Bernard v. Barney Myroleum Co. , 147 Mass. 356 ( 1888 )

W. Allen, J.

The first question presented is, whether it was competent for the justice who heard the case to find, upon the facts reported, that the assignment was made with the intent to hinder, delay, and defraud creditors of the company. It may be assumed that Gilbert N. Hall, the assignee, was a creditor of the company, and that the ostensible purpose of the assignment was to secure payment to him, and that the company had a right to give a preference to him over other creditors, and that the detriment to other creditors resulting from the preference was not fraudulent, nor evidence of fraud, as to them. A creditor receiving a conveyance in preference to other creditors stands in no better position than a purchaser for value; and in either case the question is whether on er purpose of the conveyance is to hinder, delay, and defraud creditors. The distinction made by Chief Justice Bigelow in Banfield v. Whipple, 14 Allen, 13, is enough for the present case; he says: “ The distinction is between a transfer of property made solely by way of preference of one creditor over others, which is legal, and a similar transfer made with a design to secure some benefit or advantage therefrom to the debtor, which is fraudulent and illegal.” See also Griddings v. Sears, 115 Mass. 505.

The material facts bearing on the intent and purpose of the assignment can be briefly stated. Charles H. Hall owned one half of the stock of the company, and was its president, treasurer, and manager; he lent money to the company, which he borrowed for the purpose from his brother, Gilbert N. Hall, and for which he gave partial security upon his own property. The company subsequently voted to give its notes to Charles H. Hall, “ or to whom he may desire,” to cover said money lent by him to the company, and Charles H. executed notes of the company payable to the order of Gilbert N. for the amount, which notes constitute the debt due to Gilbert N., to secure which the assignment in question was made. Charles H. acted for Gilbert HT. in the matter, under full authority, and having the entire management of the matter. Charles H. retained the notes in his possession until the assignment, and no entry of them was made in the books of the company. The assignment was made on September 21,1887. The plaintiffs had been selling goods to the company for more than two years prior to August, 1887, and for a year before that time the company had been unable to meet its notes at maturity, and had been assisted by the plaintiffs by advances in cash to pay its notes. On the 23d of August, 1887, the company showed a statement of its condition to the plaintiffs, and negotiations continued between the parties until the assignment, in regard to the terms upon which the plaintiffs would grant an extension of the time of payment of their debt and give further credit to the company. At least as early as the 17th of September, four days before the assignment, the company had given up any intention to make an arrangement with the plaintiffs, and the assignment to Gilbert N. Hall had been determined on; but the pretence of negotiations with the plaintiffs was kept up, and letters and telegrams were sent to them for the purpose of deceiving them and preventing them from taking legal measures to collect their debt. On the 19th of September, a suit was commenced by direction of Charles H. Hall on the notes to Gilbert N., on which all the property of the company was attached, and on the 21st of September, at a meeting of the directors at which Charles H. Hall and one other director, Gilbert N. Hall, and one other person, who was counsel for the company as well as the counsel of Charles' H., were present, the assignment which had been prepared under the direction of Charles H. was adopted, and together with the notes was delivered to Gilbert N.

In the assignment, there are provisions for carrying on the business, extracts from which are as follows: “ The party of the second part may in his discretion carry on in the name of the party of the first part, or otherwise, the business as carried on by the party of the first part, with a view to the gradual winding up of the same instead of immediately selling- the same, and for the purpose of such carrying on and winding up he may employ or authorize the employment of any of the agents of the party of the first part as manager or managers of said business.

. . . And it is agreed and declared that, for the purpose of carrying on as aforesaid the said business, it shall be lawful for the party of the second part from time to time, at the expense of the estate hereby transferred, to procure, by purchase, lien, or otherwise, such stock in trade, fixtures, materials, chattels, and articles as he shall think fit.” Gilbert N. Hall took formal possession of the property, but left it in charge of Charles H. Hall as his agent, who continued to carry on the business until the filing of the bill in this case.

Not taking into account facts stated in the report, and perhaps some before adverted to, which are equally consistent with an intent to prefer Gilbert N. Hall and an intent to secure the continuance of the business, it appears that Charles H. was a creditor of - the company for the amount which was secured by the notes to Gilbert N.; that Charles H. acted for the company, and also acted for Gilbert N.; that his interest personally, and as the representative of the company and of Gilbert 1ST., was that the property of the company should not be sold to pay its creditors, whether himself, Gilbert N., or the plaintiffs, but should be continued in the business; that his object, and the object of the company in the negotiations with the plaintiffs, was to prevent the property of the company from being taken to pay its debts, and to secure its continued use in the business ; that the attachment was made by Charles H., not to secure the debt to Gilbert N., but to prevent the attachment of the „ property by the plaintiffs before the intended assignment could be perfected; and that the purpose of the assignment was to prevent the property from being attached by the plaintiffs, and to continue its use in the business. The evidence was clearly competent to prove these facts, and to authorize, if it did not in law require, the finding, that the intent of both parties to the assignment was to hinder, delay, and defraud creditors of the company. See Dunham v. Waterman, 17 N. Y. 1; Jones v. Syer, 52 Md. 211; Gardner v. Commercial Bank, 95 Ill. 298; Spencer v. Slater, 4 Q. B. D. 13.

The Pub. Sts. c. 151, § 3, give jurisdiction in equity to reach, and apply in payment of a debt, any property of a debtor liable to be attached or taken on execution in a suit at law against ■him, and fraudulently conveyed by him with intent to defeat, delay, or defraud his creditors. This provision was first enacted in the St. of 1875, c. 235. Before that statute, a creditor could reach property of his debtor, fraudulently conveyed, by attachment and execution in an action at law. The statute gave him a concurrent remedy in equity to enforce the same right. A bill under the statute is not a creditor’s bill, or primarily a bill to reach property which cannot be come at to be attached or taken on execution, but a bill to enforce the right of a creditor to take property of his debtor on execution. The bill is brought by a single creditor in his own behalf, and under the decree the property will be applied to his debt. Powers v. Raymond, 137 Mass. 483. Squire v. Lincoln, 137 Mass. 399. Trow v. Lovett, 122 Mass. 571. Giddings v. Sears, 115 Mass. 505, 508.

Decree for the plaintiffs.