Court Opinion

ID: 7131952
Source: CourtListenerOpinion
Date Created: 2022-07-24 15:19:47.254257+00
Date Added: 2024-06-11T16:14:30.165448
License: Public Domain

Chief Justice Pryor
delivered the following dissenting opinion:
The intent of the grantor in making a conveyance or the assignor in making an assignment, is the important inquiry in determining' the validity of the instrument when assailed for fraud; and if the motive for making the conveyance and the purpose to be effected by it is illegal if carried out, the conveyance will be canceled.
That this is the undoubted rule to be applied between the debtor and grantor on the one side and his creditors on the other, will not be denied. In fact, there is no essential difference between my associates and myself as to this general doctrine; but when applied to the facts of the particular case, I feel compelled to dissent from the opinion rendered. This conveyance is assailed by the appellant, one of the creditors of Payne & Yiloy, on the ground that it was made to delay, hinder or defraud their creditors, and, therefore,- under the statute against fraudulent conveyances, is void. The assignment was adjudged valid by the court below, and that judgment has been reversed.
I maintain, first, that no creditor has been defrauded by the execution of the conveyance, or hindered and delayed in the collection of their debts ; second, that if the debtors were insolvent when they made the assignment, and by its terms disposed of all their property for creditors without preference, and reserving no advantage to themselves to the prejudice of creditors, the chancellor will not look to the motive influencing the debtors in its execution — that, although the prime object in making the assignment was the hope, expectation or belief on the part of the debtors that the cred*470itors would release them from the balance of their debts, or would decline to prosecute them for crimes committed originating out of their business transactions, such purposes or intention can not affect the validity of the instrument, unless an agreement to com pound the felony has been shown, or by the terms of the assignment the title was to vest in the assignee for creditors on such a condition. I shall assume, therefore, that Payne & Yiley commenced a system of fraud by repeated promises to pay, and the renewal of paper to the banks so as to give them ample time to prepare for an assignment that would result, in their opinion, in the delivery to them of their warehouse receipts by their creditors, and in that manner escape all criminal responsibility.
The concession made is broader, perhaps, than the facts justify, but necessary to meet the legal questions, or rather the view taken of this case by my associates.
If the purpose to be effected by the assignment is illegal, that is, if the illegal consideration becomes a part of it, either expressly or by fair construction, or is to be carried out by the parties interested, whether by secret agreement or otherwise, then the assignment is void.
When absolute and unconditional, and the assignment is made not only to secure honest debts but all the tona fide debts of the grantor, then the motive to constitute the fraud must in some manner enter into the transaction itself in order to affect innocent parties or honest creditors.
The reason is, that it is not unlawful for a dishonest man, one whose life has been mainly devoted to de*471fraud jug others, to make an assignment for the benefit ■of all his creditors; and although the prime purpose is the belief on the part of the debtor, at the time he executes it, that his creditors will then be merciful to him and relieve him from punishment for crime, it is not •such a motive as should cause the chancellor to cancel .a conveyance equitable in all of its terms and just in its results.
When the intent is unlawful and enters into the agreement, it is not doubted that the conveyance is void; the sufficiency of the consideration in such a case will not uphold the conveyance, and as was said in Vernon v. Morton, 8 Dana, 247, “if the object be to delay and hinder creditors, the just and equitable distribution of the effects among all creditors” will not .save the conveyance. Men do many lawful acts from impure or improper motives; but the vicious purpose will not of itself render that unlawful that without it would be lawful. It was the duty of the debtors in this case, both in law and morals, to secure equality among their creditors. The claims upon them by those they had defrauded, as well as all other creditors, ■demanded of the debtors in their insolvent condition that an assignment should be made. They could make no preference, and when providing for creditors they were compelled to secure equality to all. The act of an insolvent debtor in producing equality between creditors in the distribution of his assets is both commendable and lawful, and when done, it is immaterial what motive prompted the debtor in its execution. The motive may be corrupt, but when no creditor has been injured by it, and no advantage obtained by the *472debtor under it, either by an agreement with creditors- or others, the act is lawful, and the transaction should not be disturbed. The creditor who has been provided for with all others under the same instrument will not be listened to because his vigilance has enabled him to discover an impure motive on the part of the debtor-in its execution. The assignment had been accepted by the assignee, and also by nearly all the creditors, including the President of the appellant, before the-latter obtained its attachment; but it is alleged, and. doubtless true, that when the assignment was accepted, or the resolution passed directing the assignee to sell and pay creditors as soon as practicable, and for which the President of the appellant voted, the latter was-not aware of the contents of the assignment, or the motives causing the execution of the instrument.. While one can not be estopped by reason of the-existence of facts he could not have ascertained — and I do not propose to rest the determination of this case-on the doctrine of estoppel — it shows the danger in permitting mere intent and motive to invalidate an. instrument lawful in itself, protecting the rights of all and injuring no one. What facts were discovered and really existed % It was ascertained that Payne & V iley had, in dealing with the appellant (a bank), and many other banks, subjected themselves to a prosecution for felony by reason of certain warehouse receipts they had. deposited as collaterals. That they were or had been maturing a plan to compromise with creditors and get possession of those receipts that evidenced their crime. That in order to do this they obtained renewals of their paper from time to time, until a period had been. *473reached when they could make an assignment, and bring, as they believed, the creditors to the desired compromise.
They then made the assignment with all their motives unknown to any creditor, and it is now held that the discovery of the fraudulent purpose must cancel the deed and give the assets to the attaching creditor to the exclusion of all others. The intent, purpose and belief -formed no part of the contract, but was tire inducement to do an act which every principle of equity and justice demanded should be done. That which was lawful is set aside, and that which seems to me to be inequitable and unjust directed to be substituted by the chancellor.
It is proper to examine the cases in which the general doctrine as to intent on the part of the grantor has been applied, and the utterances made in the opinions delivered, now relied on as establishing the principle to be followed by the chancellor in the present case. The facts and circumstances connected with those cases may be and are essentially different from the one under consideration, and, therefore, the propriety of making the investigation to see how this doctrine has been applied, so as to enable ns to distinguish the one class of cases from the other. It will be found that those utterances were made either in cases where there was no fraud established, as in Vernon v. Morton, 8 Dana, 247, and Bank of U. S. v. Huth, 4 B. M., 423, or in cases where the fraudulent motive or intent affected the rights of creditors, or resulted in some advantage to the debtor or the grantor. In the case of Ward v. Trotter, 3 Mon., 1, the consideration was sufficient, but *474the fraudulent intent appearing on the face of the deed, it was held as a matter of law that the deed was void. The facts being conceded, the legal question was alone raised.
The recital in the deed in that case was, that the debtor had ample property to pay his debts, but made, the conveyance to prevent a sacrifice of his property. In the late case of the German Insurance Bank v. Nunes, 80 Ky., 334, the debtor made an assignment of like character, the deed expressing on its face that he had ample estate to pay his debts, but to prevent a sacrifice of his property he conveyed it to an assignee for his creditors. Extraneous proof might have been offered, in the absence of such a stipulation in either deed, that the grantor had ample property to pay his debts and the chancellor would have canceled the conveyances.
Suppose, however, an assignment is made declaring the insolvency of the debtor and his purpose to have his creditors share equally in his assets, but it appears that the debtor said, at the time of its execution, he made it to prevent creditors from suing him, and require them to purchase his property for more than its value, or that he had forged a note on B, one of his creditors, and he believed, unless he made the assignment, B would prosecute him; that but for the fear of a prosecution he would not make the conveyance. Now ought the chancellor, at the instance of a creditor in either instance, disregard an assignment placing all on terms of perfect equality for the benefit of one creditor, by reason of a motive or intention unknown to any creditor, and communicated only to the confi*475dential friends and advisers of the debtors? Opinion after opinion may be found where the consideration is sufficient, and the creditors placed on terms of perfect equality, and 'still the assignment has been held fraudulent, because, on its face or by its very terms, the intent of the debtor is made manifest; as in the cases cited, where the debtor in his assignment says that he has an ample estate to pay his debts, but to prevent a sacrifice by creditors, he transfers his property for the benefit of all.
In those cases the intent to hinder is plain, and as a matter of law, from the recital, the assignments will be held fraudulent. So we see from those cases.what is meant by cancelling a conveyance made to hinder and delay creditors, although it be made upon a good consideration, or for the just and equitable purpose of securing an equal distribution between creditors. Such intention must not only produce but enter into the execution of the instrument. Although the consideration is sufficient, if the intent to hinder and delay appears, the assignment will be disregarded. The mere declaration of the intent, or the purpose, or where devices have been resorted to in order to accomplish the intent, when no fact appears showing a hinderance or delay, but, on the contrary, it appearing there was neither, the chancellor will not long hesitate before pronouncing the act valid.' There is no benefit reserved in this assignment to the debtors; nothing compulsory on the assignee or the creditors, the assignee being required to sell as soon as practicable and pay the debts. The hope, expectation, the motive, made known only to counsel and friends, cannot affect the rights of creditors.
*476If the rule of equity is applied as in the principal opinion, and the fraud practiced on creditors prior to-the assignment, and traced to the day of its execution, is to affect creditors, to what extent is the doctrine to be carried? Can a debtor who has defrauded his creditor make a general assignment ? If so, what mere motive or intent will defeat it ? Every intent that is not innocent, but what, if carried out, would be unlawful, must, if this rule is established, be the guide. Innocent beneficiaries, whose rights are secured by it,, must always be governed by the intent of the maker, although the act done is lawful. A field for judicial speculation is opened ■ that, in my opinion, places the honest creditor at the mercy of the insolvent debtor, who, while he cannot prefer under the statute, may protect his favorite creditor by a general assignment, with a fraudulent intent that the latter may obtain his attachment and secure his debt. The barriers against fraud are removed and the dishonest invited to enter. The punishment inflicted on the maker of such an instrument is but what he invites and is willing to receive for the protection of his favored creditor. The innocent are made to suffer for the motive and intention of the wrong-doer, that forms no part of a contract that is legal, just and equitable to all.
I concede, as all the authorities say, that an intent to defraud, when established, avoids the assignment; but, says Mr. Burrill in his work treating of this subject: “In determining whether an assignment is or is not fraudulent against creditors, the question is said to be not whether fraud may be committed by the assignee, but whether the provisions of the instrument *477are such that, when carried out according to their apparent and reasonable intent, they will be fraudulent in their operation.” (Burrill on Assignments, section 35.)
What is the assignee required to do under the assignment in this case? IIe is to sell the property in a reasonable time, and divide the proceeds between ■creditors. No felony has been compounded or criminal prosecution abandoned, but, on the contrary, as appears from the record, no such proposition would be listened to by creditors, and the debtors sought refuge from prosecution in going to the Dominion of Canada. That the debtors defrauded the appellant, as well as many other banks, who are now. claiming an equal ■distribution with it, is evident. That they delayed and postponed the time for making the assignment by false promises in order, to accomplish their purpose, which was to avoid a prosecution, is equally manifest; “but while this fraud and delay and false promises affected one creditor as much as another, in what manner did an assignment for the benefit of every creditor Payne & Yiley had, hinder, delay and defraud creditors in the collection of their debts? They may have defrauded them by constant promises to pay, and delayed the bringing of any action against them for the purpose of making the general assignment; but at last, in what manner is this assignment fraudulent in its operation, and in what respect does it hinder and delay creditors ? The response must be that it neither hinders, delays or defrauds creditors, and is just such a distribution of the assets as the debtors should have made, and such as the law required them to make.
*478Payne & Viley had divested themselves of all title to the property. The estate was in the hands of an assignee for the benefit of those entitled to it. The delay was only such as pertains to every ordinary assignment, and the fact that the debtors believed that this one apparent evidence of honesty would appeal to the mercy of wronged creditors, affords no reason in law, equity or justice, for the interference of the chancellor and the cancellation of the assignment.
“Assignments must be absolutely and fairly made for the genuine- purpose of paying honest debts, and not for the use and benefit of the grantor, or to hinder and delay creditors.”- (State v. Benoist, 37 Mo., 500.) This is a correct rule, but it does not mean that, if made with the intention merely to use it for the benefit of the grantor to accomplish some vicious purpose, that it is fraudulent as to creditors who are not parties to the wrongful intent. The assignment is for the benefit of all creditors. It vests the assignee with the absolute title, and no right to use it for a bad purpose exists with the grantor without the assent of the beneficiaries in the deed; and when that assent is obtained, or the right of the creditor to the property or its proceeds is made to depend on the exercise of such a use by the grantor, the instrument is then fraudulent and void.
Prior to the act of 1856 a debtor in this State, although insolvent, could, in good faith, secure one creditor in preference to all others. Now suppose, as the law then existed, the debtor had secured an honest debt to a tona fide' creditor, the security being fair and reasonable in its terms, but it appeared that the intent of the debtor was to secure the one creditor, so as to *479force a compromise with the other creditors by which they could be induced to take less than the real amount of their debts. This intent is unknown to the secured creditor, but he stands innocent of any wrong. Now, will it be maintained that the deed is fraudulent as to this creditor, because of the improper use the debtor proposes to make of it? Surely not.
In the investigation of this case, since the original opinion was delivered, I have read the case of Marbury v. Brooks, reported in 7 Wheaton, 556, the opinion delivered by Chief Justice Marshall, a case bearing a striking analogy to the case before me, and one not before the court when this case was considered. Fitzhugh had executed his notes for large sums of money in December, 1819, and forged the names of certain parties as indorsers of the paper, and then discounted the notes in certain banks. Fitzhugh. being unable to meet the paper at maturity, with a view of pacifying the banks, executed to one Marbury a deed to valuable property for the benefit of the defrauded creditors, they to be first paid, and the balance, if any, to go to the unpreferred creditors. Fitzhugh then fled the country, and the unsecured creditors obtained their attachments that were levied on the property.
They contended that the. consideration of the conveyance was illegal because executed for the purpose of suppressing a prosecution by the banks for the felony. The testimony in the case, says the great jurist, '‘was abundantly sufficient to justify the .jury in drawing the inference that the deed was executed by Fitzhugh in the hope that payment of the forged *480notes would enable him to escape a prosecution, and that the same hope was entertained by Marbury, the assignee.”
The jury, at the instance of the banks, was in substance instructed by the court below “that if this purpose or motive on the part of Fitzhugh and Marbury was unknown to the banks, and accepted by them without any agreement, express or implied, to suppress or forbear the prosecution of Fitzhugh, they must find for the banks.” This instruction was excepted to, and the creditors asked the following instruction: “That if from the evidence the jury believed that the deed was devised and executed by Fitzhugh, and procured and accepted by Marbury, with the motive and intent and for the purpose and object of suppressing a prosecution against Fitzhugh by prevailing with the holders of the forged notes to forbear and forego a prosecution for the forgeries, that then the deed is fraudulent and void in law as to the plaintiffs.” The instruction was refused. The Chief Justice, in discussing this last instruction, says in substance that it is of doubtful meaning, and if confined to the stipulations of the deed, is in conflict with the instructions given for the banks. “But if counsel is to be understood as asking the court to say, that if the deed was to be used by Marbury as an instrument by which to procure the suppression of the prosecution, that being the condition on which the holders of the forged notes were to entitle themselves to its advantages, it was fraudulent and void as to the plaintiff, there can be no doubt- but that the instruction should have been given,” etc.
*481The counsel for the plaintiffs also asked the court to instruct the jury “that if the great majority of creditors in number and value of said Fitzhugh were by means of said deed unjustly and purposely hindered, delayed and defeated in their proper suits and remedies for the recovery of their debts on the absconding Pitzhugh, and that the deed was executed with the purpose of defeating all legal recourse in behalf of the unsecured ■creditors against the property of Fitzhugh, then the ■deed is fraudulent and void.” This instruction was refused, and for the reason that the debtor had the right to prefer one creditor over another. In discussing the facts of that case the Chief Justice said : “ This ■act was entirely consistent with law. His right to give the preference is not questioned, nor is the validity of the consideration, so far as it moved from creditors infected with any vicious principle, or in any manner .brought in doubt. Every thing on the part of creditors is exceptionally fair and legal.”
The case cited meets directly .the question of motive .and intent, where the act done is lawful, and the intent •alone of the grantor when executing it is vicious. Here the creditors connived at no fraud or vicious act on the part of the debtor. They were innocent in their acceptance of a writing lawful on its face, just and equal to all, of any impure motive on the part of the maker.
Creditors are entitled to demand equality when their •debtor is insolvent and undertakes to make provision for them.
The principle recognized in Marbury v. Brooks should apply with greater force in this case, because *482there a certain class of creditors were preferred; but. here all are placed on an equal-footing.
The legislation of this State affords a guide to the chancellor when called on to determine the validity of such assignments. The statute in regard to fraudulent conveyances is not only in force, but by section 1 of article 2, same chapter, it is provided, “that every sale, mortgage or assignment made by debtors, and every judgment suffered by any defendant, or any act or device done or resorted to by a debtor in contemplation of insolvency, and with the design to prefer one or more creditors to the exclusion in whole or in part of others, shall operate as an assignment and transfer of all the property and effects of such debtor, and shall inure to the benefit of all his creditdrs.”
Insolvent debtors in their effort to secure creditors, often gave priority by mortgage and assignments to-those more vigilant than others, and to prevent such a preference, and place all creditors on terms of equality, when the insolvent debtor attempted to prefer, by any plan or device whatever, it was provided that, such a preference should, by operation of law, pass the-whole of the debtor’s estate to his creditors.
The law makes the assignment for him, and all are-permitted to share equally in the assets, subject to-existing liens, or such as are given by the statute. The securing of one creditor by the debtor when in this insolvent condition has been held by this court, in repeated decisions, to evidence his design- to prefer.
So in July, 1884, or at the time the assignment was made, and long before, these insolvent debtors could have' made no preference between creditors without *483being guilty of constructive fraud, and passing their whole estate to all creditors.
The limitation to a proceeding for constructive fraud in such a case is six months, and if assailed by a creditor within that time the chancellor would have said to Payne & Viley, you have violated the statute by giving a preference, and I will now do what you should have done, pass your whole estate in the hands of a trustee or commissioner for the benefit of all your tona fide creditors. So these debtors could secure no creditor or make terms with any, because it would have resulted in an assignment to all; but when they make an assignment to all, they are then told that the intent was vicious, and, therefore, the doctrine of equality is disregarded, and the attaching creditor is at last given the preference over all others. Payne & Yiley occupied the anomalous position of being unable to secure one creditor, and in their condition unable to secure all alike.
They had progressed so far with their fraud and their vicious motives leading to the assignment that no act, however lawful, done by them, could be free from the taint of fraud or corrupt intent. The policy and wisdom of the Legislatute pointed out to the debtors the path they were to pursue in their deplorable condition, and while they may have obscured it in being prompted by an unlawful .motive, the act itself being lawful, innocent parties will hold under it. Every principle of law, justice and equity will sanction the act, while no judge or chancellor can approve the motive prompting its execution. Other questions have arisen about which a difference of opinion *484exists, but I am content to confine my views of the case to the principal question involved.
My individual opinion is, although, not necessary to the decision of this case, that no general assignment •can in any case be held fraudulent by reason of the ■equities of the statute in regard to preference, unless the creditors or some of them participate in the fraud.
In the case of Bancroft v. Blizzard, 13 Ohio, 40, 41, under a statute similar to ours, the court below instructed the jury that if the conveyance in trust was made by the debtor with a fraudulent intent it was void, although neither trustee or creditor participated in the fraud. This was held to be erroneous, one judge dissenting, the court saying: “Naked justice between creditors consists in an equal distribution of the debtor’s property among all in the same proportion. If a debtor appropriates his property in a manner most consistent with the statute law and the principles of equity, and with the demands of pure justice, the validity of the transaction should not be impaired, although his intentions are fraudulent. The act is right, although the motive may be -wrong. Conformably with this doctrine, it has been often held that a purchase by an honest purchaser is not tainted by the fraudulent intent of the vendor.”
In the case of Emerson v. Senter, reported in 118 U. S., 3, the Supreme Court, through Mr. Justice Harlan, said: “If the intentional omission by the grantor of certain property from his schedule, and his appropriation of it to his own use, was such a fraud as would vitiate the deed when the assignee or the preferred creditors have previous notice of such omission, that *485result can not happen when they were ignorant of the fraud at the time they accepted the benefit of the conveyance.”