Court Opinion

ID: 6668800
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:07:59.954909+00
Date Added: 2024-06-11T16:00:25.912348
License: Public Domain

Tuck, J.,
delivered the opinion of this court.
The appellee, claiming under a bill of sale from Henry Kennedy, instituted an action of trover, to recover the value of a negro woman from the appellant, who was in possession, and claiming title, as the trustee of Kennedy, under the insolvent laws. The defendant offered evidence to shew, that the bill of sale was void as against the creditors of Kennedy, under the statute of 13 Elizabeth, ch. 5, and under the act of 1846, ch. 271, which requires an affidavit of the fairness of the consideration. The testimony was rejected: the court being of opinion that it was not competent for the trustee to impeach the bill of sale on these grounds.
It is said, that because this deed is valid as against the grantor; it is also good against the trustee, who derives his title under the deed from the insolvent; and that the creditors *470alone can avoid this instrument by proceeding against the grantee, as a trustee for their benefit. The effect of this view, would be, to give to the creditors an interest in a deed which the law pronounces to be void, as to them, and against which they claim. The interests of the grantee and the creditors will always be opposed, and hence, there is good reason for permitting the trustee to take the property, for the benefit of the creditors, whose rights might not be so well protected by another, having a strong motive to defeat their claims. If the property passed to the grantee, charged with an equity in favor of the then existing creditors, and was void, only to the extent of their claims, the grantee, himself, would be entitled to the surplus, after satisfying these debts. But is this the case ? When a deed is set aside for fraud in fact, at the instance of creditors, who were such at the date of the deed, subsequent creditors have been allowed to come in, and participate in the fund. 2 Bland, 35, and the cases therein cited. 1 Story’s Eq., 361. Ede vs. Knowles, 2 Younge and Collier N. R., 172, 178. Such deeds are said to be void, ab initio, and not to be recognised for any lawful purpose — not even as security for advances, and improvements made on the property by the grantee. 2 Harr. and Gill, 261, Starke vs. Macdonald.
The fact, that such deeds are void, as against existing creditors, shews that the title remains in the grantor for their use; and it is on this principle that the property may be seized and sold, after the deed, for payment of their claims. Under such a proceeding, the officer sells only what the creditors have a right to, yet the vendee takes the property by a title superior to that of the grantee, under the deed. If the property may be taken and applied, in this way, in satisfaction of creditors* demands, why may it not, in any other way, (by the insolvent laws, for instance,) be taken and applied to the same purpose ? The argument of the appellee, that the trustee can take no more than the insolvent can convey,- which he says, is nothing, (the deed being good as against him,) overlooks the design of the insolvent laws, as well as the true charac*471ter of the interest that creditors have, in property so situated. Our insolvent system, while granting relief to the debtor, also protects the creditors to the full extent of the property to which they may look for satisfaction of their claims. This is done by taking all his property out of his possession and control, and placing it in the hands of the law, by the agency of a trustee; and by giving to the trustee power to sue for, and reduce to his own possession, all the effects of the petitioner, which are liable for his debts. And so exclusive is this possession and control, that the trustee takes the estate free from the interference of the sheriff, mortgagees or others, having prior liens, subject, however, to all such liens, in the distribution of the trust funds; “ The leading and general design of the insolvent system is, to insure a prompt and complete settlement of all the affairs of the party; and to facilitate these objects, the law has wisely given to the trustee, the entire management of the estate, subject to the control of the court by whom he is appointed, charging him with the duty of paying off liens, incumbrances,” &c. 5 Gill, 178.
One object of the system is to prevent confusion and possible conflict of jurisdiction, by an entire administration of the insolvents estate, in one court.
But the trustee does not claim as an ordinary purchaser, under the insolvent law. In such a case the grantee takes nothing. But here, he cannot be considered as voluntarily conveying their property. In fact it is no part of his design, to pass the title to the trustee for the benefit of the creditors, whom he has attempted to defraud by the previous assignment, But the trustee takes the property against the will of the grantor. The fraudulent intent is thus frustrated. The deed is made necessary to his discharge; and without this he cannot obtain the benefit of the insolvent laws. The trustee becomes the mere officer of the law, designated not by the insolvent, but by the court, to effect what the law designs, and nothing more. And he takes all that remained in the petition, which the creditors themselves could claim, in any form of proceeding, for the payment of their demands. This is the *472design of the law. It is the effect of the proceedings in insolvency. It is conceded, in argument, that if this were the case of an assignee, claiming under the bankrupt laws, the title of the appellant would be good. Looking to the frame and design of an insolvent system, we cannot perceive that there is any material difference between it and the proceedings in bankruptcy, as far as the title to property so situated is concerned. Although the act of 1827, ch. 70, requires a deed to be executed, yet it would seem, that the title to all the property of the insolvent, vests in the trustee by operation of law. 1805, ch. 110, secs. 4, 5. 1808, ch. 71, sec. 3. 1812, ch. 77, sec. 6. Gardner vs. Lewis, 7 Gill, 377. The 8th section of the act of 1827, ch. 70, subjects property not included in the schedule, to execution and attachment; but we apprehend that the effect of such a proceeding, would be only to give the creditor a lien, and not to divest the right of possession of the trustee. All the property passes to the trustee subject to liens and incumbrances. 5 Gill, 178. 7 Gill, 377. This construction does not change, or in any degree impair, the rights reserved to creditors under the statute of Elizabeth, and the act of 1846. The design of these laws was to secure the property, so conveyed, to the use of creditors. Our insolvent system provides a person, whose duty it is to represent creditors, and to assert their claim to property fraudulently conveyed away by the petitioner.
We are not aware that this question has ever been expressly decided by the Court of Appeals of this State. There are cases, however, in which it might have been raised, and we think the recognition of the trustees right to sue, may be inferred from the circumstance, that it has not been denied by any court of the State, as far as we are informed, during the long time that our system has been in operation. Most of the decisions under our insolvent laws, have been made in cases where the trustee sought to vacate fraudulent preferences, which our acts of Assembly declare to be void; and the title vesting in the trustee under these acts, his right to *473sue has not depended on the character of these deeds, in view of the statute of Elizabeth.
In Kipp vs. Hanna, 2 Bland, 24, the late chancellor, at the instance of a trustee, vacated a voluntary deed of the insolvent, in favor of his wife and children; it was there held, that all the property of the petitioner vested in his trustee, for the benefit of creditors, at the time of the application, and discharge ; and the parties in possession, were held to account for the rents and profits.
In the case of Gatchell, trustee of Uhler vs. Reynolds, et al., June term 1837, (not reported,) the notes of counsel taken by the reporter, shew that the deed was assailed as void under the statute, and also, as an illegal preference under the insolvent laws. It does not appear that the counsel for the grantees in the deed, questioned the right of the trustee to sue, though affirmed on the part of the appellant. No opinion was filed, but the decree of the chancellor was reversed, and the deed avoided. In 7 Gill, 369, Richards vs. Swan, a bill was filed by creditors against the grantees of Dent, to vacate his deed as fraudulent ? At the hearing it appeared that Dent had petitioned for the benefit of the insolvent laws, and that Richards, one of the defendants charged with the fraud, was his trustee. The chancellor directed the case to stand over, with leave to make the trustee a party 5 which was done and the deeds vacated. Pending a hill in chancery filed by Winn and Ross and others, creditors of Jones, to set aside a deed as fraudulent, Jones became an insolvent petitioner, and Winn and Ross were appointed his trustees. They came in by petition, and prayed leave, by an amended or supplemental bill, to set out their title as such trustees. This petition was resisted, but the present chancellor allowed the bill to he filed. 7 Gill, 454, 456. It does not appear that any decision was made in the Court of Appeals, on these applications, but the proceedings in the chancery court indicate that the trustee was deemed a necessary party; and it would seem to have been quite useless, if, as is contended by the appellees coun*474sel, the trustee has no interest, and the deeds can be vacated only at the instance of the creditors themselves.
In 4 Gill & Johns., 23, a bill was filed by an insolvent’s trustee to set aside two deeds, one of which was alleged to be void, because executed with intent to hinder and defraud creditors, (that is, against the statute of Elizabeth,) and the other as void under the insolvent laws. It does not appear that any question was raised as to the trustee’s right to file the bill; the case in this court, however, was disposed of on a collateral point. See also the case of Beatty vs. Davis, December term 1850, where a bill was filed by the trustee, and his right to sue was not questioned. The assignee- of an insolvent debtor represents the creditors for all purposes, and if any frauds exists in a transaction to which the insolvent was a party, the assignee may take advantage of it. A deed void as against creditors, is void also against those who represent creditors. 11 Mees. & Wels., 531. 6 Rand., 748.
In 2 Wharton, 240, the question arose in a case very much like the present; and chief justice Gibson held that the trustee might sue in his own name, as well as by reason of his title under the assignment by the insolvent, as by the operation of the insolvent laws in passing the title to the trustee.
It is also insisted on the part of the appellee that the proof was irrelevant and insufficient for the purpose for which it was offered. This court has decided at the present term, that where the property passes with the deed, it need not be recorded, and in such case the act of 1846, ch. 271, does not apply. Bryan & Berree vs. Hawthorn. Whether the property was delivered or not, was a question for the jury on the evidence offered on that point.
In questions of fraud, any fact, however slight, if at all relevant to the issue, will be admitted in evidence, though the circumstances when combined must be so strong as to satisfy the jury of the fact sought to be established. 5 Gill & Johns., 269. If any portion of the evidence objected to was admissible, the court were in error in rejecting the whole. Budd vs. Brooke, 3 Gill, 220. The pecuniary condition of *475Ilemxerlj at the date of the deed to Dashiell, the time of his application for the benefit of the insolvent laws, and that these debts were not paid, may have been mateiial facts on ‘the question of his intention in executing the deed. The insolvent papers were the best evidence that he could offer of the time of the application, and the parol evidence tended to prove the other facts.

Judgment reversed and procedendo ordered.