Hyslop & Cambpell v. Clarke — 14 Johns. 458

Majority

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Hyslop and Cambpell against Clarke and others.

NEW-YORK,

October, 1817.

Headnote

A and B assign their property to C and D, in trust, to pay a certain debt due from them to C, and to pay their onbcondnion°ro£ their releasing their demands $ and in case any of those other creditors should refuse to give such discharge, then in further trust, after the debt to C. to pay such of the creditors as theyS,fhouid appoint. Cer mtorsofthA aned B. refused to accede to the terms of the and having recover ed judgments against executions on their proper ty ¡“the Tan! that'auimugh fu¡iy prefer-one of his creditors to another• yet that this was an theepropertyem the power of the debtors to enabte them to give such preference at a future period, and to compel their acquiesce in terms them : and that when any of the creditors dissented, the trust failing as to ail, except C. resulted for the benefit of the assignors. that, therefore, the assignment, as regarded the other creditors, was void by the statute of frauds ; that part being void, the whole must be void ; and that the assignment could ndt be used by C. and D. to project the property in their hands, against the executions of the other creditors, until the trust in favour of C. had been satisfied. .. ... Where a conveyance is good in part, and also bad in part, as against the provisions of a statute, it is void m may and no interest passes to the grantee under the part which is geod.

THIS was an action of trespass, and was tried before his honour the chief, justice, at the Albany circuit, m April, 1817. The declaration was for taking certain goods and chattels of the plaintiffs. The defendants severally pleaded the general issue, and the defendant, Clarke, gave notice, with his plea, that the goods were seized under an execution on a judgment which he had recovered against Wilbur and Barnett.

At the trial, the plaintiffs gave in evidence an assignment to them from Melancthon Barnett and Daniel Henry,.dated the first , v oi January9 IB 17. This assignment recited, that on the 15th them,le-vied September, 1813, Melancthon Barnett and one Simeon G. Wilbur, entered into co-partnership under the firm of Wilbur and : that on the 18 th June, 1816, Wilbur transferred his interest in the partnership to Daniel Henry, on his agreeing to pay one half of the debts of the partnership, and to indemnify Wilbur against the same; that on the same day Barnett and Wilbur entered into partnership under the firm of Melancthon Barnett, * ' . and Q0t whereby they became loint owners of all the stock in j j o trade of Wilbur and Barnett, and were equally liable for the

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payment of their debts, and had continued to do business in partnership, until the date of the assignment; that Barnett and Wilbur had contracted debts to the amount of 13,877 dollars 79 cents, which remained unpaid, and that Melancthon Barnett and Co. had contracted debts to the amount of 5,895 dollars 32 cents, which were also unpaid; they, therefore, to satisfy their debts, assigned the goods, debts, &c. mentioned in certain inventories or schedules annexed, to the plaintiffs. In trust, however, nevertheless, that the said Robert Hyslop and William Campbell, or the survivor of them, shall convert the property above assigned into money, and out of the proceeds thereof, that they shall, in the first place, pay and satisfy the debts mentioned and described in the said inventories, and due to the said Robert Hyslop and Co., amounting, in the whole, to 1,925 dollars; and this preference is given to the said Robert Hyslop, (if indeed it shall eventually appear to be any preference,; in consideration of his agreeing to take upon himself, and to execute the several trusts upon which the said property is assigned ; and after paying and satisfying the same debt due, as aforesaid, to the said Robert Hyslop and Co. this assignment is hereby declared to be upon the further trust, that if the said several creditors of Wilbur and Barnett, and also those of Melancthon Barnett and Co. shall severally and respectively discharge the said Melancthon Barnett and Daniel Henry, and also the said Simeon G. Wilbur, of and from all joint and several liability to pay the said debts in the schedules mentioned, then, and in that case, the said trustees and the survivor of them, shall pay to the several creditors of both firms mentioned in the said schedules, the whole amount of their several and respective debts, if the proceeds of the property hereby assigned shall be sufficient for that purpose ; hut, if not, then a sum to each one in proportion to the amount of his debt. But in case the said creditors, or any of them, shall refuse to give such discharge, then, and in that case, the said M. Barnett and D. Henry hereby declare, that the aforesaid trust, created as aforesaid, shall cease and become void, and the said trustees are hereby required and directed not to execute it. And it is further declared, that in case of such refusal of the aforesaid creditors, or any of them, to give such discharge, the said trustees shall then hold the property hereby assigned in trust, in the first place, to pay the said debt to the said R. Hyslop and Co

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as above mentioned, and then upon the further trust v .v. die whole of the avails of the property hereby a.':.’,;-. \ ”• • of the aforesaid creditors, as the said M. flai ■••=.’ ¿.:ú 'V ■'•'.ry shall appoint; which appointment shall be > . .'•> tion of the said trustees, as soon as such retu-nr ‘ fv’ Ae aforesaid discharge shall be known ; and upon the . , •' -t, in any event, that the overplus, after paying all tin , e . Vis (if any overplus shall remain) shall be paid to the sa> ' -Vi /•<■-r- nett and D. Henry, their heirs, executors, administra?:;: ■ or assigns.”

The assignment was accompanied with an actual delivery of Ae property mentioned in the schedules. The goods mentioned in the declaration were levied on by the defendant, Hempsted, (to whom notice of the assignment was given at the time of the levy,) under three executions issued respectively by the defendant Clarke, and the other two defendants, on judgments recovered against Wilbur and Barnett. Evidence was given on the part of the defendants of declarations by Barnett and Henry, that they intended to postpone such of their creditors as sued, and that several debts due them, amounting to above 1800 dollars, had not been assigned, but it appeared that these debts were intended to be applied to the payment of certain confidential debts due from Wilbur,and Barnett. It was admitted that the defendants had refused to assent to the terms of the assignment to the plaintiffs previous to issuing the executions.

A verdict was found for the plaintiffs subject to the opinion of the court, on a case, containing the facts above stated.

Henry, for the plaintiffs,

contended, that the assignment was valid. It was a case merely of preference. In case any creditor sued, he was to be the last paid. In the deed of assignment, all the creditors are put on an equal footing; and no question is made as to the fairness of the debts. The plaintiffs ,are to be. paid first, in consideration of their taking upon themselves the burthen of the trust; and the other creditors are to bv i . í ! i dually together. At common law, a debtor in fai " ;;l,u ■ i anees, has a right to prefer one creditor to anothe , ¿willing but a statute of bankruptcy can prevent the exer- , ,, . t . j. cise !1 ' ffigh;?, c\ ibis preference may be given pending „ ? ' J / P a SUIt stains T :, c ; v is no evidence ot any lr.aud or col-'5 v . lusion bytwee > ' ¡ l Ab % and the assignees. It is not a '-j

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voluntary conveyance ; but an assignment to a creditor himself, in trust for himself and other creditors.^[6]

Again ; whatever may be the opinion of the court, in regard to that part of the assignment which declares the trust for the other creditors, it is unquestionably valid, as regards the plaintiff. Their rights cannot be impaired or affected. The execution, at the suit of a particular creditor, who is not named in the assignment, or who refuses to accept it, cannot touch the goods in the hands of the trustee. The case of Caillaud v. Estwick, in the Exchequer Chamber,^[7] is a direct authority in point, and is conclusive in favour of the position for which we contend.

Hale and Van Vechten, contra.

We do not deny the right of a debtor to prefer one creditor to another; nor do we question the authority of the cases cited by the counsel for the plaintiffs ; but we think this case is clearly to be distinguished from them. The assignment, on the face of it, is male fide. It is an attempt, on the part of the debtor, to coerce the other creditors to accede to his terms. Is this honest or fair ? Though a debtor may honestly prefer one creditor to another, he has no right to place all his property in the hands of one creditor, so that his other creditors cannot get at it, unless on the terms, and in the manner, he pleases to prescribe. That we have no general bankrupt law is a reason why the courts ought to look at these assignments with suspicion, and scrutinize them with greater severity. The very preference intended by this assignment is'evidence of fraud; the manner of it shows an intent of the debtors to “ delay, hinder, and defraud their creditors.” It is clearly within the statute.^[8] [Here the counsel discussed the facts in the case.] Will the law tolerate such a contrivance to place the property of a debtor beyond the reach of his creditors ? It is the policy of the law to aid a vigilant creditor. But by this assignment, the vigilant creditor who seeks, by a vigorous prosecution of his right, to recover his debt, is to be postponed to the last, and, perhaps, indefinitely, at the pleasure of the debtor. The plaintiffs are prviy to the fraud, and are not entitled to any benefit from the deed. They were not made trustees because they were credi- , v , , , .... , tors, but merely because they were willing to accept the trust. , *'. J . 0 ,, 1 , The assignment is void by common law, as well as by the statute, and must be deemed void ab initio.^[5] The possession of

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ihe trustees must be deemed the possession of the assignors. The case of Burd v. Smith,^[6] though not so strong in its circumstances as the present, is in point, to show that such an assignment is fraudulent and void. In Wilkes and Fontaine v. Ferris,^[7] the court make a distinction, and say, that if the assignment is made for the purpose of the resulting trust, it is void, and the property is not protected against a judgment creditor. If the assignment is void as regards the other creditors, or as to the resulting trust, it is void in toto. The statute makes the whole void.^[8]

Henry, in reply, said,

that the whole argument of the counsel for the defendants, and the authorities cited by them, went only to destroy the preference given by the plaintiffs. Yet the right to give such preference, unless t%ken away by a bankrupt law, was unquestionable.

If the preference is allowable and lawful, where is the evidence of fraud ? Specific, property is delivered to a bona fide creditor, in trust, for himself and other creditors. There is nothing fraudulent or dishonest in this. There is no secrecy or concealment. Is there any evidence of fraud on the face of the assignment itself ? There is no distinction made between the property or creditors of Barnet and Wilber, or of Barnet and Henry.

delivered the opinion of the court. The question in this case is, whether the assignment to Campbell and Hyslop is valid inlaw, of not. This must, in a great measure, be determined upon the face of the instrument itself, as a question of law. The assignment is made in trust; first, to satisfy a debt due to Hyslop & Co.; second, to pay all the other creditors, proportionally, on condition of their executing releases of their respective demands; and in case the creditors, or any of them, shall refuse to give such releases, then it is declared that the last mentioned trust shall cease and determine, and the trustees are required and directed not to execute it; third, in case of such refusal of creditors, or any of them, to give such discharge, then, in trust, (after paying the debt to Hyslop & Co.) to pay the whole of the avails of the property assigned, to such of the creditors^ ?r, and Henry, the assignors, shall ap

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point, as soon as such refusal shall be known ; fourth, to pay the overplus, in any event, to Barnet and Henry.

On the part of the plaintiff, it is argued, that a debtor has a right to prefer one set of creditors to another, and that this assign mentis a bona fide exercise of such right. If that were true, there would be no difficulty in the decision of this cause. It has, frequently, been determined, both in this court and in England, also, before the introduction of the bankrupt system, that it is lawful to give a preference to particular creditors ; and if this assignment was calculated purely to effect that object, it would be valid. But 1 think it goes greatly beyond such a purpose, and contains provisions, which render the whole, in judgment of law, fraudulent and void. It does not actually give a preference, but is, in effect, an attempt, on the part of the debtors, to place their property out of the reach of their creditors, and to retain the power to give such preference at some future period. One object evidently was, to coerce the creditors to acquiesce in the terms offered to them. The language held to them is this, u if you will release your debts, you may participate in the benefits that may result from this assignment ; but if you refuse, we will lock up our property indefinitely, in such a way, that whether you ever get any part of it shall depend upon our will and pleasure; those of you who have shown a disposition to submit to the terms we have prescribed, may expect some favours from us; but you who have presumed to murmur, or to hesitate, and you, particularly, who have refused to comply with what we have determined to be just and reasonable between us, shall have nothing.’’

The moment any of the creditors, (and there were, in point of fact, several) refused to accede to the conditions of the assignment, the trust for the benefit of all the creditors ceased. What then was the condition of the property ? Until a new trust was declared, most clearly, (except as to Hyslop & Co’s, debt,) it was held in trust for the assignors themselves, and so it would continue to be held, until they saw fit to make a new declaration ; leaving it for them to determine, both as to the time and the manner of doing it. Nor can I perceive how the creditors could compel the assignors to make a new declaration of trust, by a bill in equity. The suggestion that they could, proceeds on the ground that the assignment, in this particular, is legal; and if that be true, it follows, that the assignors would have the

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right, which could not be controlled by a court of equity, tQ des¡gnate such creditors, to whom the avails of the property assigned should be paid, as they might arbitrarily select. Now, as it is utterly unknown who they would select, as the objects of their favour, what creditor would be willing, (admitting, for a moment, that it is competent for any one of them to do it,) to file a bill, when it is clear, in case a decree should be made, ordering a new trust to be declared, that the assignors would have the power to exclude the very creditor who should be the complainant? After due consideration, 1 am utterly unable to discover any adequate relief for the creditors in a court of equity ; but whether they could obtain relief there or not, is quite, immaterial in this case. An insolvent debtor has no right to place his property in such a situation, as to prevent his creditors from taking it, under the process of a court of law, and to drive them into a court of equity where they must encounter great expense and delay, Unless it be under very special circumstances, and for the purpose of honestly giving a preference to some of his creditors, or to cause » just distribution of his estate to be made amongst them all. No such purpose is pretended in this case.

The event, upon the happening of which the trust for a' distribution among all the creditors was to become void, has taken place; and the executions were levied before any new declaration of trust was made; indeed, for aught that appears, no such declaration has ever yet been made. At'the time of the levy, therefore, the property, (except as to Hyslop & Co.) was held in trust for the debtors ; and if they can keep it locked up, in this way, in the hands of the trustees, and set their creditors at defiance, for three months, they may do so for three years, or for any indefinite period. 1 think, therefore, that this part of the assignment is void, under the statute of frauds; and that it would be establishing a most dangerous precedent, to declare it to be valid.

But it has been urged, that, admitting this assignment to be void, as to that part of it,,yet it is good, as it respects the trust for the payment of the demand of Hyslop & Co., and that the Jegal interest, in the whole of the property assigned, is vested in the trustees, so as to protect it against the executions by virtue of which it was seized, until such trust has been executed and satisfied. The better opinion seems to be, that even at

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common law, a deed, fraudulent in part, is altogether void. In Fermer’s case, (3 Co. 78.) it is said, “the common law doth so “ abhor fraud and covin, that all acts, as well judicial as “ others, and which, of themselves, are just and lawful, yet be- “ ing mixed with fraud and deceit, are, in judgment of law, “ wrongful and unlawful.” And in the case of Wimbish v. Tailbois, (Plowd. 54.) Montague, Ch. J. lays down the same doctrine very strongly. “ Covin,” says he, “ may be when the “ title is good, and the title shall not give benefit to him that “ has it, by reason of the covin ; for the mixture of the good and “ evil together, makes the whole bad ; the truth is obscured by “ the falsehood ; and the virtue drowned in the vice.” The principles established by these authorities are sound and salutary, and a firm and energetic enforcement of them would go very far to baiffie the multiplied attempts that are unceasingly made by insolvents, to cover their property from their creditors, by every shift and contrivance which human ingenuity can devise. A grantee, who voluntarily becomes a party to a deed which is fraudulent in part, justly forfeits his right to claim a benefit from another part, that would otherwise have been good. It is not to be denied, however, that there are some cases that look the other way, and it is not on this ground alone that the point now under consideration is decided; for admitting that this assignment might, at common law, operate so far as to protect the trust for the benefit of Hyslop & Co. it is void, in toto, for another reason. It appears to be an established rule, that, where a bond is void in part, as against the positive provisions of a statute, the whole bond is void. This distinction was taken in the case of Norton v. Simmes, (Hob. 14.) between a bond, made void by statute, and by the common law; for upon the statute, 23 Hen. VI. if a “ sheriff will take a bond, for “ a point against that law, and also for a due debt, the whole “ bond is void, for the letter of the statute is so ; for a statute is “ a strict law; but the common law doth divide according to “ common reason, and having made that void which is against law, lets the rest stand ; as is 14 Hen. VIII. fol. 15.” It is mentioned, also, as a saying of lord Hobart, that “ the statute is like a tyrant, where he comes he makes all void; but the common law is like a nursing father, and makes void only that part where the fault is, and preserves the rest.” (Maleverer v. Red

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shaw, 1 Mod. 35.)^[1] The principle upon which the case of Xorton and Sirnms was decided, are applicable to deeds of every description which are void, in part, as against a statute. The statute of frauds declares, " every grant, alienation, bargain, conveyance~" &c. made contrary to its provisions, "to be utterly void, frustrate, and of no effect." This applies to the whole deed, even though part of it may have been good at common law. Indeed, if the whole of a conveyance, made in violation of a statute, is not held to be void, merely because it may be good in one particular, it would be very easy to elude the statute in every case. One good trust might always be insened; so that what could not be accomplished directly, would be attained indirectly (of which this very case affords a striking proof,) and, in this manner, the fraudulent purpose would be easily effected, notwithstanding the statute, and the triumph of debtors over their creditors would thus be complete. My reflections upon this case have resulted in a perfect conviction that this assignment cannot be supported, and, of course, that the defendants are entitled to judgment; and this is the opinion of the court.

Judgment for the defendants.

(a) (a) Vide Collins v. Blantern, 2 Wils. 351. Per Wilmot, Ch. J.