Potter v. Belden , 105 Mass. 11 ( 1870 )

Wells, J.

The purpose to secure a preference to a preexisting creditor, or in any respect to contravene the provisions of law relating to insolvency, does not render a sale of personal property illegal, as between the parties thereto. Neither of them is entitled to avoid the transfer; or to avoid any executory contract which arises from it, or depends upon it for its consideration. The statutes relating to insolvency give to the assignee, and to him alone, the right to disaffirm the transaction, and avoid all contracts, made to the prejudice of the estate represented by him, which are based upon it. The doctrine of in pari delicto, upon which the defendant mainly relies, has therefore no application to the case ; even if the facts reported are otherwise such as to present it in that aspect. Harvey v. Varney, 98 Mass. 118.

If the judgment in the case of Crafts v. Belden, being admitted without objection, or restriction as to its effect, is to be re garded as competent between these parties for all purposes ; and thus to establish the entire invalidity of the sale of property to Belden, on the ground either of a preference to himself, or knowledge by him of some purpose of Claghorn to contravene the laws relating to insolvency; still, this would not furnish a ground upon which to defeat the note in Thayer’s hands, unless he can be charged with notice of that which rendered the sale invalid as between Bélden and the assignee. The assignee, it is true, could not collect the note after an avoidance of the sale of property for which it was given. But an indorsee before maturity, without notice, cannot be affected by such failure of consideration. It does not appear, from the exceptions, that Thayer had notice of any ground on which the transaction could be impeached as against Belden.

We are of opinion, however, that, between these parties, the judgment, although admissible for the purpose of showing that the assignee had disaffirmed the sale to Belden and reclaimed and recovered the value of the property, for which in part the note was given, yet was not competent to prove the grounds upon which the sale was impeached. 1 Greenl. Ev. §§ 524, 536-539. Copp v. McDugall, 9 Mass. 1.

But the evidence tended to show that Thayer procured the sale of the property to be made, and the notes transferred to himself, for the purpose of securing a preference, and with reasonable cause to believe that Claghorn was insolvent at the time and intended to give such preference. As against Thayer, therefore, the assignee was entitled to treat the whole transaction as void. The statutes authorize the assignee to deal with transactions of this nature in the mode that will work most advantage to the estate consistently with the rights of other parties. He might elect to affirm the sale of the property and disaffirm the transfer of the note given for it. In that case, if doubtful of the •esponsibility of the holder of the note, he might, by joining the maker in a suit in equity, require payment directly to himself of the amount due upon it. Holmes v. Woodworth, 6 Gray, 324. He “ may recover the property, or the value of it, from the person so receiving it, or so to be benefited ; ” provided such person had reasonable cause to believe that tne transfer was made in fraud of the laws relating to insolvency. Gen. Sts. c. 118, § 80. What he may do by suit, he may accomplish, if he can, without suit.

In this case, the assignee elected to avoid the transfer c£ the note to Thayer, who then held the note, and whose rights alone these plaintiffs are entitled to enforce. He also notified Belden not to pay the note to Thayer. If he had required' Belden tc pay the amount of the note to himself, there can be no doubt that such payment would have been a complete bar to any recovery by the holder of the note. But to have done that would have affirmed the sale to Belden. He had no occasion to require such payment, because he succeeded in enforcing the larger claim for the value of the whole property sold to Belden, for which, in part, the note was given. But this recovery did not operate to affirm the transfer of the note by the insolvent to Thayer. It is not necessary to decide whether the recovery of the property sold would, of itself, have defeated the note in the hands of Thayer. That might depend upon the question whether Thayer had notice of the invalidity of the sale to Belden. As the assignee did elect to disaffirm and avoid the transfer of the note to Thayer,— whether as a supposed means of recovering for the property from Belden, or for the purpose of holding and appropriating the proceeds of the note if he should fail in the larger claim, is immaterial,— the title of Thayer to collect the note for his own use is defeated, and Belden may properly take advantage thereof. Upon this ground we think the defence of Belden may well be maintained.

We see no elements of estoppel in the case, upon either ground relied on by the plaintiffs. And in this view of the rights of the parties, it is immaterial whether Belden knew or did not know of the fraudulent purpose between Claghorn and Thayer. It is also immaterial upon what ground the assignee succeeded in recovering against Belden. That which defeats Thayer’s title, and the right of the plaintiffs to recover upon his title, is the1 fraud between him and Claghorn, and the act of the assignee in assertion of his right to avoid the transfer of the note to Thayer.

Exceptions sustained.

C. Delano & J. C. Hammond, for the plaintiffs. D. Aiken, for the defendant.

At the new trial in the superior court, before Dewey, J., the defendant, to show that Claghorn’s assignee in insolvency disaffirmed the sale of the tobacco, offered in evidence the record of the suit of the assignee against him, showing the return of a verdict therein for the assignee; the plaintiffs objected to its admission, on the ground that it proved no recovery by the assignee and merely showed that the suit was terminated by entries of a nonsuit and a default after the entry of a rescript from this court overruling exceptions alleged by the defendant as reported 99 Mass. 535 ; but the judge admitted it for the purpose for which it was offered, and also, against the plaintiffs’ objection, admitted evidence that the defendant paid to the assignee the full amount of the verdict. The jury found for the defendant; and the plaintiffs alleged exceptions, which were argued at September term 1871.

Morton, J.

One of the issues in the trial was, whether the assignee of Claghorn had disaffirmed the sale to Belden and reclaimed the value of the property, for a part of which the note in suit was given. We have no doubt that, upon this issue, the record in the suit of Crafts v. Belden was properly admitted. The institution of the suit, and the various steps in the course of its prosecution, were acts of the assignee showing an intention on his part to disaffirm the sale, as being in contravention of the insolvent laws. As such, they were admitted. Upon the same ground, the fact that Belden paid the amount of the verdict in full was competent. The receipt of the amount was the final act of the assignee consummating the disaffirmance, and perfecting the reclamation of the value of the property. It is immaterial that no judgment was rendered in the suit of Crafts v. Belden. If such judgment had been rendered, it would be admissible only as one of the acts of the assignee to show the disaffirmance. If he was able to reclaim the value of the property without a formal judgment, the effect, as to these plaintiffs, is the same as if he had recovered it on a judgment. Exceptions overruled.