Court Opinion

ID: 6947704
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:27:32.725921+00
Date Added: 2024-06-11T16:07:58.496109
License: Public Domain

Catón, J. This looks very much like a fraudulent transaction. Before and at the time of the sale of this property to James Digby, the validity of which is now questioned, Digby & Sears were indebted to various persons in the sum of about $10,000. Of this, about $2,700, due to several persons in various amounts, had been, a few days before the sale, secured by several mortgages upon the real estate sold to James Digby. In December, 1846, Theodore Digby and Digby & Sears convey to James Digby all of their real and personal estate, including the real estate mentioned in the bill, and two stocks of goods, with which the firm had been doing business. What was the value of the real estate the testimony does not inform us; but it appears that the stocks of goods were worth about $3,500. The deeds of conveyance for the real estate, express the consideration of one dollar. The answers show, that at the time of the transfer of the real and personal estate, and in consideration thereof, James Digby executed to Digby & Sears, his five several promissory notes, for the aggregate sum of $6,299, payable in two, three, four, five, and six' years from date. The answers further show, that it was agreed between the parties, at the time, and as a part of the original transaction, that James Digby should pay these notes by liquidating that amount of the indebtedness of Digby & Sears, and that he should sell the real estate, and with the proceeds pay off the incumbrances upon it; and if there should be any surplus, to apply that also in the payment of the debts of the firm. At the time of the transfer the creditors were pressing their demands against the firm. These are the leading features of the transaction, about which there is no dispute, and it admits of but one construction. The purpose to be subserved by it, is hardly attempted to be disguised. That was to place all of the property of the debtors beyond the reach of their creditors. The debtors were insolvent; their creditors importuning for their pay. They transfer all their property, both real and personal, to a brother of one of the debtors, upon such terms as leaves it out of their power to pay one dollar of their debts, at least before the expiration of two years, and leaving nothing within the reach of the creditors with which they may seek satisfaction. The real estate is expressed to be conveyed for a nominal consideration, but, as the defendants say in their answer, with the secret trust to pay the debts of the grantors. It is not even pretended that this was an absolute" sale of the property. If this transaction had expressed upon its face, what the parties now say it really was, an assignment in trust to pay the debts of the assignors, it could not stand the test of legal scrutiny for a moment. As an assignment in trust to pay creditors, it is void, because it fails to fix the rights of the creditors, or to secure them. After the payment of the second debt, every thing is left to the discretion of the trustee. He may pay whom he pleases, and when he pleases. He is at liberty to coerce the other creditors into such a compromise as he may choose to dictate. He is not bound to distribute the fund pro raid among all the creditors, or to pay it to any specified creditors. With the funds in his hands beyond the reach of legal process, he might say to any creditor, unless you will take fifty cents on the dollar and release your claim, you shall get nothing, for enough will be found before the expiration of six years, who will be glad to do so, and thus absorb all the fund. No matter what may have been the real motives of the parties, this feature of the transaction is, of itself, sufficient to condemn it, as a legal fraud. Put the most favorable construction upon it possible, and the true features of the transaction are covered by a very flimsy veil. A debtor in failing circumstances is only allowed to place his property beyond the reach of his creditors, by making a general assignment of all his property, when he does so for the benefit of the creditors, by devoting it fairly to the payment of his debts, and not with a view to his own advantage, by forcing them to release their claims for less than the amount due. When, in December, 1847, Digby & Sears found their debts pressing upon them, it was their duty so to arrange their affairs as to meet their liabilities, with the means at their disposal. How did they discharge this duty,? Instead of disposing of their property, so as to enable them to meet their accruing liabilities, they sold it all to a confidential friend, on a credit of from two to six years. Without any security, they took the notes of the purchaser for between $6,000 and $7,000, when he was entirely irresponsible for that amount; for the evidence shows that he was not worth more than $1,000 or $1,200 at that time. Now, would any sane man, acting in good faith, with a design to meet his pressing liabilities, adopt such a course ? How could he expect to meet liabilities now due, when he put all his means beyond his own control for at least two years, and most of them for a much longer time ? The bare statement of the proposition is sufficient to show the bad faith of the transaction. This assignment was not made by the assignors with the design to devote their property fully and fairly to the payment of then-debts, but with the design to force their creditors into a compromise, for then own advantage. This was not a sale in the ordinary course of business, on a credit. On the contrary, it was an entire disposal of all the debtors’ property, a breaking-up of then business, and virtually, a dissolution of their partnership. It was not a sale in continuation of their business, made in an honest straggle to retrieve their fortunes; but it was an abandonment of their business, and an evident relinquishment of all hope of future success, and evincing only a hope of a future compromise with their creditors. Here was no mistake of judgment in an honest endeavor to meet their liabilities, but a transaction clearly evincing a deliberate design to set their creditors at defiance. Nor can James Digby claim the character of a bond fide purchaser, without notice of the intended fraud. The answers show, that he was cognizant of the nature and extent of the indebtedness of Digby & Sears, and indeed, of all the circumstances which show the transaction to be fraudulent. He was aware, and participated in the design of the debtors to place the property beyond the reach of the creditors. Indeed, he was the willing instrument, in the hands of the debtors, to force the creditors into satisfactory terms. As against the creditors, we must hold this transfer to him to be void. The complainants, by their bill, only seek to subject the real estate, which was transferred to James Digby, to the payment of their judgments, after satisfying the amount justly due upon the mortgages. This record shows, that the Goodrich mortgage has been paid. Goodrich swears that James Digby .paid him the amount of his claim upon that mortgage, and took an assignment thereof to himself. James Digby says, in his answer, that pursuant to the agreement which he had made with Digby & Sears, at the time of the assignment, he had paid to Goodrich ¡§600 upon the mortgage, and that the balance remains unpaid; but says nothing about the assignment. If he made the payment to Goodrich under that agreement, he made it with the funds of Digby and Sears ; and there is no pretence that the payment was not made for them, and on their account. If the Goodrich mortgage has been paid, it has been paid by them through their agent; and, as Goodrich says it has been paid, we must treat it as satisfied. So long as James Digby was acting as the agent of the debtors in paying the mortgage, he could not continue it as a subsisting lien upon the premises, by taking an assignment of it to himself. For aught that appears upon this record, the other mortgages appear to be valid and subsisting liens upon the premises described in them; but as it is probable that the premises left unincumbered by the satisfaction of the Goodrich mortgage, will be sufficient to satisfy the amount due the complainants, it may not be necessary to inquire how much is due upon the other mortgages. The decree of the Circuit Court must be reversed, and the suit remanded, with instructions to that court to enter a decree declaring the conveyances from Digby & Sears to James Digby to be fraudulent and void, as to the creditors of Digby & Sears; also declaring that the mortgage to Goodrich has been paid and satisfied, and directing that so much of the real estate mentioned in the bill, as may be necessary to pay the amount due the complainants, be sold for that purpose, subject to bond fide incumbrances existing upon the premises, and that the defendants pay the costs. Decree reversed.