principles of the stat 13 Eliz. In some cases, it has been observed, that the deed was sustained, because only a part of Lord Abingdon’s estate was included in the assignment, and that he had, in fact, pointed out to his debtor other property, from which he might satisfy his demand. It has been elsewhere said, that “ the report of that case developes one of those contrivances by Which the nobility of England put their estates at nurse; so that they may recruit without being harrassed by importunate creditors. The effect of that decision, was to. allow Lord Abingdon to enjoy his mansion house, park and pleasure grounds, to permit him to make presents of his deer, and run his horses at New Market, while his creditor, who had built the house, and whose debt had been due for more than twenty years, was obliged to look on, with his execution in his hands.” It may, perhaps, be added, that when Townsend applied to the Court of Chancery, on the ground that the deed, if not Void in toto, by the stat Eliz., at least must be void, as to that moiety reserved to Lord Abingdon, as against his creditors, he was told by .Chief Baron Macdonald, that Courts of Equity had never interfered in a similar case ,* 2 Amt: 384. It is, perhaps, questionable, whether either of the decisions cited, could be maintained upon general principles, apart from the special circumstances of the particular case. Doubtless, a debtor may make a general assignment of all his estate, for the benefit of his creditors. He may prescribe the order in which they shall be paid: I think, too, that he may prescribe the condition of a release, although, if this were res integra, the Supreme Court have said, in Brash■=• ear and West, (7 Peters,) “we are far from being satisfied, that Upon general principles, such a deed ought to be sustained.” But a debtor has no right to place his property beyond the reach of his creditors, under the ordinary process of the law, prescribe the terms on which they participate in his effects, and secure to himself, in case of neglect, or refusal, a control over such funds, and thereby, the power to make other terms. Such deed is a direct violation, as well of the terms, as the policy, of the statute. The purpose is to hinder and delay creditors, by transferring a colorable title to a third person, while the real ownership is still in the assignor, unless the terms prescribed are assented to. No case, I think, can be found, sanctioning an assignment which sustains such control iii the debtor. In Iiislop vs. Clark, (14 John. 462,) the Supreme Court of New York, recognizing, in the fullest extent, the right of giving a. preference, declared an assignment fraudulent and void, in judgment of law, which secured to the assignor this contingent control of his estate. “It does not actually,” says Judge Van Ness, “ give preference, but is, in “ effect, an attempt, on the part of the debtors, to place the property out of the reach of their creditors, and to retain the “ power to give such preference at some future period.” Ac - cording to the statement submitted to the court, if this assignment is sustained, the debtor, Corbett, will have coerced creditors, to the amount of 12,000 dollars, to receive about 5000, in discharge of their demands, and secured to himself 8000 dollars, to make terms with the remaining creditors. In the case of Hyslop and Clark, the court demonstrate the inadequacy of the relief, by an application to this court, for the fund reserved to the assignor; and then proceed to say, “ but “ whether they could obtain relief there, or not, is quite imma- “ terial in this case. An insolvent debtor has no right to place “ his property in such a situation as to prevent his creditors “ from taking it under the process of a Court of Law, and to “ drive them into a Court of Equity, where they must en- “ counter great expense and delay, unless it be under very “ special circumstances, and for the purpose of honestly giving “ a preference to some of his creditors, or to cause a just distribution to be made amongst them ail.” In the same case, the argument is considered, that the assignment should be sustained, at least so far as it protects the preferred creditors. After stating that the better opinion seems to be, that even at common law, such deed is altogether void, and that a grantee, who voluntarily becomes a party to it, justly forfeits his right to claim a benefit from another part of the deed, that would otherwise have been good, the court admits that there is some diversity in the authorities, and they regret any departure “ from principles, the firm energetic enforcement of which, is so important to the protection of the rights of creditors. But they shew, upon undisputed authority, that where a deed is void in part, as against the positive provisions of a statute, the whole deed is void.” The court add “that if the whole of a conveyance made in violation of the statute, is not held to be void, merely because it may be good in one particular, it would be very easy to elude the statute in every case. One good trust might always be inserted,” &c. The authority of Hyslop vá» Clark, was distinctly affirmed in the subsequent case of Austin vs. Bell, 20 John. 448, in which, by the terms of the assignment, the shares of the creditors, who declined to accept, were expressly reserved to the assignors themselves. Chief Justice spencer, delivering the judgment of the court, says, “without, “in the least, impugning the doctrine that a man in debt has “ a right to give a preference to creditors, I am bound to say, “ that a deed which does not fairly devote the property of a “ person overwhelmed with debt, to the payment of his credi- “ tors, but reserves a portion of it to himself, unless the credi- “ tors assent to such terms as he shall prescribe, is, in law, “ fraudulent and void, as against the statute of frauds, being “ made with intent to delay, hinder, and defraud creditors of “ their just and legal actions.” In Mackie vs. Cairns, to which the court has already adverted, the cases were reviewed by the Court of Errors, and, perhaps, it is not too mtich to say, that by the unanimous judgment of the court, an assignment, containing a provision of this character, would be deemed fraudulent and void, as to creditors, though valid as between the parties. (5 Cowen, 585.) In Niolson vs. Douglass, (2 Hill’s C. It. 444,) the obiectionable feature of the assignment was the compulsory release. The deed was sustained. But if the opinion of the Chancellor, who pronounced the judgment, may be supposed to have had the sanction of the court, a reservation to the assignor, secured by express provision, in the event of non acceptance by the creditors, would have vitiated the assignment.
    Upon the whole, 1 am of opinion, that the assignment of James Corbett to his co-defendants, Howland, Ward & Taft, is, as against the complainant, void, and of no effect. From the statements exhibited, it was manifest that the funds received by the assignees, from the goods and chattels subject to the complainant’s execution, were more than sufficient to discharge his debt, after paying off the amount due on the execution of R. Pennall.
    It is ordered and decreed, that the defendants, Howland, Ward & Taft, pay to the complainant, from the funds in their hands, received under the assignment, the amount due on his judgment, to wit, the sum of $10,898, with interest from 29th November, 1838, and that from the same funds they pay the costs of these proceedings.
    
      Grounds of Appeal:
    1. That the deed of assignment is not fraudulent.
    2. That there is no fraud nor default in the creditors, whose debts are secured by the said deed. That it is inequitable to deprive a bonafide creditor of his security; and the decree, in this particular, should be reversed.
   Curia, per

Dunicin, Ch.

This court concur in the conclusions of the Chancellor.

It is therefore ordered and decreed that the decree be affirmed and the appeal dismissed.

Harper, Ch., concurred.

Johnston, Ch.,

I concur in the result, but not without hesitation.

Johnson, Ch., I am not prepared to concur entirely in this, judgment. When, as in this case, there are various considerations for a deed proceeding from different persons, some good and some bad, I doubt whether it may not be sustained as to those that are good, although void as to the rest.