Kirk v. Chisholm

THE JUSTICE.-The assignment made by the execution debtor to the appellant contained declarations of trusts in the following words:

In the court below Mr. Justice Weatherbe and Mr. Justice Ritchie held that the affidavit prescribed by the Revised Statutes of Nova Scotia ch. 92, s. 4, was not requisite to the validity of this trust deed inasmuch as it was not a bill of sale or chattel mortgage within that section.

I am also of this opinion for the same reason, viz., that it was an " assignment for the general benefit of the creditors " of the assignor within the exception contained in the 10th section. That it was not such a chattel mortgage as is referred to in section 4 is apparent on its face, since it is not a chattel mortgage at all unless it is so in consequence of the fourth trust in Ihe deed by which provision is made for indemnifying certain named accommodation endorsers and makers of promissory notes in respect of paper which might not then have reached maturity. If in this last respect the deed is to be considered a chattel mortgage it is so under section 5 of the Act, not under section 4. In the case of Durkee v. Flint it was held first by Mr.

Justice Thompson, the trial judge, and then by the full court on appeal, that an assignment for the benefit of creditors, although it contained preferences in favour of particular named creditors, was, if it included, subject to such preferences, a trust in favour of all the assigning debtor's creditors, " an assignment for the general benefit of creditors " coming within the exception contained in the 10th section of the Act. This case decided in 1886 directly overrules Black v. Sawyer decided in 1865.

In Archibald v. Hubley it was held that an assignment not for the benefit of creditors generally, but upon a trust to realize the property assigned and apply the proceeds in payment of certain named creditors, nine in number, it not appearing that these were all the creditors of the assignor, and o. then to pay any surplus to the assignor, was not such an assignment for the benefit of creditors generally as the 10th section exempts from the obligation imposed upon the grantees in bills of sale generally by the 4th section. Archibald v. Hubley (1) does not, as it appears to me, overrule Durkee v. Flint or in any way interfere with it. It is desirable to uphold the last mentioned case inasmuch as during the nine years which intervened between its decision and the present time, many assignments must have been made in reliance on it. Moreover, I should have reached the same conclusion without authority. The words of the exception " the general benefit of creditors " are sufficient to include any instrument made with such an ob.ject whatever its other provisions may be.

These words indicate not merely that the affidavit shall not be requisite regards so much of the deed as provides for the general benefit of creditors, but that the whole of the assignment containing such a trust is to be excepted from the operation of section

To restrict the exception to such deeds as should not contain any preferences would be to read the Act as though the words had been assignments for the general and equal benefit creditors, which would of course be wholly unjustifiable.

Mr. Justice Meagher considers the fourth clause the assignment providing for the indemnity and security of the persons named therein who had undertaken liabilities for the assignor upon accommodation paper as a mortgage coming within section 5 of the Act. I cannot assent to this. The deed is in no sense " a chattel mortgage," the only form of security to which the fifth section applies. In the case of a mortgage the property is redeemable, and the mortgagor retains an interest in it. Here there is nothing of this kind; there is an absolute trust for sale of all the property, and the security is to arise from an application T of the produce of the sale. This construction may, it is true, lead to inconveniences and may go far to interfere with the usefulness of the statute, but if so it is for the legislature to apply the remedy if it is desired to include other securities than " mortgages " which alone are the subject of the enactment in section 5. Mr. Justice Ritchie and Mr. Justice Meagher have held the assignment void under the statute 13th Elizabeth, chapter 5, as tending to hinder, delay and defeat creditors, and I agree with their conclusions in this respect. The preferences alone do not of course render the assignment a fraud on creditors declining to execute it

An assignment for the benefit of creditors generally is, as has long been settled, free from impeachment under the statute of Elizabeth

If, however, such instruments contain provisions for the benefit of the assignor or for the personal benefit of the trustee, putting it in his power and making it his interest to hinder creditors, and evidently having a tendency to delay the prompt realization of the assets and their application to the satisfaction of creditors, the deed may be one which it would be unreasonable to require creditors to accept, and in that case they are manifestly entitled to insist on its avoidance under the statute.

I find several objectionable provisions in the deed before us, which, taken in connection with the way in which the assignee proceeded during the interval, nearly four months, between the execution of the trust deed and the lodging of the execution under which the sheriff seized, indicate, in my judgment, an intent to delay and hinder creditors.

In the first place the ' assignee is a member of a firm which are the largest creditors of the assignor. This firm is not only preferred before all other creditors as regards their debt due at the date of the deed (which by itself is, I concede, no objection to the assignment), but it is provided that upon the debts so due to the trustee's firm " for during and until the same are realized, paid and fully satisfied " interest is to run at the rate of seven per cent per annum. Then, the assignee never took more than formal possession of the stock in trade but permitted the assignor to carry on business with it just as he had done before the assignment, and, indeed, the assignee furnished new stock to enable the debtor to carry on the business. It is true that the deed permits the assignee to employ the assignor in winding up the business, but he has done more than this, he has assumed to carry it on without any apparent change in its management.

Again, this by itself might not be fatal, but the continuance of the assignor in the same possession and control which he had before the assignment, though not conclusive in law to show the deed fraudulent, is always a circumstance to be considered by the tribunal having to decide on the fact of bond fides, but when accompanied, as it is here, with a first preference in favour of the assignee, which entirely secures and protects him, and a provision which makes it his interest, as does the allowance of interest at seven per cent, to prolong the winding up, thus directly conflicting with his duty to the general creditors to execute the trusts as speedily as.possible, I am compelled to hold that this makes the deed void as against execution creditors.

But this is not all. The fourth trust declared authorizes the assignee not only to pay preferentially parties to promissory notes negotiated for the accommodation of the assignor, but also all " costs, charges and expenses to arise in consequence " of the promissory notes which they have made or endorsed. This CHIef is to authorize payment to such persons of moneys Justice. which they could not have recovered from the debtor himself, and therefore is in effect to authorize the giving away to the prejudice of non-assenting creditors of a portion of the assets which may equal or exceed the amount of their debt. This I consider a badge fraud. Then, the deed contains this clause:

By this provision the trustee is exonerated from obligations which the general law imposes upon persons standing in his position.

I find no English authorities on this head, probably for the reason that in England such care is taken in the preparation deeds and in conveyancing generally that no one would think of exposing the validity of a deed of assignment to the risk of such a clause being held to vitiate it against non-assenting creditors. There are, however, numerous American authorities showing that such a clause avoids the deed.

A text writer (1) deduces from the decided cases the rule to be:

And in another passage the same writer (2) says: In McIntire v. Benson the Supreme Court Illinois in a judgment delivered by the late Chief Justice Breese, had before it for adjudication the Tvalidity of a deed of assignment for the benefit creditors, which contained a clause providing that the trustee should be responsible only for his actual receipts and wilful defaults. The whole of this judgment is instructive but I must content myself with making two short extracts from it.

The court says

The cases of Finlay v. Dickerson and True v. Congdon are to the same effect.

These cases are cited in the respondent's factum.

I may add a reference to the case of Litchfield v. White (4), where the provision was in the identical words of that in the present deed.

The reasoning employed by the courts in these cases, independently of their weight as authorities, commends itself to our consideration and compels us to hold the present deed also void for this reason as unduly interfering with the rights of creditors by hindering and delaying them.

The Nova Scotia Statute ch. 18, sec. of the Acts 1889, re-enacting a clause of the English statute known as Lord St. Leonard's Act, has no bearing upon this question; the object of that section was merely to exonerate one of several trustees from liability for the wilful default of his co-trustees.

, The appeal must be dismissed with costs.

T Appeal dismissed with costs. Justice.