Gazzam v. Poyntz , 4 Ala. 374 ( 1842 )

ORMOND, J.

In the case of Ashurst v. Martin, [9 Porter 566,] we sustained an assignment made by one in failing circumstances, by the terms of which a release was exacted from all the creditors who came in under the deed within a time stipulated. That decision was reluctantly made, under the influence of a former decision of this Court, which had been long acquiesced in, but we then avowed our determination not to go beyond the letter of that case. It was then considered as settled law, “that a debtor may convey his property in trust to pay one or more creditors in full, or lo pay his creditors in unequal portions, provided he relinquishes all control over it, and stipulates for no pecuniary benefit to himself, but fairly and bona fide appropriates it to the payment of his debts.” Such is still our opinion, and to that test we will subject the assignment in this case.

The parties having gone to trial on bill and answer by consent, the latter, according to the rule adopted by this Court for the regulation of proceedings in the Courts of Chancery, must be considered as true in all its parts; and as the answers of both defendants deny all intentional fraud, and insist that those portions of the deed of assignment now objected to were introduced in it for the sole purpose of enabling the trustee, by a judicious sale of the property, to pay all the creditors, the question is one of dry law, upon the construction of the deed.

The property conveyed by the deed consists of dioses in action and other personal property, lands in the city of Mobile, and a large amount of land situated in other counties, which was wild or unimproved, and which the trustee was authorized with all speed, convenient and compatible with the interest of all parties beneficially interested therein, to sell, dispose of and convey at such prices and on such terms or conditions as he should deem expedient and with the proceeds and the debts •collected, after paying expenses, &c. to discharge the debts enumerated in schedule B. in the precise order in which they are there enumerated, giving to the trustee a discretion to depart from the order of enumeration, “ if by such departure any compromise or settlement may be effected advantageous to the interest of the party of the first part and his creditors.” The second class of creditors enumerated in schedule C. are to be paid pari passu; and lastly, all other legal demands. The power of the trustee is finally stated thus: “And further, that the said party of the second part may from time to time, and whenever it shall be for the mutual interest of the several parties beneficially interested herein, depart from the order of payment hereinbefore appointed and directed, by settling in full, or in part, by compromise or otherwise,-any of the debts or liabilities specified in the schedule hereto annexed, or for which I am legally liable and chargeable.”

We are of opinion with the Chancellor, that this deed cannot be supported — that there is an intent apparent on its face that it was made with the design to hinder and delay creditors in the collection of their debts.

A deed of assignment, to be valid, must distinctly declare the uses; and one reserving to the grantor the right to declare them subsequently, would be void. The reason of this is apparent. Whilst the debtor retains his property in his hands, subject to the legal pursuit of his creditors, he may compound with them and obtain an abatement of their claims. The parties meet on equal ground, and the creditor may either assent to the debtor’s proposition or take his chance by suit. But if the debtor could, by an assignment, place his property beyond the reach of his creditors, by suit, and be at the same time permitted to compromise with them, or offer terms of compromise, the odds would be fearfully in his favor. The making of an assignment with preferences, is an admission on the part of the debtor, of inability to pay all his debts, or at least renders such payment doubtful; and those'who are placed in the class of those who'are to be paid pari passu, the true meaning of which generally proves to be not to be paid at all, naturally feel alarmed for the safety of their debts, and if the debtor through his trustee, who is a person usually not very hostile to his interests, can appeal to their fears and offer them the certainty of receiving a portion of their debt instead of the doubtful provision made for them in the deed for any portion of it, he would be enabled to exercise a control over them which few could resist. Even the preference given to some of the creditors would be an illusion, and they would be merely placed on the preferred list to hold out inducements to those whose chance, of payment, from the position assigned them, being doubtful, if not desperate, to abate something of their demands, and thus make it, in the language oí the deed, “advantageous to the interest of the party of the first part and his creditors, that a compromise or settlement should be effected.” Such a provision, if tolerated, would enable a debtor to set his creditors at defiance, and compel them to bid against each other for his favors, and would be virtually vesting him with powers which no one would suppose he could in terms reserve to himself in the deed of assignment.

In the impressive language of Judge Gaston, in Haffner v. Irwin, [1 Iredell, 490,] “It is enough, perhaps more than enough, for human infirmity, that the debtor shall be allowed, under these distressing circumstances, to select, according to his unbribed judgment, among his creditors for those who merit a preference, and to make a simple and unconditional appropriation of his property to the payment of their claims. But, to allow him to negotiate for terms with them — to seek out those who will be most favorable to him, either in the way of profit or commerce, direct or indirect — to stipulate openly or covertly with regard to the property conveyed, other than its appropriation to the purposes of the conveyance — would be injurious to the best interests of the community.”

In the case of Barnum v. Hampstead, [7th Paige, 568,] which was an assignment by a debtor giving preference to some of his creditors, but giving to the trustee a discretion to discharge certain claims against the assignor in preference to the preferred debts.

The Chancellor held that this provision rendered the deed void, upon the ground that an assignment which places any of the creditors in the power of the debtor, or his assignee, must have the effect to delay or hinder creditors in the collection of their debts. [See also the opinion of Mr. J. Sutherland, in Grover v. Wakeman, 11 Wendell, 203.]

We have been referred particularly to the case of De Forest v. Bacon, [2 Conn. 633,] as supporting the view taken by the counsel for the plaintiff in error. By the deed in that case, the trustees were empowered to continue a manufactory till certain raw materials were worked up, and to purchase any necessary articles for that purpose. The Court held this provision did not per se render the conveyance void. We are not now called on to say what discretion may be vested in the trustee in the use or sale of the property — our concern at this time is with the avails of the property when sold, and whether the trustee can be invested with a discretionary power over it. So in the case of Ashurst v. Martin, [9th Porter, 576,J we held that it did not invalidate the deed because the trustee was invested with a discretionary power as to the mode and manner of settling the trust property. But that question is totally distinct from the present inquiry.

As stated in the preceding part of this opinion, an assignment by a debtor can only be sustained where the property conveyed by the deed is, by .its terms, fairly and bona fide devoted to the payment of the creditors, without stipulating for any benefit to the debtor, and where the equitable interest of the creditors are fixed and determined by the assignment itself. We have attempted to show that the assignment in this case is not of that character. In its results, so far is it from devoting the assigned property to the payment of the creditors,and creating in their favour direct and absolute equitable interests, that no certain interests vests in any creditor; but every thing as it regards priority of payment is referred to the discretion of the trustee, who is distinctly admonished in the deed itself to have regard in his settlements and compromises to the interest of “ the party of the first part.” Such a conveyance is in open hostility with the statute of frauds; its direct and necessary tendency is to hinder and delay creditors of their just and lawful actions, and is therefore fraudulent and void — the intention being apparent in the deed itself.

We are fully satisfied that the conclusion here attained,is in accordance with established principle, as ascertained by the adjudged cases, and that the decision is demanded by the best interests of the community.

Let the decree of the Chancellor be affirmed.