West, Oliver & Co. v. Snodgrass , 17 Ala. 549 ( 1850 )

DARGAN, C. J.

On the 4th day of April 1845, George Stone sold to Micajah Young a stock of goods, two wagons, and four horses, for the sum of thirteen thousand one hundred and thirty-four dollars and sixty-six cents, to be paid in three equal annual instalments — the first on the first of February 1846; the second on the first of February 1847, and the third on the first of February 1848. By the terms of the contract, Young had the right to rescind it on the first of January 1846, in which event he was to return to Stone the goods on hand at the timej together with the proceeds of such as he might have sold, whether such proceeds consisted of cash, notes, accounts, or other goods purchased with the proceeds of those he had sold. The contract also provided, that, in the event it wa& rescinded, Young might retain two thousand dollars, which he bad agreed to advance for the use of the store and the business, and also the further sum of one thousand dollars, as compensation for his services in attending to the business. At the time of making this contract, Stone- was embarrassed and his property insufficient to pay all his debts, and on the 10th of July, following the making of the- contract, he executed a deed @-f assignment to John A. Snodgrass, by which he conveyed the contract of Young, together with several tracts of land-, for the purpose of paying his debts- in the manner prescribed ire the deed. A few days after the making of the deed of assignment, some of the creditors of Stone caused attachments to be- levied on the goods in the possession of Young, who interposed a claim- to them, by virtue of the contract between Stone and himself. On the first of January 1846, Young rescinded the contract and delivered the goods on hand to Snodgrass, the assignee. Other creditors of Stone have levied on the goods, since they came into the possession of Suodgrass. The plaintiffs in. error contend, that the contract between Stone and Young, and also the deed of assignment to Snodgrass, are fraudulent and void.

1. Although one may be indebted to a larger amount than he is able to pay, yet he may sell his properly, if no liens- have attached upon it, and his creditors cannot defeat the sale, unless it be fraudulent. The contract, however, by which the debtor parts with his property, must be absolute and unconditional, for if he retain the right to revoke the contract and resume the ownership of the property, such a right is inconsistent with a fair,, honest, and absolute sole, and renders the transfer fraudulent ■and void. The necessary inference, says Chancellor Kent, from the existence of such a power seems to be to delay -and hinder creditors. — Biggs v. Murray, 2 Johns. Ch. R. 56-5 — see, also, Lang v. Lee, 3 Rand. 410.

We think it equally clear, that if the-purchaser from an insolvent debtor, has the right to rescind' or annul the contract, before the purchase money is paid, and thus to restore the ownership of the property to the vendor,, that this- right in the purchaser tends directly to hinder and delay the creditors of the vendor and must render the contract void. Now Young had the right, on the first day of January 1S46, to rescind the contract. Until that time it was uncertain whether Young would retain the goods and pay the purchase money, or whether he would return them to Slone. If we sustain this contract against the creditors of Stone, we say to them, fold your arms and wait with patience, until the time arrives, at .which Young is bound to elect, whether he will rescind or not. Thus they would be hindered and delayed. But hindrance and delay is not all this contract may produce. The property may be waisted or lost by the improper conduct or management of Young. Yet he may, according to' the provisions of the contract, relieve himself from the payment of the purchase money, and throw the loss, resulting from his misconduct or mismanagement, on the creditors, if ¡Stone be unable to pay them from other sources. Young is only bound to return the goods on hand and the proceeds of those sold, whether such proceeds corsist of cash, debts, or other goods; he is not to be responsible, in ease of a recisian of the contract, for the solvency of the debts, nor is he to lose from the extravagant or reckless purchases he may have made. In one word, however injudicious or improper his conduct may have been in the management of the business, this contract enables him to avoid all injuries that may flow from it, and throw them on the creditors. Thus the creditors may not only be hindered and delayed, but defeated in the collection of their debts. Such a contract, entered into by an insolvent debtor, ought not and cannot be sustained against creditors, who levy on the goods before the purchaser has determined, or is bound to determine, whether he will rescind it or not. Whether the contract would have been held valid, had no levy been made on the goods, until the time arrived, at which Young was bound to decide, whether he would rescind the contract, and he had determined to hold on to the contract and pay the purchase money, it is not necessary to decide. But we cannot permit it to stand in the way of the creditors, who levy on the goods whilst Young had the right to rescind and thus avoid iu toto the payment of the purchase money.

2. An insolvent debtor, in the absence of statute law to the contrary, may make an assignment of all his property to pay his debts; he may prefer seme creditors over others and require them to release him from further liability, as a condition upon which they shall become entitled to such preference. But when the assignment embraces all the property of the debtor and is not intended as a mere security for particular debts, all the property must be absolutely and unconditionally devoted to the payment of the debts. These principles have been fully settled by the previous decisions of this court. — Ashurst v. Martin, 9 Porter, 566; Gazzam v. Poyntz, 4 Ala. 374. But the court in both of these cases emphatically declare, that they will go no further, but will adhere rigidly to the letter of these decisions. We must therefore apply the tests of these authorities to the deed before us. In reference to the payment of the debts the deed provides, that all the creditors, who should accept of it and release the debtor from further demand by a given time, should be paid pro rala, their entire debts, except the Bank of Charleston, to whom the debtor owed five thousand dollars; on this debt nothing should be paid, unless there was a surplus remaining after the payment of all the other creditors. But it also provides, that if any of the other creditors- should refuse to accept of the deed and release the grantor, then such creditor should forfeit all interest in the trust fund and be excluded from all benefit under the deed; and the Bank of Charleston, in case of the refusal of any of the other creditors, becomes exclusively entitled to their pro rata shares. The creditors, however, who might accept, are not to be benefitted by the refusal of others; they can only claim their pro rata shares and are entitled to no more than they would have been, had all accepted the deed. The Bank of Charleston is the only creditor that can be benefitted by the refusal of others to accept the deed and release the grantor. Now had all the other creditors refused to accept the deed, the Bank of Charleston would have become the sole beneficiary, and all the other creditors would have been excluded from all participation in the trust funds. They could not through this deed reach the surplus that might remain after the payment of this debt; they could claim no title to it whatever by virtue of the deed. Provisions that may lead to such a result are inconsistent with an absolute and unconditional appropriation of the entire property to the payment of the debts, and must render the deed void. It is enough that a debtor in failing circumstances may prefer some of his credtors over others, and our predecessors have gone far enough in giving him the right to exact of his creditors a release of their debt.s, as a condition on which they should enjoy this preference; but we cannot permit an insolvent debtor so to assign bis property that he may say to his creditors, accept the terms I offer you; if you will, a particular creditor shall be postponed for your benefit; if you will not, his debt shall be paid in full, and you shall not recieve even the surplus that shall remain after his debt is satisfied. To sustain such a deed would, in our opinion, enable an insolvent debtor to exact such terms of his creditors as he may see fit, or they would have to give up all claim to the property assigned. Neither law nor morality demands-of us that we should -sustain such a conveyance, and the decisions we have refered to forbid that we should.

Having attained the conclusion that the deed of trust is fraudulent and void in law, it is unnecessary to examine any other question. The decree of the chancellor is erroneous, and must therefore he reversed and the cause remanded, that a decree may he rendersd according to the equity of the parties, not inconsistent with this opinion.

Chilton, J., having been of counsel in this cause, 'before? his election to the bench, did not sit.