Court Opinion

ID: 6578180
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:36:08.935026+00
Date Added: 2024-06-11T15:56:56.950459
License: Public Domain

Butler, J.
In this case judgment must be advised for the plaintiff.
The finding discloses an attempt by a debtor in failing circumstances, and with a view to insolvency, to prefer a creditor and relieve sureties. The means adopted were the making of a new note, procuring the indorsement of it by one of the sureties as an ignorant indorser, taking the avails of the discount to pay the old note, and the conveyance of the property of the debtor to such indorser, ostensibly as a “ security,” within the meaning of the 7th section of the insolvent act, but in fact as an absolute conveyance for the purpose of paying the new note.
The illegal intent of Henry the debtor and North one of the sureties is found; but it is also found that Todd, the other surety and the indorser of the new note, did not know that the avails of the new note were to be used by Henry in paying the old one, with intent to prefer creditors and in view of insolvency. That part of the finding is conclusive, so far as it can be operative. Nevertheless the transaction was illegal.
The instrument by which the property was conveyed is anomalous ; but construing it with reference to the situation and circumstances of the parties, (Strong v. Benedict, 5 Conn., 210,) and the character of the property, it obviously is not such a “ security ” of an indorsement, or such a transfer made in good faith in the regular course of business, as the 7th section of the act of 1858 contemplates and exempts.
It is not on its face a mere mortgage. Although it is in form a bill of sale with a defeasance, it has superadded a provision for the immediate disposition of the property to pay the note. That provision is not a power of sale consistent with the condition of defeasance, and in aid of the purpose of the instrument as a mere security, for it is not the usual and consistent power to sell after a default in the performance of the engagement secured, and in contemplation of a performance by the grantor, but an agreement that he may sell immediately and appropriate the avails in payment of the note at or before maturity. It is not found that Todd was ignorant of the fact that Henry was in failing circumstances, and looking *559at the situation and circumstances of the parties, the form of the instrument, and the fact that the property was all the stock in trade, fixtures, &c., of a merchant, it is perfectly apparent that the property was transferred and received, not in good faith in the regular course of business, nor to be holden in good faith as a security in expectation of a performance of his engagement by the principal, but to be sold by the defendant as agent or trustee in order to pay the note ; that it was virtually property set apart and appropriated to the payment of a specific debt which was not “ incurred by the purchase of property ” or “ due at the time; ” and that the condition of defeasance and the discretionary form of the provision for a sale were mere devices to conceal the real nature of the transaction.
It is very clear that the legislature did not intend to exempt such a conveyance from the provisions of the first section of the act; and that, if this should be sustained, a failing debtor would not find it difficult to turn his property into money, sell it in fact, and prefer or defraud his creditors at pleasure in defiance of the act. Men may always be found to aid a failing debtor to turn his property in such manner into ready money for a consideration, if the law would permit them to do it with safety to themselves.
Notwithstanding therefore the court have found, and the fact must be taken as true, that the defendant knew nothing of the use or purpose to which the avails of the note of September 8th, were to be appropriated, and regarding the indorsement of that note and the taking of the bill of sale as together constituting an independent transaction, the conveyance was illegal and void, and judgment should be rendered for the plaintiff.
In this opinion Hinman, O. J., and Sanford, J., concurred. McCurdy, J., dissented. Dutton, J., having been consulted in the case when at the bar, did not sit.