Holt & Chambers v. Bancroft , 30 Ala. 193 ( 1857 )

WALKER, J.

It is conceded that the second deed executed by Holt & Chambers, dated the 17th May, 1854, was a conveyance of all their property, including that embraced in the first deed, to secure their creditors generally. This conveyance has been properly treated, by the counsel on both sides, as a general assignment. Burrill on Assignments, 82; Dana v. Lull, 17 Yermont, 890.

Section 1556 of the Code is in the following words: “Every general assignment made by a debtor, by which a preference, or priority of payment, is given to one or more creditors over the remaining creditors of the grantor, shall be and enure to the benefit of all the creditors of the grantor equally.” If the former of these two deeds was executed in contemplation of the latter, and with the intention to execute the latter; and if the two deeds, having the same trustee in each, were separated by a space of eight days, for the purpose of evading the prohibition of a preference contained in the section of the Code above quoted, the law will regard the two deeds as together maldng a general assignment, and will take away from the creditor the preference provided for him. If this proposition can be maintained, it must control the decision of the ease; and’ we therefore proceed to the examination of the arguments and authorities, by which, in our judgment, it is vindicated.

The object of the statute was to prohibit all discrimination by a debtor, making a general assignment, in favor of any of his creditors. It does not aim to deny, and does not deny, to a debtor the power of securing a creditor’s debt by a conveyance of a part of his property. The right of preferring creditors by partial assignments is untouched by the section of the Code quoted. It is not the preference of itself, but the preference as a feature of a general assignment, which the statute condemns. This construction of the statute is the only one which can be adopted, without extending its meaning beyond the natural import of the language, and is supported by the decisions in other states in reference to similar laws. Blakey’s Appeal, 7 Penn. State Reports, (Barr,) 449; Mer. Man. Co. v. Smith, 8 New Hamp. 347; Low v. Wyman, id. 536; Danforth v. Denny, 5 Poster, 164 ; Tillou v. Britton, 4 Halsted, 120.

This opinion is not, therefore, intended to assert that the conveyance of Holt & Chambers for the benefit of Alexander Chambers, would,, if it stood alone, be objectionable in the absence of fraud. The above named section of the Code leaves such a conveyance, when isolated and detached from the subsequent deed, outside of its purview; and the preference provided by the deed is not condemned, unless it is a component part of the general assignment.

It is a well established doctrine of the law, that two instruments of writing may so refer to, and be connected with each other, that they will be construed as one instrument, and such a construction will be placed upon them together, as their provisions would require if embraced in one instrument. — Sewall v. Henry, 9 Ala. 30; Love v. Jones, 4 Watts, 465; Bates v. Coe, 10 Conn. 280. This rule is qne of construction. It is not-necessary to invoke it in this argument. The proposition with which we set out, rests, not upon the idea that the two deeds can by a rule of construction be converted into one instrument, but upon the idea that a general assignment may be made up of two deeds, or of a succession of several distinct deeds. The question in this case is, what effect does the law assign to the two deeds, and according to what principle is their effect to be ascertained and measured. All that we assert is, that the first deed is but a part of a general assignment, completed by the execution of the second deed, as the first day’s travel, although followed by some delay, is but a part of the continued journey. The law regards the two deeds as together composing a general assignment, because it will not permit that to be done indirectly which cannot be done directly. That which violates the policy of a statute is as much condemned as if it violated the letter. The law no more tolerates an evasion of a statute by artifice, than a palpable violation of it. — Sharp v. Teese, 4 Halsted, 352; Gulick v. Bailey, 5 Halst. 87; Gray’s Ex’rs v. Brown, 22 Ala. 274; Tennison v. Martin, 13 Ala. 29; Hudson v. Milner, 12 Ala. 670; Bruce v. Lee, 4 Johns. 410. Neither an evasion nor a direct violation of the statute, prohibiting preferences in general assignments, can render absolutely void the deed or deeds by which the preference is attempted to be given, because the statute itself prescribes the effect of its violation. The assignment “shall he and enure to the benefit of all the creditors of the grantor equally.” Visiting, therefore, the act of evading the statute with the consequence of a direct violation, we can only annul the preference, and place the beneficiary of the first deed on a footing with the other creditors.

It is evident that if a party, having determined to make a general assignment of all his property, can anticipate by making partial assignments for the benefit of particular friends, the law can be effectually set at defiance, and might as well never have been enacted. Its policy of preventing preferences in general assignments would he incapable of accomplishment; and the statute itself, inviting to its evasion by the facility of accomplishing the object, would be a dead letter. In truth, if one intending to make a conveyance of all his property, for the benefit of his creditors, convey a part on one day, a part the next, and so proceed until all his property is appropriated according to the original intention, precisely the same end is accomplished as if a general assignment had been made in the outset; and the law must visit the same penalty upon preferences in an assignment accomplished by these successive acts, as if it had been done by a single deed.

The act of Congress of 2d March, 1799, gives the United States a priority of right to the satisfaction of its debts, where its debtor has made a general assignment; at least, such is the effect of its language as construed by the courts. — United States v. Hooe, 3 Cranch, 73. In the case of Downing v. Kintzing, 2 Ser. & R. 326, Tilghman, Ch. J., says, in reference to the effect under that act of a partial assignment, made thirty-one days in advance of a general assignment: “Now here has been a voluntary assignment of the whole estate, for the benefit of creditors,- and the only objection to it is, that it was-not done at one time. The argument is, that the assignment to the plaintiff was but of part of the estate, and therefore not a case in which the United States had a preference. But the law is not to be evaded by an artifice of this kind. It was intended to secure the debt of the United States in all cases, where the debtor was insolvent, and made a-voluntary assignment of all his property. Now what is the difference between the assignment of the whole to one person by one deed, and to several- persons by several deeds ? In both cases the whole is assigned.” In the same case, Yeates, J., said: “I go farther, and adopt the language of one of the defendant’s counsel, that no assignment can with legal propriety be deemed partial, when in the very instant of execution a general assignment is contemplated and intended, and that intention is shortly afterwards consummated. If such finesse could be practiced with success, nothing would be more easy than thus to elude the provisions of the act, and defeat the manifest intention of the legislature. I therefore consider these two assignments as parts of a premeditated plan, and view them as one entire transaction, so far as they respect the insolvency of Rhoads & Petit} and the preference of the United States founded thereon. United together, they operate as a general divestment of their whole ■property, and were intended to produce that effect.” The remaining judge of the Pennsylvania court assented to the principle of law asserted in the extracts above quoted, but differed from his brothers as to its applicability to the case.

The same decision was made in the supreme court of Louisiana, in the case of the United States v. Bank of the United States, 8 Robinson, 262, 415. Burrill, in his work on Assignments, (page 90,) in commenting upon the case last cited, says: “The rule governing these cases was laid down by the counsel for the plaintiffs in the following terms, which seem to have met the approval of the court; that no matter how many instruments are employed to effect the same result, they all partake of the same character, and all should be considered as parts of the same whole. If the same causes which led to the execution of one of the instruments, partial when considered alone, continue to operate until every particle of the debtor’s property is divested, the first instrument is to be coupled with those that follow, and the whole should be construed together.” — See, also, Perry v. Holden, 22 Pick. 269; United States v. Clark, 1 Paine, 629-640.

The bill alleges, that the former deed was made for the purpose of avoiding the provisions of the Code in reference to general assignments, and to defeat the power of the law, and to prefer the beneficiary as a creditor in violation of the said law; and it also alleges, in effect, that the making of the second deed was agreed upon when the first was executed. Two witnesses, Holt and Chambers themselves, prove that Holt & Chambers intended, and had determined, to make the general assignment when the first was executed, and so informed the trustee at the time. It also appears that Holt & Chambers were at the time insolvent, and that the same trustee is appointed in both deeds. The question suggests itself, why was not the general assignment made at the time when the first deed was executéd ? Why was the general assignment, already determined upon postponed for a few days ? The only one answer to these questions is, that in a general assignment no preference could be given, and it was desired to give such a preference. The pleadings and the evidence both show that the first deed was made in contemplation of, and with the intention to execute the second, and the second was accordingly executed in a few days; and upon the principles and authorities laid down, the preferences must be annulled, and the beneficiary in the first deed must be left to take his chance with the other creditors.

It is contended, that the beneficiary in the first deed cannot be affected by the illegal intent of the grantors, unless he participated in it. This ground is not available to the beneficiary, unless he could be regarded a purchaser for a valuable consideration ; and we cannot so regard him, because the deed is made to secure a pre-existing debt, and to indemnify him against a pre-existing surety-ship. — Boyd v. Beck, at the present term; Stiles & Co. v. Lightfoot, 26 Ala. 443; Andrews & Bro. v. McCoy, 8 Ala. 920; Bank of Mobile v. Hall, 6 Ala. 645; 4 Paige, 215; 10 Paige, 170; 1 Dev. Ch. 103; 4 Scam. 387 ; Bowen v. Adams, 1 Sm. & Marsh. Ch. B. (Miss.) 45. The preference given is assailed, not upon the ground that the deed is made to defraud creditors, but it is a violation of the law and therefore void. Such a preference’ certainly could not be maintained in favor of one not a purchaser for value ; whether it could in favor of such a purchaser is a question outside/of this case; and we do not decide it. Manning v. Manning, 8 Ala. 38; Ivey v. Nicks, 14 Ala. 564. It is true this court has decided, that the fraudulent intent of the grantor alone in a deed of trust cannot affect the rights of beneficiaries who did not participate in that intent; and this’decision has been made in reference to deeds securing precedent debts. — Governor v. Campbell, 17 Ala. 571. But, in the case last cited, Chief-Justice Dargan expressed very decidedly his disapprobation of affording any other protection to the beneficiary of a fraudulent deed, than that which belongs to the condition of an innocent purchaser, but regarded the question as settled by previous adjudications. ‘While we are content, with the learned judge who delivered that opinion, to abide by the previous decisions of this court in reference to the question of fraud, we are not willing by analogy to carry the doctrine of those cases to other contracts, which are in violation of the law; and it never has been carried to such an extent, in this State or elsewhere. The distinction of purchaser for and without valuable consideration, and .with and without notice, is founded upon principles of justice, and has the sanction of ancient and modern law; and to depart from it would involve the law in inextricable confusion.

The exhausting the remedy at law was not necessary to enable the complainants to file the bill in this case. The creditors were by the general assignment invested with, a lien, and had therefore a right to file this bill for the purpose of removing an obstacle in the way of the execution of the trust for their benefit. — Pharis v. Leachman, 20 Ala. 662; Watts v. Gayle & Bower, ib. 823; P. & M. Bank v. Walker, 7 Ala. 926; Largan v. Waring, 11 Ala. 988.

The decree of the court below is affirmed.

RICE, C. J.

The right of a debtor to give a preference to one or more of his creditors over others, existed under the common law. The Code has not destroyed that right, when it is exercised honestly by the execution of a mortgage or deed of trust, which is not made in trust for the use of the person making it, and which does not require any creditor to make any release, or to do any other act impairing his existing rights, before participating in, or receiving the securities therein provided for him. — Code, §§ 1287 to 1292, 1550, 1555.

When a debtor makes a general assignment, and by such an instrument gives a preference or priority of payment to one or more creditors over his other creditors, the Code does not pronounce the instrument fraudulent, or void; but annihilates the preferences given by it, and declares that the instrument “shall be and enure to the benefit of all the creditors of the grantor equally.” — Code, § 1556.

The instruments known as mortgages, deeds of trust, and general assignments, are all mentioned in the Code, and evidently as distinct and different instruments. — See the sections of the Code above cited. The Code treats preferences, when contained in an instrument known as a general assignment, as inoperative under all circumstances, and as in effect expunged from the instrument; but it does not so treat preferences when found in any other kind of instrument, or when given in any other mode. I am not willing to go further, in impairing the common-law right of preference, than the legislature has gone.

The preference given to Alexander Chambers, which is assailed by the complainants in this case, was given by an instrument executed on the 9th May, 1854, and which is evidently not a general assignment, but a deed of trust. But my brothers bold, that the preference is rendered inoperative, merely by the intent which existed on the part of the debtors, at the time they executed the deed of trust, to make at a future time a general assignment, and by the actual making of a general assignment eight days after the execution of the deed of trust. I cannot agree to that.

The intent, to make the general assignment was not an unlawful intent,' nor an intent to do an unlawful act; for the debtors had the right to make a general assignment. The case then stands thus: the debtors have exercised their lawful right of preferring a creditor, by deed of trust; at the time they exercised that lawful right, they had the intent to exercise, on some future day, another lawful right, (to-wit, to make a general assignment,) and eight days afterwards they did exercise that lawful right; and the legal result, as announced by my brothers, is, that the first exercise of their lawful right is vitiated by the lawful intent to exercise another lawful right, and the actual exercise of that lawful right eight days afterwards!!

I cannot believe the law to be so inconsistent with itself. I am unable to perceive how the exercise of two lawful rights, accompanied by no unlawful intent, can be considered an evasion of the law; or how the intent which may exist at the exercise of one lawful right, afterwards to exercise another lawful right, can be regarded as an intent to evade the law. The intent to evade the law is an unlawful intent, and, if it affects at all the instrument which it accompanies, it does not simply destroy the preference therein declared, but destroys the instrument in toto. The intent of the debtors to make a general assignment is, in no' just sense, an unlawful intent. The making of a general assignment is an act legal in itself, and violative of no right of a creditor without alien, unless it be made with an intent to delay, hinder, or defraud, or contains some1 provision other than for preferences contrary to law. The making of a deed of trust, giving a, preference to a creditor, is also an act legal in itself, and violative of no right of a creditor without a lien, unless it he made with an intent to delay, hinder, or defraud, or contains some provision contrary to law. And an act legal in itself, and which violates no right, cannot be defeated, in whole or in part, by an intent afterwards to do another act legal in itself. — Chatfield v. Wilson, in the supreme court of Vermont, reported in the July Number, 1857, of the American Law Register, page 528.

It seems to be conceded by my brothers, that the two instruments could not be considered as one, for any purpose, but for the intent, at the time of the execution of the first, to execute the second. That intent does not appear in either instrument. The instruments are eight days apart, and neither refers to the other. The mere intent, at the making of the first, to make the second, (that intent being undisclosed in either,) cannot make the second instrument part of the first. They are separate and distinct, in fact, and in law. As to the first instrument, the deed of trust, there is nothing unlawful in the object, nothing unlawful in the means, nothing unlawful in the effect. I cannot, therefore, perceive on what the asserted invalidity of the preference given by it can rest, without laying it down broadly that several circumstances, each perfectly lawful, make up an unlawful act!

The authorities relied on by my brothers are not applicable to this ease, because they are founded on statutes materially different from our Code.

One of the modes of preferring a creditor, recognized by the common law, and not destroyed by the Code, was by a confession of judgment by the debtor, in favor of the creditor. Suppose now that a debtor adopts that mode, and that, at the time he confesses the judgment, he has the intent to make a general assignment after execution has issued to the sheriff and a lien thereby acquired by the creditor; suppose, further, that after the lien has thus been acquired, the debtor does make the general assignment which he intended to make: in such a case, could any court hold, that the confessed judgment and execution thereon constituted part of the general assignment, or that the intent to make the general assignment destroyed the preference and lien created by the confessed judgment and execution thereon ? It seems to me that a court might as well hold that, as to hold that the deed of trust in this case was part of the general assignment executed eight days after the deed of trust was executed, or that the preference given by the deed of trust was destoyed by the subsequent general assignment.

There is no provision in the Code, or in any part of our law, which says, either in words or effect, that a preference given to a creditor, by a deed of trust executed by a debtor on one day. shall be inoperative, if the debtor, at ■the time of the execution, has the intent to make a general assignment on some subsequent day, and does on a subsequent day make such general assignment. And as there is no such provision in our law, I must dissent from the conclusion attained by my brothers..