Case ID: mass_27/html/0415-01.html
Source: Caselaw Access Project
Author: {"author": "Shaw C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

John S. Russell et al. versus James Woodward.
    In order to maintain an assignment by a failing debtor for the benefit of creditors, against an attachment of a creditor not a party to such assignment, it must appear that the assignment was made upon a valuable and adequate consideration, and in good faith, to satisfy or secure existing debts or to indemnify against subsisting liabilities, and tjiat it has been assented to by creditors or sureties whose demands are sufficient to absorb the property conveyed ; and the burden of proof is upon the assignees to show an adequate consideration for the assignment.
    Where the assignment was by an indenture between the debtor, of the one part, and the trustees of the other part, and was not intended to be signed by the creditors, and the trustees were required to make a distribution of the property among all the creditors, without preference, in proportion to their respective demands, and there was no stipulation that the creditors should release their demands or take upon themselves any onerous condition, it was held nevertheless that the creditors* assent to the assignment could not be presumed.
    Replevin. At the trial, before Morton J., it appeared that the defendant, a deputy sheriff, had taken the property replevied, on a writ of attachment in favor of Dan Wilmarth against Nathaniel Wheeler, the property at the time of the attachment being in the actual possession of Wheeler.
    The plaintiffs (who were four in number) claimed the property by virtue of a prior assignment made to them by Wheeler, by an indenture between Wheeler of the first part and the plaintiffs of the second part. By the indenture, Wheeler, in consideration of the covenants on the part of the plaintiffs therein contained, assigns to the plaintiffs certain real and personal estate and choses in action, in trust to sell and dispose of the same or such part thereof as they may see fit, at such times and on such terms and at such prices as may seem to them most expedient, and out of the proceeds, after deducting necessary expenses and a reasonable compensation for their own labor, to pay all and every of the creditors of Wheeler, in ratable proportion to the debt of each, without preference, so far as the funds will go, and the surplus, if any, to hold to Wheeler’s use ; — and the plaintiffs accept the trust, and cov. enant, each for himself, that they will faithfully execute the trust, and that Wheeler shall be permitted to use and occupy the property so conveyed, committing no waste thereon, until such time as the same shall be sold or disposed of in the due execution of the trust.
    The indenture was recorded in the registry of deeds, on the day of its date.
    It was objected that the assignment was void for want of consideration, and on account of the clause which permitted Wheeler to remain in possession of the property until the plaintiffs should take possession thereof to execute the trust; but the objections were overruled.
    It was also objected, that the assignment was fraudulent, inasmuch as the plaintiffs had not proved that they were creditors of Wheeler ; whereupon evidence was given that Russell and Vickery, two of the plaintiffs, were creditors at .the date of the assignment, though the amount of their debts was small in comparison with the property assigned ; but the judge suggested that the burden of proof on this point was upon the defendant.
    The jury found a verdict for the plaintiffs. If either of the foregoing directions and decisions was incorrect, a new trial was to be granted.
    
      Oct JÑth.
    
    
      W. Baylies, and W. A. F. Sproat, for the defendant,
    insisted that the assignment was fraudulent and void, by reason of the clause permitting the debtor to remain in possession of the property.
    It was incumbent on the plaintiffs, as against a creditor of the assignor, to show a legal and adequate consideration for the assignment, and the instruction in regard to the burden of proof .was erroneous. The property was in the possession of Wilmarth’s debtor when it was attached, and the plaintiffs, having no possession, claim it as theirs. They were bound to mgke out their title, and the defendant should not have been called upon in the first instance to prove a negative.
    No creditors have expressly assented to the assignment, unless Russell and Vickery shall be considered to have executed it both as creditors and as trustees, (which is not according to the intention of the instrument,) and the assent of creditors is not to be presumed. Widgery v. Haskell, 5 Mass. R. 151 ; Stevens v. Bell, 6 Mass. R. 342 ; Marston v. Coburn, 17 Mass. R. 454.
    It does not appear that the property replevied was required for the payment of assenting creditors, and it was therefore liable to attachment. Borden v. Sumner, 4 Pick. 265.
    
      C. G. Loring, for the plaintiff.
    By the indenture under consideration an insolvent debtor assigns his real and personal property to four persons, in trust to sell it and apply the proceeds among his creditors in proportion to their demands, and there is no stipulation that they shall give him a release. The instrument pursues the very object of a bankrupt law, except that no benefit is secured by it to the debtor ; and it is also in accordance with the object of our attachment law, which is to prevent a debtor from withholding his property from his creditors. And every creditor may be put upon oath as to the justice of his demand. That a conveyance so strictly equitable- should be impeached as a fraud upon creditors, is a novelty in jurisprudence. According to decisions in England, New York and Pennsylvania, and, it is believed, in this Commonwealth, it cannot be regarded as fraudulent. Pickstock v. Lyster, 3 Maule & Selw. 371 ; Estwick v. Caillaud, 5 T. R. 420 ; Gregory v. Williams, 3 Meriv. 582 ; Meux v. Howell, 4 East, 1 ; Wilt v. Franklin, 1 Binney, 502 ; North v. Turner, 9 Serg. & Rawle, 244 ; Nicoll v. Mumford, 4 Johns. Ch. R. 529 ; Shepherd v. M'Evers, ibid. 136 ; Bacon v. De Forest, 2 Connect. R. 633. Now that this Court have extensive chancery powers, the reason urged in Widgery v. Haskell against assignments not expressly assented to by creditors, namely, that we had no court competent to compel the performance of a trust, ceases to apply ; and recent decisions in this Commonwealth will support the proposition, that where it is not intended that the creditors shall execute the instrument of assignment, and the assignment is for their benefit and cannot injure them, their assent will be presumed, until their dissent is proved. Ward v. Lewis, 4 Pick. 519 ; Webb v. Peele. 7 Pick. 247 ; New England Bank v. Lewis, 8 Pick. 113, [2d ed. 119, note 1 ;] Halsey v. Fairbanks, 4 Mason, 206. In the case at bar the assent of all the créditos whose demands were not due at the time of the assignment, must be presumed ; and then, according to the schedule of debts annexed to the assignment, a sufficient consideration is shown ; and the burden is on the defendant to prove the contrary. It is said the assignment is a fraud upon attaching creditors ; but it may with equal force be replied, that an attachment is a fraud upon creditors claiming under the assignment. An attachment and an assignment are both legal modes of securing creditors. It is true that by a conveyance, whether absolute or conditional, a debtor might fraudulently put his property out of the reach of his creditors ; but the burden is on the creditor who would impeach it, to show the fraud.
    But if the Court had not said that the creditors’ assent to such an assignment is to be presumed, and if the assignees were the only creditors to be benefited, still there would be a sufficient consideration to support the assignment. Want of consideration impeaches a conveyance on the ground of fraud, and the burden of showing fraud is always upon the party alleging it. The jury have found that there was no fraud in the case at bar. The legal title passed as against the debtor ; the assignees are the first purchasers ; and the attaching creditor, who claims by a subsequent title, must prove that the title of the assignees is not valid. Holmes v. Love, 3 Barn. & Cressw 242 ; S. C. 5 Dowl. & Ryl. 56 ; S. C. 1 Ryan & Moody, 138 ; Shaw v. Bran, 1 Stark. R. 319 ; Nunn v. Wilsmore, 8 T. R. 521 ; Marbury v. Brooks, 7 Wheat. 558 ; Brooks v. Marbury, 11 Wheat. 96 ; Hastings v. Baldwin, 17 Mass. R. 557 ; Harris v. Sumner, 2 Pick. 138 ; Boynton v. Rees, 8 Pick. 329.
    The opinion of the Court was afterward drawn up by
   Shaw C. J.

Were the validity, effect and operation of a trust assignment, made by a failing debtor, for the avowed purpose of providing for the disposition of his property, and making a ratable distribution of the proceeds among his creditors, upon general principles of law, equity and expediency, so far as a court of law can properly take into view considerations of expediency, now for the first time drawn in question, the able argument of the plaintiff’s counsel maintaining the ground, tha‘ the assignment in question vested the whole of the assigned property in the assignees, so as to bind all creditors and bar the right of attachment, whether the creditors generally, or creditors to any particular amount, had become parties to it or not, would certainly be entitled to great consideration. But this Court is not now at liberty to regard these as open questions. In the absence of a general bankrupt law, a series of judicial decisions has taken place upon this subject, extending over a period of nearly thirty years, founded upon the principles of law and equity, and the nature and extent of remedies as they existed at the time of these respective decisions, by which a system of rules of conduct and action, especially among the trading community, has been established, at least so far as such system can be established by judicial decision and precedent. Under this system, and in reliance upon it, contracts and transfers have been made, rights and remedies acquired, to a large extent ; and it would be inconsistent with the plain principles of justice now to disturb them, or.to change the law, in any other mode than by a legislative act, which should look only to the future, and guard by adequate provis"ons, all acquired and existing rights.

This system recognizes the right of a creditor to attach the personal property of his debtor on mesne process, and to hold it as security for such judgment as he' may recover, being a right founded upon early colonial laws, and uniformly practised upon in this Commonwealth. It also recognizes the right of a debtor to give a preference to one or more of his creditors ; and by agreement with him or them, to transfer a portion or the whole of his property to them in satisfaction of a subsist ing debt, or as an indemnity against a subsisting suretiship u, other liability. Such property may consist, either in real or personal estate, or securities, or choses in action.

It is but a slight extension of this rule, that as the debtor may convey property to one or more of his creditors, in satisfaction of their debts, so he may convey to a third person, appointed by such creditors and for their use, or appointed in the first instance by the debtor, if the creditor afterwards assent to and ratify such appointment. Or the assignee may stand in both characters, acting for himself to the extent of his own debt, and as a depositary and trustee for others, by their appointment or assent.

But if under a pretence of a conveyance for the benefit of creditors,, the debtor transfers his property upon any secret trust for himself, if it is attended with any of the known badges of fraud, not satisfactorily explained or removed, the conveyanee is void at law. As the transaction imports upon the face of it, that the grantor is insolvent, any voluntary or gratuitous conveyance or conveyance without an adequate consideration, is void as against creditors.

From these views of the law, as settled by a series of decisions, it is manifest, that in order to maintain á conveyance to trustees, by a failing debtor, for the benefit of creditors, against an attachment of a creditor not a party to such assignment, it must .appear that the assignment was made upon a valuable and adequate consideration, and in good faith, to satisfy or secure real existing debts, or to indemnify against actual and subsisting liabilities ; and as it appears, by the recitals and terms of such assignment, that the grantor is insolvent, and that no actual consideration in money or other equivalent, is paid by the grantees, such consideration must consist in the. faithful, application of the assigned property to the payment and discharge in part or in whole, of the assignor’s debts and liabilities, or. in an acceptance of the same in satisfaction, by the creditors and sureties 'to whom or to whose use it has been conveyed ; it must appear that such conveyance has been accepted in payment or satisfaction, by such creditors and sureties, .in order to make such transfer complete and available against attaching creditors.

It has been argued in the present case, that as the assignment does not in.terms require the creditors, by becoming parties to it, to release their debts, or take upon themselves any other onerous condition, and as the assignment must of nécessity therefore operate as a benefit to them, their assent is to be presumed. But the Court are strongly inclined to the opinion, that this circumstance of not executing a release, makes no substantial difference, and therefore that in conformity to a series of decisions, it must be held, that the assignment of the whole or the bulk of an insolvent debtor’s property, to assignees selected wholly by himself, and without the knowledge of the creditors, in trust to dispose of the same upon such terms as the debtor alone thinks fit to impose, and to distribute the proceeds among the creditors, does not appear to be so plainly beneficial to them as to come within the principle relied upon in the argument, upon which their assent is to be presumed. It must be considered that by assenting to and affirming such assignment, the creditors do in effect consent that the whole of such insolvent’s available property, instead of being applied to the satisfaction of their debts, according to the rules of law, and under the direction of the creditors themselves, shall go into the hands of a stranger, appointed by the debtor, and under his direction. We think it would be difficult to presume without proof, that the creditors have assented to an arrangement which thus defeats their legal remedies, .especially against a creditor, who by bringing his suit and attaching the property, has expressed his dissent from, and disaffirmance of the assignment.

But this point does not necessarily arise in the present case. It does not appear that there were creditors whose debts would be sufficient to absorb the assigned property, even if their assent, without their becoming parties, could be presumed. It appeared in evidence, that a large amount of property was assigned, and that the amount due the assignees and those whom they represented, was small. In this state of the evidence, it was ruled, that the burden of proof was upon the defendant to impeach the consideration, as being fraudulent against creditors. Such is undoubtedly the rule, in ordinary cases of the conveyance of property, impeached oh the ground of being intended to delay or defeat creditors and fraudulent upon that ground.

But for the reasons before stated, a different rule prevails where the assignment, on the face of it, purports to be made by an insolvent debtor to trustees, for the use of creditors, and where the conveyance does not purport to be made upon consideration of money paid. There we think the burden of proof is upon the assignees’ to show an adequate consideration for. the assignment. What is an adequate consideration, depends much upon circumstances which may be extremely various, and in regard to which it is not now necessary to express any opinion.

The Court are all of opinion, that in the state of the proof upon the trial of this cause, the suggestion from the court, that the burden of proof was upon the defendant, and that the plaintiffs as assignees, were under no necessity of proving the existence of their own debts or of the debts of other creditors, as a consideration for the assignment, was incorrect, and therefore that there must be a new trial. 
      
       See St. 1838, c. 163 ; St. 1836, c. 238.
     
      
       See Copeland v. Weld, 8 Greenleaf, 411; Brewer v. Pitkin, 11 Pick. 298; Bradford v. Tappau. 11 Pick. 76; Fall River Iron Works Co. v. Croada, 15 Pick. 11; Todd v. Bucknam, 2 Fairfield, 41; Wiley V. Collins, 2 Fairfield ,193; Cunningham v. Freeborn, 11 Wendell, 240.