Case ID: mass_24/html/0075-01.html
Source: Caselaw Access Project
Author: {"author": "Wilde J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Jotham Johnson versus Samuel Whitwell Junior
    A debtor being about to stop payment, made a deed of certain land, and at the same time and as part of the same transaction, an indenture tripartite was made between the grantee, the debtor and three creditors, whose demands were equal to the value of the land, declaring the conveyance to be in trust for the security of those demands. It was the intention of the parties that the debtor should afterward make a general assignment of all his property for the benefit of all his creditors, and that this land should constitute a part of the funds to be distributed among them, (by which, however, the debts of the three creditors were to be secured in full,) and the conveyance was made to prevent the land from being attached in the mean time, but if a general assignment should not be made, the conveyance was to have its legal effect for the benefit of the three creditors. Held, that the conveyance was fraudulent as against an attaching creditor.
    This was a bill in equity to redeem an undivided moiety of several parcels of land. The bill set forth, that on March 15, 1822, Jonathan Winship, being seised of this undivided moiety, conveyed the same in mortgage to Francis Winship ; that on March 24, 1824, Francis Winship assigned the mortgage to the defendant; that on May 30, 1822, the right to redeem was attached on a writ against Jonathan Winship, and on March 29, 1824, was sold on execution and conveyed by the officer to the plaintiff; and that on February 27, 1826, the plaintiff made a tender to the defendant for the purpose of redeeming.
    The defendant pleaded, that on May 27, 1822, (which was before the attachment,) Jonathan Winship, by his deed of that date, conveyed the premises to the defendant in fee.
    The plaintiff replied that this pretended deed was fraudulently written and prepared in two several parts and on two pieces of paper, and that one of the parts was never recorded, and that afterward the pretended deed was cancelled by and between Jonathan Winship and the defendant.
    It appeared by the deposition of the conveyancer, and by certain instruments in the case, that on May 27, 1822, Jonathan Winship was insolvent and about to stop payment. He was possessed of real estate which would be liable to be attached by some of his creditors whose debts would soon become due, and the conveyancer advised, in order to do justice to all the creditors and to prevent the sacrifices of property necessarily resulting from the levy of executions, that the property thus exposed to attachment should be conveyed to the defendant in trust to secure A. Story, A. Win ship and J. S. Tyler, ' whose demands against and liabilities for the debtor exceeded the value of such property, with the understanding and expectation that a general assignment would afterwards be made for the benefit of all the creditors, (the three above named however to be secured in full,) and that this property would eventually constitute a part of the common fund ; though the mode in which this end was to be accomplished, whether by new conveyances or further declarations of trust, was not then fully determined upon. Accordingly the deed of May 27, 1822, from J. Winship to the defendant, was made, which was absolute on its face, and at the same time an indenture of three parts was executed between the defendant, the debtor and the three creditors above mentioned, declaring the trust The deed was recorded on the day of its date, but the inden ture was not put. upon record. On the 8th of June, 1822, the defendant conveyed the land to the debtor by a deed of quitclaim, and the indenture of May 27th was cancelled ; and immediately thereupon the debtor gave a new deed of the same and other land to the defendant, and another indenture tripartite was made between the defendant, the debtor and such creditors as chose to become parties thereto, by which deed and indenture the real estate and personal property ,of the debtor were assigned to the defendant in trust for the benefit of the creditors generally. The conveyancer testified, that before the execution of the first indenture, it was explicitly stated that the effect of the conveyance would be to secure payment of all the debts therein provided for, unless some other arrangement should be made; and that he remembered no suggestion that any relinquishment or change of the property should be made, except for the purpose of making a general assignment for the benefit of all the creditors ; and if no such assignment should be made, it was understood that the first conveyance was to remain in full legal effect.
    
      March 5th, in Suffolk.
    
    Hubbard, for the defendant,
    contended that there was nothing fraudulent in the deed and indenture made on May 27, 1822. The debts and liabilities of the creditors who signed that indenture were sufficient to absorb the whole of the property conveyed to the defendant; and in regard to him there was a sufficient consideration, for by his covenants he was accounta hie to the other parties to the indenture. The attempt was not to defraud, but to protect creditors, and the intention to let in all the creditors was laudable and consistent with the transaction. If the conveyance had been made in trust for the benefit of the debtor, it would not have been valid ; but there was no such trust. It was intended to remain in force for the benefit of the creditors who signed the first indenture, in case the creditors generally should refuse to become parties to the subsequent indenture. Halsey v. Fairbanks, 4 Mason, 206.
    If the first conveyance was valid, the subsequent proceedings could not operate to let in the attachment, for at the time of the attachment there was no estate in the debtor upon which it could take effect, and it was therefore a nullity. Chickering v. Lovejoy, 13 Mass. R. 51.
    
      Hoar, for the plaintiff.
    There was a secret trust in the minds of the parties to the deed, and which was inconsistent with the face of the deed and of the indenture. The evidence in the case shows an intent to prevent creditors from attaching the property ; which the law will not sanction. New. Eng. Mar. Ins. Co. v. Chandler, 16 Mass. R. 275 ; Widgery v. Haskell, 5 Mass. R. 144 ; Stevens v. Bell, 6 Mass. R. 342.
    The indenture making with the deed but one transaction, it ought to have been recorded. Dudley v. Sumner, 5 Mass. R. 458, 468 ; St. 1783, c. 37 ; St. 1802, c. 33.
    
      Hubbard, in reply,
    said that the secret trust which makes a deed fraudulent, is one for the benefit of the grantor. Here there is no such trust; and the contest is entirely between different creditors. It was not necessary that the declaration of trust should be recorded, it being contained in a separate instrument. The registry of the deed conveying the legal estate vvas sufficient. If any creditor doubted the validity of the transaction, he might try the question by levying on the land.
   The opinion of the Court was afterwards drawn up by

Wilde J.

The only question in this case, now ripe for de cisión, depends on the validity of the deed of May 27, 1822, from Jonathan Winship to the defendant.

This was a deed of trust, as appears by a certain indenture, made and executed at the same time with the deed and forming a part of the same transaction. The object was, as expressed in the indent e, to secure certain creditors of "Win ship for debts due, and to indemnify them against certain liabilities they had before assumed in his behalf, he then being deeply insolvent and about to fail.

That he had a right thus to secure some of his creditors, to the exclusion of others, provided it was done in good faith, cannot be doubted ; it being a well settled principle, that an insolvent debtor may prefer one creditor to another, either by payment of tire debt of the preferred creditor, or by securing it by way of mortgage, pledge or otherwise.

That this right of preference may be, and in fact too frequently has been, resorted to for purposes of fraud and injustice cannot be denied. In all cases, therefore, in which such a right has been exercised, it must appear to have been done in perfectly good faith. If suspicious circumstances are proved, they must be very carefully examined and thoroughly sifted : and if they cannot be satisfactorily explained, fraud may be inferred, though not proved by positive and direct evidence ; as for instance, in case of a sale of goods, if the possession of the goods does not follow- the sale, it is presumptive evidence that the sale was feigned and fraudulent, and it is held to be conclusive evidence, unless the circumstance of the possession can be satisfactorily explained.

A good and adequate consideration is not alone sufficient to render a sale valid against creditors ; it must also be made bond fide; and the least fraudulent or illegal intention between the parties will vitiate the whole transaction.

If we examine the evidence in the case under consideration upon these principles, the defendant’s title certainly cannot be supported.

■ It appears from the facts disclosed by the conveyancer, tnat one of the objects which the parties had in view, in making the arrangement in question, was to secure the property against attachments, it being apprehended that the creditors, whose demands were at the time due and payable, might secure the whole property to the prejudice of other creditors whose debts were not then due ; and that the assignment to the defendant was accordingly made with the understanding and expectation that a general assignment would thereafter be made by J. Win-ship for the benefit of all his creditors ; and that the estates assigned to the defendant should in that case constitute a part of the common fund. And it is expressly admitted, that the object of this preliminary arrangement was to prevent the sacrifice of the property, and to secure the rights of all the creditors to an equal distribution of the property. Now such an arrangement is against the policy of the law, and against the plain legal rights of the creditors whose debts were due at the time.

They had the right to secure their debtor’s property by attachment and thus to obtain a preference over other creditors. To defeat this right, the deed in trust to the defendant was made, and it was clearly void by the express words of Sí. 13 Eliz. c. 5. It was an attempt to hinder creditors in the prosecution of their lawful actions for the recovery of their debts It was not an absolute sale, nor an absolute security, for on the happening of a contingency a new security was to be substituted, and either the first assignment was to be set aside altogether, or if not, a new trust was to be created in favor of creditors who were not parties to the first assignment, and who had no rights, either legal or equitable, under it.

We think it therefore manifest, that the principal object of this temporary arrangement was to cover the property and to intercept attachments. This was an unlawful purpose, and although no moral fraud was intended, yet it was a legal fraud, and the sale cannot be set up against the plaintiff, who was a creditor of Winship, and has obtained a title to the equity of redemption under legal process. 
      
       See Deforest v. Bacon, 2 Connect. R. 683; Marbury v. Brooks, 7 Wheaton, 556; 11 Wheaton, 78; Burd v. Smith, 4 Dallas, 76; Riggs v. Murray, 2 Johns. Ch. R. 578; Canal Bank v. Cox, 6 Greenl. 395; Egbert v. Woods, 3 Paige, 517.
     
      
       See Wheeler v. Train, 3 Pick. (2nd ed.) 257, note 1, and cases there cited
     
      
       See Howe v. Ward, 4 Greenl. 195 ; Whelan v. Whelan, 3 Cowen, 537 Jackson v. Mather, 7 Cowen, 301; Foster v. Hall, 12 Pick. 99,100
     
      
       See Passmore v. Eldredge, 12 Serg. & Rawle, 198.
     
      
       See St. 1836, c. 238; St. 1838, c. 163.