Waters v. Comly — 3 Del. 117

Majority

p. 117

JOHN WATERS, et al., defendants below, appellants vs. SAMUEL COMLY, complainant below, appellee.

Headnote

A. being in failing circumstances, gave his bond to B. to secure a debt due B., and the balance in trust to pay other creditors, per schedule; held void as to the other creditors, who were not named in the bond, and with whom there was no communication.

Such a transaction does not create a trust in favor of the creditors; the bond is revoca. ble at the will of the obligor; and it is prohibited by the statute of frauds.

It seems that a bond thus given, covering all the debtor’s property for the benefit of preferred creditors, would be void under our act against fraudulent insolvency.

A debtor in failing circumstances may give his bond to a creditor to secure the payment of a bona fide debt.

Quere. — May not a trust of personalty be set up by parol?

The chancellor is not bound to order issues to be tried by a jury, unless upon such facts as involve the merits, and are material to the decision of the cause.

Appeal from chancery, New Castle county. Before all the law judges.

The bill stated that Samuel Comly, being a commission merchant in Philadelphia, and Waters, Láird & Ridpath, cotton manufacturers on the Brandywine, the complainant made large advances to said firm, who gave him a bond, dated 21st February, 1884, for $15,000, with interest, on which judgment was entered on 27th November, 1837, and execution issued to May term, 1838. The said bond was given as collateral security to Comly on account of advances, and the said firm were indebted to him at the issuing of the execution, on such account $60,000: — that Waters and Laird on 18th April, 1837, gave a bond to McMakin, Burgess & Kelly, for $18,690 63, on which judgment was entered on 20th April, 1837, and fi. fa. was issued to May term, 1837, and levied on their goods, which were sold for $ 16,669 50: — that said bond was without consideration (except as to $400,)

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fraudulent and void; the judgment void; and complainants execution was entitled to the money, deducting rent, &c. It prayed an injunction against this judgment, and an order on íhé sheriff to bring the money into court.

The answer of W aters, Laird & Ridpath denied any indebtedness to Comly at the date of their bond to him; which was given as collateral security for advances that might subsequently be made to them; and at the issuing of his writ they did not owe him more than $15,000 00. Defendants’ partnei'ship expired in July, 1830, and was continued by Waters & Laird, under the name of John Waters, who bought out Ridpath: — that, the bond of Waters & Laird to McMakin, Burgess and Kelly for $ 18,690 63, was given in consideration of a debt due to Kelly of $400 00, and the balance in trust for other creditors: — that Comly in December 1836, presented an account to Waters & Laird, claiming a balance of $38,000: which was grossly erroneous. To accommodate Comly, they drew notes to the amount of $40,000: afterwards renewed to the amount of $13,000, which he disposed of. These were all accommodation notes. Besides these he had other business notes of Waters & Laird, amounting, with said accommodation notes, to $60,000. Comly failed in the spring of 1837, Waters and Laid being his endorsers for $20,000, besides their liabilities on these accommodation notes; and, being apprehensive of ruin, they made the bond aforesaid to McMakin, Burgess and Kelly in trust to pay their workmen and other creditor's, according to schedule; which they insist was a lawful and sufficient consideration.

Decree 2d March, 1840, ordering a perpetual injunction on the bond and judgment of McMakin, Burgess .and Kelly, except, as to $400 due Kelly and costs. From this decree the appeal was taken.

Booth, for appellant.

The chancellor refused an issue on the ground that a trust could not be created without writing, and therefore it was immaterial to try any issue as to the alledged trust of the bond to McMakin, Burgess & Kelly. 1st. A trust of personal property may be averred and proved by parol. ( 3 Dallas 506 -7-8; 1 Johns. Ch. Rep. 119 .) Trusts of personal property are not within our statute of frauds. And a declaration of trust in reference to personal property may be by parol. (1 Milne & King 506; 7 Cond. Eng. Ch. Rep. 143, Benhoio vs. Townsend-, 4 Russ. 345; 3 ib. 698-9, Bayley vs. Boul- cott.) 2d. The execution of the bond to McMakin, Burgess & Kelley did not contravene the act of assembly against preferring creditors. (Dig. 140.) This act is designed to prevent assignments by insolvents giving preferences, which might be done before, and is

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now clone in many of the States. The object was to prevent frauds in making assignments by insolvents; but can this extend to a bond given in payment of a just debt. This is not wrong, it is often a duty. It is no assignment, which is a transfer of property; the bond only ascertains a debt? The chancellor could not have regarded the bond as void under that act; for, if void at all, it would be void altogether; and he decreed it good'in part.

Rogers, jr. — 1st. Was there error in refusing the issue? The original act authorizing issues was passed in colonial times, when the judges of the common pleas had equity powers. (.Dig. 103.) It has been followed by changes arising under two dr three successive constitutions. It was designed to give a common law court, which had equity powers, the power to order issues, such as equity courts in England had; and which such a'court would not have without grant. Our present Court of Chancery exists under the constitution, and has the common law power of English courts of equity in sending issues, and no other. Such have been the uniform construction and practice; and the sending of issues is in the discretion of the chancellor. If this be so, there can be no appeal from the decision of the chancellor refusing an issue.-' ( 1 Harr. Rep. 401 ; 1 Johns. Ch. Rep. 459 ; Smith vs. Brush; 6 ib. 255, Dale vs. Rosevelt; 18 Vesey 481; Free. Ch: 13.) The issues asked were immaterial -in the cause; the object being to establish by parol a trust as a consideration for the bond to McMakin, Burgess & Kelly. The trust is denied; and there is no evidence adduced in support of it. The answer is not responsive to the bill in this matter, and not evidence'in itself. If 1 admit then, that a trust of personal estate might be proved by parol, where is the proof? 2d. But I deny that it can be proved by parol; and this not merely on account of the statute of frauds, but because of a great common law rule of evidence,- that an instrument of writing, such as this, absolute on its face, cannot be qualified by parol. (3 Stark Ev. 995-6-8,1002-9; Rob’ts. on Frauds 10-9; Lewenon Trusts 26; 24 Law Lib. 14; 3 Brown’s Ch. Rep. .577, 587, n.) The only cases in which parol evidence is admissible, are cases of implied and resulting trusts. (.1 Vesey, Jr. 241; 1 Bay. Rep. 461.) A secret trust can never be recognized, except as between the trustees and cestuis que trust. Here the attempt is to set up a secret trust; to be proved by parol; against a writing under seal; and against a creditor: to effect a fraud, not to prevent one. There is no case to be found in which a trust of personal property has been established by parol. (3 Brown’s Ch. Rép. 587.) 3d. A private agreement with one creditor to secure him

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more than another is void. Many secret agreements, though good between the parties, are fraudulent as to third persons. (1 Burr. Rep. 474-5; Twyne’s case, 3 Rep. 80, b., 81, a.) The admission of the answers is, that the object of making the bond to McMakin, Burgess & Kelly, was to avoid the liability under Comly’s bond, and to prefer other creditors to his exclusion. Such an intent avoids the bond, under the provisions.of the statute 13th Elizabeth, chapter 5; which was declaratory of the common law, and has been adopted here. ( 1 Harr. Rep. 353 ; Smith’s leading cases 9; 19 Law Lib. 7. n.; Roberts on Fraud. Con. 490, 589; 12 Serg. & Rawle 448 , 455.) 2d. This bond is clearly void under our act of criminal insolvency. {Dig. 139.) The object of our law, like that of the English system of bankruptcy, is to effect an equal distribution of the insolvent’s effects; and every contrivance to prevent this is fraudulent and void. (Cowp. Rep. 082, Rust vs. Cooper, 3 Rep. 80, b., Twyne’s case; 4 Burr Rep. 2239.) Acts done to defeat the bankrupt laws are void; though they do not bring the party criminally liable under such laws. (Roberts’ Fraudt. Conv. 493, nr, Coivp. 632; 1 Pothier 1.)

The policy of our laws, unlike those of some of the other States, is precisely the same with the English bankrupt laws; to prevent frauds and distribute all the debtor’s property equally among his creditors. This trust bond was designed to counteract this policy; if it be not an express violation of the act of fraudulent insolvency. Preference is a fraud of creditors; a fraud on the rest, as well as in fraud of the law. The intention of a trust cannot be established if it contravene the policy of the law. {Lewen on Trusts 137; 24 Law Lib. 70.) If this be not a trust it is without consideration, except as to Kelly’s $400, and is void; if it be a trust it contains a preference, as the schedule provides for the payment of but fifty per cent, of certain liabilities, and the whole as to others. This makes it void under the law.

J. A. Bayard, in reply.

The question whether an appeal may be taken from a decree refusing an issue, is too plain for argument; it is well settled by practice; and admitted by the chancellor himself. The act of assembly gives a right to the issue if asked for in proper time. 2d. The bond to McMakin, Burgess & Kelly, was given to pay bona fide debts due to them and other creditors, according to a schedule. Is not a trust to pay creditors a sufficient consideration'! If I can give my bond to B. in payment of my debt to him, I can include debts due from me to C. D. &c., and the bond is available for the whole. It is a trust founded on a valuable consideration, and will

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always be protected by a court of equity. Can a trust be proved by parol? Does it contravene the common law rule? The inquiry is as to the consideration of the bond; and, whether such consideration be for the use of the obligee or of a third person, does not matter, so that a consideration be proved. This bond is absolute on its face; yet it cannot be doubted that the cestuis que use could file their bill against the trustees or the obligors, and prove their interest as arising from a consideration different from that on the face of the bond: and shall not the trustees set up such consideration in answer to another? The bond does not set out any consideration, and is not contradicted by proof of a consideration moving from others than the obligees. And if the cestuis que trust can show a consideration, other than a direct one, so may the trustee; otherwise you render him liable to the cestuis que trust, without enabling him to set up the trust against others. ( 1 Johns. Rep. 119 , Moses vs. Murga-troyde; 4 Russ. 347; 1 Mylne & King 506.) There is no inconsistency in showing that the obligee is bound to pay the money to another. The debt is absolute to him; no matter to whom he may, be subsequently responsible; and the responsibility to others being on account of bona fide debts due to them from the obligor, is a sufficient consideration for the bond as it regards him.

The bond is not void either under the statute of Elizabeth or our act against fraudulent insolvency; {Dig. 139-40, 306-7.) I deny the assumption that the object of our law is to assimilate our insoj^nt laws to the English bankrupt laws. I may admit that this bona was given in contemplation of insolvency; at least with a knowledge that they were in failing circhmstances; and that it was done with a view to give one creditor the power of obtaining a preference to others. The law does not prohibit this. It has been done a thousand times, and has never yet been questioned. The act prohibits an assignment of property, and thus giving a preference; and yet this bond neither assigns property nor gives a preference. The English bankrupt laws have two objects; to prevent fraud; to equalize creditors and distribute property equally among them. I .deny that, there is any such object or policy in our law; its only object is to prevent fraud, and not to distribute property equally. The whole burden of the law is, that a man shall not fraudulently do certain acts. It specifies as a mode of fraud prohibited, the confession of a judgment without adequate consideration; thus leaving it as to the confession of judgments on valid consideration, in payment of bona fide debts, as at common law, a matter which the party, whether insolvent or

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not, is entitled to do. Any other construction makes an act against fraudulent insolvency a bankrupt law; unsettles the practice in every case of insolvency, and opens a flood of litigation as to all the transactions of a man in failing circumstances. There could have been no such intention. The English bankrupt system is peculiar to their policy; applies only toa particular class — traders—is designed’to level all creditors to one standard, and distribute the property equally amongst them.

The chancellor assigned the reasons for his decree.

Johns, Jb., Chancellor. — The defendants, under the act of assembly, and before, commencing the hearing of the cause, the same having come on to be heard, applied to the chancellor to order the following as issues of fact to be tried by a jury at the bar of the Superior Court: 1. Whether there was any and what consideration existing at the time of the execution of the writing obligatory in the pleadings mentioned by the said John Waters and Thomas Laird, to Michael McMakin, Dennis Kelly and Robert Burgess. 2d. Whether the debts mentioned in the schedule annexed to the defendant’s answer, constituted the consideration of the said writing obligatory; and whether the said debts were bona fide due and owing by the said John Waters and Thomas Laird. 3d. Whether the partnership existing between Thomas Laird, John Waters and Moses Ridpath was dissolved; and at what time the same was dissolved. 4th. Whether the interest of Moses Ridpath, in the property of the said firm of Waters, Laird & Ridpath, was sold and assigned at any and what time, and for what consideration, to Thomas Laird and John Waters, or either of them.

The application I considered as made in time; but, while I recognize the right of the party to have tried by a jury, matters of fact which may happen to arise upon the examination or hearing of the matters and causes to be heard and determined, I must confine the exercise of the right to facts, and cannot extend it so as to constitute the jury an organ of inquiry, to search after, inquire and find out, whether any and what consideration existed; hence, upon the first proposition, as it alledges no'distinct fact, I refused to order an issue.

With respect to the second, the existence of the debts as sot forth in the schedule, and whether they constituted a part of the consideration of the said writing obligatory, I was inclined ,to the opinion that it did not present such a fact or facts as were intended to be embraced by the legislative provision. It appears to mo the fact or

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facts must be such as would, when established, be available in supporting a consideration, so as to establish the indebtedness of Waters & Laird to the execution creditor, which cannot depend on their indebtedness to third persons; nor could such a fact if established, have any effect either upon the amount of their indebtedness to the defendant. If a suit were pending at law upon the written instrument and the question of consideration open, the party would not be allowed to establish the fact of indebtedness to him. by evidence showing that Waters & Laird were also indebted to various other persons; nor could a judgment at law have been obtained on the writing obligatory by suit, so as to secure or authorize the recovery by execution of any sum beyond what was actually the real debt from Laird & Waters to the present defendants, McMakin, Kelly & Burgess. ■ Hence, the second proposition appeared to me in reference to the matters and cause to be heard and determined in the court to be altogether immaterial, and the same matter, if it were tendered as an issue at law, would be immaterial. The same objection exists and seems equally applicable to the third and fourth propositions. They relate to facts which I did not consider I was called upon to determine; and, therefore, unnecessary to be sent to a jury to ascertain. For these reasons I refused to grant the order directing the several issues to be tried by a jury.

As to the final decree it was based, and, in my judgment, properly rests on the following reasons:—

The complainant charges by his bill, that the judgment on which the defendants’ execution issued to levy and collect $1,800, ,was without consideration, except or beyond the sum of $400, that being the whole amount of debt due from the firm of Laird & Waters, to one of the defendants. The answer admits that no more than $400 was due as stated in the bill of complaint, but insists that the excess was by a parol agreement between the obligors and obligees in the bond intended to be for the benefit, and to secure certain other creditors of Laird & Waters, according to the schedule containing a list of their names and the amount respectively due them, allowing only fifty per cent, to be applied to a specific sum due from them, as indorsers of notes given to Comly, the complainant. The answer further admits their indebtedness to the complainant, who is a judg-jment and execution creditor to the amount of about $15,000. It is rot alledged in the answer that the schedule creditors were either larties or privies to the bond, judgment or execution. The only question necessary to be considered and decided in this case, is the

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right of the defendants as execution creditors; it is manifest and admitted, that there is no indebtedness except to one, that is Kelly, and that no more is due to him than $400. Can the execution be available to collect more than the debt due to the creditor, who is a party and privy; or can the excess beyond the debt due to the obligee be collected and legally held under the execution for the benefit of other creditors of tho obligor, who are neither parties nor privies to the bond, judgment or execution. Unless their debts can be incorporated into the consideration of the bond, supposing the transaction to be without the other ingredient, which shows that the obligors apprehending insolvency, resorted to this as a mode of preferring their schedule creditors, it must necessarily follow that the persons named in the bond as obligees, and who at law stand on the record as the judgment and execution creditors, their debt being paid, could not hold the surplus as belonging to them. It would, by the process of law, supposing the sheriff to have paid the whole amount over into the hands of the defendants under the execution, have no greater force or effect than would take place, if the firm of Laird & Wafers had delivered over to McMakin, Burgess & Kelly a similar amount in cash, directing them to pay certain creditors. In such a case, until the agent actually applies the fund there is no payment; and, if the agent or depository should misapply the fund, or waste or lose the same, it would not affect the right of the unpaid creditors, nor would the delivery by the debtor to his own selected and appointed agent prevent the creditors from suing or collecting their debts from the debtor; this being so, it must be admitted, that a fund thus placed in the hand of a stranger to be applied in the payment of debts, whether it be so done either by actual delivery by the debtor or by means of a bond, judgment and execution, which authorizes under legal proceedings the acquisition of the fund, the result is precisely the same, in all cases in which the creditors are not parties and privies to the transaction. With respect to the contract authorizing the agent or depository to collect and obtain possession of the fund, if the creditors be not parties and privies, I cannot perceive how it can be possible that their debts can constitute ihe consideration of the bond and judgment to McMakin, Burgess & Kelly. The right] of property still remains in the debtor, and he remains liable to all! risk, and therefore, retains the control and power of revocation.! If it is asked who, under such circumstances, is the cestui que trust,! it can be none other than he who has the beneficial interest in the! fund; hence under the circumstances I have stated, where the credi-J

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tors are neither parties nor privies, that person must be the owner of the fund who either delivered it over or authorized the person to whom it was not owing, to use legal process to obtain the possession. Being the person retaining the right of property, the legal possession of which is in another, he must be the person beneficially entitled and interested, and consequently the cestui que trust. That this is the true relation of the parties, is now settled by equity decisions relative to assignments to pay creditors not parties and privies, but enumerated in a schedule, or where they are named as parties, but not privies. In such cases the assignment is held to be voluntary, and that the creditor’s debts constitute no part of the consideration; formerly it was considered they constituted a meritorious consideration. In a case before lord Keeper Bridgman, it was doubted whether a conveyance for payment of debts, made voluntarily and no creditors named in the deed, was revocable by the grantor, and the court with the assistance of the judges, was clearly of opinion that the deed was founded on a just and honest consideration, and the creditors were cestuis que trusts, and might compel the execution. (1 Ch. Rep. 30, Ch. Ca. 249.) But in a case before lord Eldon, where the creditors were scheduled to the deed, though neither parties nor privies to' it, the instrument was held to be revocable. (3 Mp.it. 707; 3 Sim. 1.) And so it was held and determined in a more recent case, where the creditors were parties to the deed, but not privies to it. (3 Sim. 1; 2 M. & K. 492; 4 Russ. 24.) And the principle upon which the modern doctrine proceeds is reasonable enough; for where, observed Sir L. Shadwell, a person without the privity of any one, without receiving consideration, and without notice to any creditor, makes a disposition as between himself and trustees for payment of debts, he is merely directing the mode in which his own property shall be applied for his own benefit, and the general creditors named in the schedule are merely persons named there for the purpose of showing how the trust property shall be applied. (3 Sim. 12.) The deed merely operates, said Sir- J. Leech, as a power to the trustees, which is revocable by the debtor, and has, the same effect as if the debtor had delivered money" to an agent to pay his creditors, and before any payment made by the agent, or communication by him to the creditors, had recalled the money so delivered. (Acton vs. Woodgate, 2 M.Sp K. 495.) And the present Lord Chancellor, when master of the rolls, in the case of Bill vs. Cureton, 2 M. & K. 511, observed in Walwyn vs. Coutts, and Garrard vs. Lord Lauderdale, the character of trustee and cestui quc trust never existed between the creditor and the trustees, for the

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settlor himself was the only cestui que trust, and therefore he was entitled to direct the application of the trust fund. The rule is adopted to promote the views and intentions of the parties. A man who, without any communication with his creditors, puts property into the hands of trustees, for the purpose of paying his debts, proposes only a benefit to himself, and not to his creditors: it would be a result most remote from the contemplation of the debtor, if it should be held that any creditor discovering the transaction, should be able to fasten upon the property and invest himself with the character of cestui que trust. The case of Garrard vs. Lord Lauderdale, involved the additional circumstance of a subsequent communication from the trustees to the creditors, of the contents of the trust deed; but the court was of opinion, as appears right upon principle, that the revocable nature of the instrument was not thereby destroyed. (3 Sim. 12.)

Considering the judgment and execution held by the'present defendants as having accomplished all it was intended to effect, it could do no more than occasion a transmutation of the possession of the property, without affecting or changing the right of property in the surplus over and above the sum of $400, the amount due to one of the defendants; the surplus in their hands would necessarily belong to Waters & Laird, until actually applied in payment. The question then recurs, what is to direct and control the payment? The answer alledges the parol agreement in connection with the schedule; but independent of the objection to the transaction, arising out of the circumstance of the other creditors not being parties or privies, it does appear to me impossible that the parol agreement, under the circumstances of this case, can be allowed to be established by parol, or to have any effect. Had it been in writing it could not avail, without expressly violating the law of this State relative to cases of this character, when the debtor apprehensive of utter ruin and insolvency, attempts either by parol or writing, to direct the appropriation of his property, not for the equal benefit of all his creditors, but for the avowed purpose of prejudicing the rights of one, and by the schedule giving a preference. If such a transaction as the present should be permitted to stand, or be sanctioned by a court of equity, it would altogether defeat the object intended to be effected by the law of this State, which declares “that if any person or persons in contemplation of insolvency or in contemplation of taking the benefit of the insolvent laws of this State, shall make an assignment of his, her or ■ their estate or effects, for the benefit of his, her or their creditors, and in or by such assignment, either under the provisions thereof or other-

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ivise, shall prefer any one or more creditor or creditors to another or others, or shall in or by such assignment, secure or pay to any one or more creditor or creditors a greater proportion of his or her debt or demand than shall be secured or paid to each and every the creditor or creditors of the person or persons making such assignment;, every such assignment, so preferring one or more,creditor or creditors to another creditor or other creditors, shall be deemed fraudulent and absolutely void.”

It is apparent this act was not made to prevent assignments, but to prevent persons in contemplation of insolvency either by assignment or otherwise, doing any act to prefer creditors, or through the intervention of a trust, so to appropriate their property as to effect an unequal distribution thereof.

The present case I do consider an attempt to evade the provisions and counteract the whole object and policy of the act; and, therefore, so far as the judgment and execution have been used for the purpose of obtaining the fund to be distributed as directed by the obligor, in a manner so as to give a preference, whether the directions be verbal or otherwise, in either case I consider the transaction within the provisions of the act, and pro tanto fraudulent and void. I was, therefore, of opinion, the defendants were not entitled to recover under their execution, a sum beyond the amount due to Kelly, one of the obli-gees, which by the bill is stated to be $400, and by the answer admitted as the only amount due; that sum with its interest and the costs of the judgment and execution excepted. With these views I ordered that a perpetual injunction should issue, enjoining and restraining the defendants from receiving any further or other sum under the said judgment or execution; and also enjoining and restraining the sheriff, in whose hands the said sum of money yet remains, from paying over to the said McMakin, Burgess & Kelly, under the said execution fi. fa. to May term, 1837, and vend. exp. to May term, 1838, upon the said judgment No. 334, of the November term, 1836, any further or other sum than $400, and the interest and costs thereon accrued; and further ordered that defendant pay the costs.

By the Court.

The questions in this case grow out of a contest between the appellants, McMakin, Burgess & Kelly on the one hand, and the respondent, Comly, on the other, for the proceeds of the sale of the property of Waters os Laird, in the hands of the sheriff of New Castle county, amounting to $16,669 50. The property was levied upon under the execution of McMakin, Burgess

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& Kelly, but before the sale, the execution of Comly was placed in the hands of the sheriff. Under these circumstances, although the the first execution as a general rule of law, would be entitled to priority of payment out of the proceeds of sale; yet, as both executions were hens on the property, if from any cause the first fails, the second becomes entitled to the proceeds. (7 Taunt. Rep. 56, Jones vs. Atherton; 1 Term Rep. 729, Hutchinson vs. Johnson.) The claim of the appellants, McMakin, Burgess & Kelly, must depend on the validity and effect of the bond given to them by Waters & Laird, which is the foundation of their judgment and execution. Waters & Laird were in embarrassed circumstances, and in contemplation of insolvency, without any communication with their creditors, voluntarily gave this bond for $18, 690 63 to McMakin, Burgess & Kelly, for the purpose of enabling them through the process of the courts, to sell the whole of their (Waters & Laird’s) property, with the understanding that out of the proceeds of sale, they (McMakin, Burgess & Kelly,) should retain the sum of $400, for a debt due to Kelly, and should pay the balance to certain other preferred creditors, according to a schedule furnished by Waters & Laird. The question is, whether McMakin, Burgess & Kelly can claim any thing out of the proceeds of sale beyond the sum of $400, due to Kelly. If they can, it must be as trustees for the creditors mentioned in the schedule. If Waters & Laird, under the same circumstances instead of giving thebond, had executed a deed conveying their property to McMakin, Burgess <fe Kellyfor the’payment of these debts, to which the creditors were neither parties nor privies, it would not have divested the beneficial interest of Waters & Laird, and created the relation of trustees and cestuis que trust between McMakin, Burgess & Kelly, and the creditors mentioned in the schedule. (Wallwyn vs. Coutts, 3 Mer. 707; Garrard vs. Lord Lauderdale, 3 Sim. 12; Acton vs. fVoodgale, 2 M. op K. 495.) In Acton vs. Woodgate, Sir John Leach says, “the deed merely operates as a power to the trustees, which is revocable by the debtor, and has the same effect as if the debtor had delivered money to an agent to pay the creditors, and before any payment made by the agent, or communication by him to the creditors had recalled the money so delivei’ed.” In the case of Bill vs. Cureton, 2 M. & K. 511, the master of the rolls says, “In Wallwyn vs. Coutts and Garrard vs. Lord Lauderdale, the character of trustee and cestui que trust never existed between the creditor and the trustees, for the settler himself was the only cestui que trust; and therefore, he was entitled to direct the application of his own

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trust fund. The rule is adapted to promote the views and intentions of the parties. A man who, without any communication with his creditors, puts property into the hands of trustees, forjjthe purpose of paying his debts, proposes only a benefit to himself and not to his creditors; it would be a result most remote from the contemplation of the debtor, if it should be held that any creditor discovering the transaction, should be able to fasten upon the property and invest himself with the character of cestui que trust”

The same principle would prevail if Waters & Laird had sold their .property and placed the proceeds in the hands of McMakin, Burgess & Kelly, for the payment of the debts mentioned in the schedule; the latter would not by that mere fact have become liable to suit, either at law or in equity, on the part of the creditors. (Stewart vs. Fry, 7 Taunt. Rep. 339; Williams vs. Everett, 14 East, 582; Acton vs. Woodgate, 2 M. & K. 495; Gibson vs. Minet, 2 Bing. 7.) In the present case there was no conveyance by deed of the property, nor payment of money to McMakin, Burgess & Kelly, but simply a bond, which is an acknowledgment of indebtedness under seal, and was designed, as the first step in a proceeding, to enable the obligees through the instrumentality of the process of the courts, to convert the property of the obligors into money for the purpose which has been stated. Before that process of conversion was completed the execution of the respondent, Comly, became aJien on the property in the hands of the sheriff. It has been already stated, that McMa-kin, Burgess & Kelly have no beneficial interest in these funds beyond the sum of $400, and it is clear,-that they cannot claim the balance as trustees of the creditors; for the relation of trustees and cestuis que trust, never has existed between them and the creditors. If the funds were to pass into their hands they would be the trustees of Waters & Laird, who might revoke the authority to pay the creditors, and recall the money. (7 Taunt. Rep. 339, Stewart vs. Fry.) But there is another ground on which the claim of the first execution must be defeated. It is expressly provided by act of assembly (Dig. 140,) that if any person, in contemplation ofinsolvency, shall make an assignment of his estate or effects, and shall prefer any creditor to another, the assignment shall be void, and the estate or effects shall be liable to be taken in execution as if no such assignment had been made. There is no objection under this provision to the debtor’s paying any one of his creditors, or giving him a judgment for a bona fide debt; which may secure the payment of his debt in full; all this is compatible with the rights of others, and may be due to the dili

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gence of the creditor. But the purpose and policy of the law is to prevent a voluntary transfer of the entire, estate of the debtor for the benefit of a few creditors. Here is a contrivance by which it is attempted to do, by means of the process of the courts, what the law says sfiall not be done, the bond being given for more than the value of the property, and the object and effect of the proceeding being to convert the whole estate or effects of Waters & Laird into money, and transfer it to McMakin, Burgess & Kelly for the benefit of certain preferred creditors. The bond is therefore void, as being contrary to the policy of the daw. (Norton vs. Syms, Moor 856; Collins vs. Blantern, 2 Wils. 347; Paxton vs. Popham, 9 East. 408.)

As to the refusal of the chancellor to order certain proposed issues of fact to be tried at the bar of the Superior Court, we are clearly of opinion, that the p2-ovision of the act of assembly which directs it to be done, must be understood as referring only to issues of fact which involve the merits of the case, and are material to the decision of the cause, which we do not conceive to have been the character of those proposed in the present instance.

In February, 1934, the defendants, Waters, Laird & Ridpath, gave their bond and warrant of attorney to confess judgment to Samuel Comly in $ 15,000, to secure him against loss from certain advances made and to be made to them in the course of their business as cotton manufacturers on the Brandywine. Judgment was entered on this bond by confession in November, 1837, and execution issued to May term, 1838, at which time they were indebted to Comly from fifteen to sixty thousand dollars. In April, 1837, Comly having failed, and the defendants being apprehensive of insolvency, they executed a bond in $18,690 63, with warrant of attorney to confess judgment, to McMakin, Burgess & Kelty, on which judgment was entered in April, 1837, and fi. fa., issued to May term, 1837, having the preference in point of time to Comly’s execution. The bill was filed to set aside this judgment as fraudulent and without consideration; and the consideration set up in the answer is, that the bond was given to McMakin, Burgess & Kelly to-pay a debt of $400, due to Kelly, and the balance in trust to pay certain other creditors of Waters, Laird & Ridpath, not named in the bond or judgment, but according to a schedule now produced.

The first question then is, whether this bond, supposing it good to create a trust, and that such trust may be proved by parol, is void

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under the prohibitions of our acts of assembly against frandulent in* solvency, considering the circumstances under which it was "made.

Preferring creditors is not necessarily fraudulent. On the contrary, it may often be equitable and right. But it offers temptations and affords facilities for fraud; and, on this account, it has been prohibited by our law in all cases of insolvents making assignments, either voluntarily or on taking the benefit of the insolvent laws.

The provisions of our acts of assembly, divested of much verbiage, are these: — If any person (who' shall voluntarily, or on taking the benefit of the insolvent laws of this State make an assignment for the benefit of his creditors) either upon making such assignment, or previously and with the intention or in'contemplation of taking the benefit of such law or of making 'such assignment, shall fraudulently confess any judgment for any money not justly due; or shall fraudulently, and without adequate consideration, execute any bond for the payment of money; or, aftér the making of such assignment, shall fraudulently or collusively confess any judgment, or make and antedate any bond with the intent that such judgment or bond shall be paid or set up as a demand against the property assigned by means of such assignment, every person so offending shall suffer fine and imprisonment, and forfeit all benefit of the insolvent láws: “and if any person, in contemplation of insolvency, or of taking the benefit of any of the insolvent laws of this State, shall make an assignment of his estate for the benefit of his creditors, and in or by such assignment, either under the provisions thereof or otherwise, shall prefer any one or more creditors to others, or secure'to any one of his creditors a greater proportion of his debt than the others, every such assignment, so preferring creditors, shall be deemed fraudulent and absolutely void; and the estate, &c., contained in any such assignment, shall be liable to be seized for the debts of the assignor,” &c.

The question then is, whether either of these provisions embraces the case of a failing debtor executing a bond for a bona fide debt, and thereby preferring a creditor. It is clear to my mind that they do not. The act embraces three classes of cases: 1st, the confession of a judgment or executing a bond for money not justly due, either on making an assignment or before, and with the intention of taking the benefit, or of making an assignment; 2d, the confession of a judgment or executing a bond even for a bona fide debt after making an assignment, and with the intent that such bond or judgment shall1 be set up against the assignment; and 3d, the preferring of creditors upon making an assignment, either by the terms thereof or otherwise-

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Neither of these classes embraces the case of a debtor in failing circumstances, or in contemplation of insolvency, executing a bond to a bona fide creditor before assignment; and, as there is nothing which makes such an act fraudulent in itself, I cannot say that it is illegal and void. It is neither fraudulent at common law, nor within the statute 13 Elk. ch. 5, which looks only to “feigned and covino us conveyances, bonds,” &c., made to “defraud creditors .and others of their just and lawful debts,” &c., and carefully excludes bona fide bonds and conveyances made on a good consideration. (Rob’ts. on fraud, convr, 2 Tioyne's case; 1 Smith's lead. ca. 1.) “There is no doubt but a debtor (so he be not a trader in contemplation of bankruptcy,) may openly prefer one creditor to the rest, and transfer property to him even after the others have commenced their actions.” ( 1 Smith 9 .) The giving such bond can be no more illegal than the payment of a just debt by a debtor in failing circumstances, or even in contemplation of insolvency. I presume such payments are constantly being made; I have never known them questioned, nor do I know that the power of a failing debtor to execute a bond, or confess a judgment in favor of one or more of his creditors for a valid and bona fide debt, has ever been denied by any judicial decision in this State. On the contrary, the point was made in the case of Newells vs. Morgan, in the Court of Appeals, and the court sustained the judgment, though on a bond given by Morgan in contemplation of insolvency. ( 2 Harr. Rep. 228 .) There can he no doubt that creditors have frequently been preferred in this way. It would be difficult, if not impossible, to fix any period of time at which a failing debtor should be considered within the policy of our insolvent laws, which look to an equal division of his property, if we do not take the time fixed by the law itself in reference to bona fide debts, viz: the period of actual assignment. It is the act of assignment, either voluntary or on taking the benefit that brings the debtor within the scope of those laws: once under them the debtor loses all control over his property, which then becomes subject to equal distribution; but, before that act, the principle of diligence, which is an equally favored principle of our law, gives to the fair creditor, first obtaining judgment and execution, a pi'eference in payment.

Being of opinion then, that a debtor in failing circumstances may, before assignment, pay a debt or execute a bond to a bona fide creditor, I think the chancellor has done right in giving effect to this execution to the amount of $400; the debt due to Kelly.

But the question remains'to be considered whether this bond and

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judgment to McMakin, Burgess & Kelly are good for the balance said to be in trust for other creditors of Waters, Laird & Ridpath, not named in the bond or privy to it, and this as against their general creditors. If the question were between the preferred creditors and the trustees on a bill to establish the trust as against .the trustees having obtained the fund by means of the judgment; or in a controversy between the obligor in' the bond or his representatives and the preferred creditors claiming to be cestuis que trust, a court of equity would go far to sustain the trust; and, according to some of the cases, admit parol evidence in proof of it. Such was the case in Benbow vs. Townsend (1 Mylne & Keene 508; 7 Cond. Rep. 148,) where the bill was by the executor and residuary legatees of William Townsend against the cestui que trust, Job Townsend, who claimed a sum of £2,000 lent'by William Townsend in his name upon the parol declaration of the lender that the principal sum was intended for the benefit of Job. The court executed the trust being of personal property and not within the statute of frauds. So also the case of Moses vs. Murgatroyd, relied on by the appellants from 1 Johns. Ch. Rep. 119 , was a contest for the trust property between the cestuis que trust and the general creditors (the children) Of the trustee; and not a question between the general creditors of the assignor, and particular creditors under an assignment in trust. The case is very much involved by facts, but the substance of it, so far as concerns this question, is, that Ogden being indebted to Moses & Sons (plaintiffs,) gave them notes indorsed by Samuel Murgatroyd; and, to indemnify him, Ogden, by deed assigned to him part of a cargo of coffee not then arrived. Ogden afterwards became insolvent, and Samuel Murga-troyd' became liable as the indorser of these notes, and promised the holders payment out of the cargo when it should arrive. Samuel Murgatroyd died, and Thomas Murgatroyd (defendant) became his administrator, and received a part of the cargo of coffee under Ogden’s assignment; confessed a judgment to the widow of Samuel Murgatroyd in behalf of his children, as creditors of his estafe, and refused payment of the proceeds of the coffee to the notes, claiming the same as a part of the assets of Samuel Murgatroyd’s estate, applicable to this judgment. The bill was by the note holders against the administrator and creditors of Samuel Murgatroyd, claiming the proceeds of the coffee under the trusts of the assignment. The chancellor decided that the property was held by Murgatroji'd in trust for a specific purpose, and the proceeds were not assets in the hands of his administrator for the creditors of the trustee, but went into his

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hands subject to the trust. The answer of the administrator admitted that the deed of assignment, though general in its terms, was for a special purpose, and the court relied on this admission as opening the way to parol proof to show what that purpose was; and, the trust being proved by Ogden, the assignor, and by the admissions of both the Murgatroyds, the court, to prevent a fraud, carried it into execution.

Very different is the case of a debtor making an absolute conveyance, or executing a bond voluntarily, without any consideration, and without the privity of any one, and afterwards seeking to set up by parol a trust in favor of particular creditors as against the claims of his general creditors. Such ¿ transaction is open to all the-danger of fraud designed to be guarded against by the statute of Elizabeth, and has many of the features which the judges in Ticyne’s case, regarded as marks of actual fraud. (1 Smith’s Cases 1, 7.) It is secret; it retains a power in the obligor either alone or by collusion with the trustee to vary dr defeat the trust; it binds not the cestuis que trust, for they might, notwithstanding such bond, proceed by other means for the collection of their debts, and it seeks to give to certain creditors the priority due only to superior diligence, without any diligence on their part, or even the knowledge that they have been so advanced. It is particularly objectionable, because it leaves it in the power of the debtor and trustee to set up or disavow the trust at pleasure; invites to collusion between them, and presents strong temptations and opportunities of fraud against the general creditors.

The legal character of such a transaction is explained in the cases of Garrard vs. Lord Lauderdale, and Walwyn vs. Coutts, (3 Sim. Rep. 1, 14; 5 Cond. Ch. Rep. 6;) in Acton vs. Woodgate, and Bill vs. Cureton, (2 Mylne & Keene. 495, 511.) The obligee is regarded as the trustee of the debtor making such voluntary bond, and not of the creditor. The deed merely operates as a power to the trustees, revocable by the debtor, and has the same effect as if the debtor had delivered money to an agent to pay his ci'editors, and before any payment made by the agent, or communication by him to the creditors, had recalled the money so delivered.” “A man who, without any communication with his creditors, puts property into the hands of trustees for the purpose of paying his debts, proposes only a benefit to himsqlf, and not to his creditors; it would be a result most remote from his contemplation, if it should be held that any creditor discovering the transaction, should be able to fasten on the property and invest himself with the character of cestui que trust.”

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For the same, and, I apprehend, a stronger reason, a debtor cannot by an absolute bond; made voluntarily, without the privity or assent or knowledge of his creditor, give such creditor a preference, and establish by parol a trust in his favor, though the bond be not in his name, or upon any consideration flowing from him, or in any manner expressed to be for his use.

It was supposed in the argument that these cases of Walwyn vs. Coutts and Garrard vs. Lord Lauderdale, conflicted with the older cases of Ellison & Ellison, Pulverioft & Puloertoft, and the other cases cited by the appellant’s counsel; but their consistency is vindicated by the master of' the rolls, in the still later case of Bill vs. Cureton. It is still admitted that a voluntary settlement would be binding on the settlor, where the trust is actually created; but the court will not give its assistance to constitute a cestui que trust without consideration, and then execute the trust. And it is held that a conveyance to trustees to pay creditors not parties to the deed, does not create a trust, but is only an arrangement for the convenience of the debtor, which he may revoke or annul at pleasure, unless there be some contract direct or indirect with a cestui que trust, who is party or privy to the deed. (2 Mylne & Keene 503.) And according to Garrard vs. Lord Lauderdale, even a communication of the trust by the trustee to the creditors, was considered not sufficient to make the conveyance obligatory and irrevocable; though this is questioned in Acton vs. Wondgate, where it is held to be clear, that if no such communication be made, the trust is not created; and the property and the whole arrangement are still in the debtor’s control.

Looking at the facts of the case before us, we find them very strong on this point. The persons for whose benefit this bond was given to McMakin, Burgess & Kelly, are not named or alluded to in the bond. No communication of the trust was ever made to them, according to any proof in the cause; certainly none to Samuel Comly, who was one of them to a very large amount: it does not even appear on the proof that the cestuis que trust were made known to the trustees themselves, or that the schedule now produced was delivered to the trustees, or even placed out of the control of the debtors. It is not so stated in the answer of Waters & Laird; and the answer of the trustees on this point, sets out that the bond was made to them according to their information, knowledge and belief, “in trust to secure the payment of their several debts due to the persons whose names, and the amount of whose debts respectively, the said John Waters alledgcd were mentioned in a written statement or schedule

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made out by the said Waters & Laird.” If, in truth, this schedule was kept by the obligors, and not delivered to McMakin, Burgess & Kelly, they had it in their power at all times to revoke or annul this arrangement, and i’ender the bond inoperative for any thing beyond the sum due Kelly: but, supposing it was made out and delivered at the execution of the bond; still, without communication with the creditors, notice to or acceptance by them, the principle of the cases regards it as a transaction by the debtor for his own benefit, and not as creating a valid trust for the benefit of his creditors.

Booth and Bayard, for appellants.

Rogers, jr., for appellee.

Upon this ground, and not because the execution of a bond for a bona fide debt is prohibited by our act against preferring creditors by insolvents, I concur with the chancellor in opinion that the de-defendants below are not entitled to recover under their execution, any sum beyond the amount due to Kelly, one of the obligees, to wit: the sum of $400, with the interest thereon. And I cannot well reconcile this decree of the chancellor with the idea that such a preference, given by a failing debtor directly to his creditor, is prohibited by the act referred to, because the bond if void under that act is void altogether as against the general creditors, and even Kelly, in respect to whom there is a consideration, could recover nothing under it.

Decree affirmed.