Riggs v. Murray

2 Johns. Ch. 565, 1817 N.Y. LEXIS 146, 1817 N.Y. Misc. LEXIS 40

Opinion

*The Chancellor.

The material question in the case is, whether the deed of assignment, of the 23d of March, 1798, was not, in judgment of law, fraudulent, as against the creditors at large. That was the only deed that assigned the partnership property; the subsequent deeds, between the same parties, including the one of the 31st of May, 1800, were merely directions to the trustees, founded upon that original deed of assignment. If that deed was void, the succeeding deeds must share its fate, as they were incidental to, and dependent upon it. They were all connected parts of one transaction.

There were five deeds between the parties, bearing date successively, on the 23d of March, 1798, the 24th of March, 1798, the 21st of March, 1799, the 22d oí March, 1799, and the 31st of May, 1800. They have all been mislaid, lost, or destroyed, except the last, which is made an exhibit in the cause, and from the recitals in that deed, and from the answers of the defendants J. I. Clark and J. B. Murray, we are enabled to ascertain the contents of the four lost deeds.

[ * 573 ]

It appears that by the deed of the 23d of March, 1798, Robert Murray if Co. assigned all their partnership property in the United- States, to Clark if Murray, in trust. The inducements to the assignment are contained in the recitals in that deed ;■ by them it appears that the house of Robert Murray if Co. had become insolvent, and that Clark if Murray, and others, had advanced moneys and become bound for them in large sums, from motives of friendship; that in consequence thereof, they considered themselves bound in honor to secure these creditors, as far as they were able. The deed further recited, that Robert Murray & Co. had, before that time, made several particular assignments of particular subjects, to Clark &f Murray, separately and jointly, for particular purposes, and for their indemnity, &c. The deed then granted and assigned the subjects previously assigned, and the excess *thereof, and their several books of account, and legers, and certain debts and property particularly specified, to Clark fy Murray, and to the survivor, in trust, to sell, collect, and receive the property, and to apply the moneys in payment and satisfaction of the debts and balances due to Clark f Murray, and to such other creditors as the grantors, by deed, within one year, should designate, and to each of them, at such times, in such proportions, and upon such terms and conditions, as the grantors, by such deed, should direct; and in default of such direction and appointments, in trust for the grantors. The deed also reserved a power to the grantors, in case they were dissatisfied with the trustees, to appoint others, with or instead of the trustees therein appointed, who were to be subject to the same trusts.

[ * 574 ]

This assignment, as it plainly appears from the instrument itself, was made subject to the future direction and control of the assignors, and liable to be revoked and annulled at their pleasure. The payment of the debts due to Clark f Murray, as well as to the other creditors, to be named and specified, was equally subject to the power of future control and revocation. . The payments were to be made in discharge of the debts due to C. 8f M. and to such other creditors as should be thereafter specified, and then the subsequent words, and, to each of them,, at such times, in such proportions, and on such terms, &c., are to be applied, reddendo singula singulis, equally to the creditors named, and thereafter to be named. This is the natural and grammatical construction and meaning of the sentence. The power also reserved, to change the trustees, shows, that the grantors intended to retain to themselves the entire control of the deed of trust. As trustees, C. &r M. were made subject to removal; and as creditors, they appear to have been placed on an equal footing with other creditors coming in under the deed, and the substituted trustees (if any had been named) would certainly have considered *them as not entitled to any preference, and would have dealt with them as they dealt with the other creditors named, subject to the future dispositions and directions of the grantors.

The subsequent deeds show, conclusively, the sense of the parties on this subject, and that the payment of the debts due to Clark f Murray, as well as to others, was to depend on the future direction of the grantors.

The next deed was dated the 24th of March, 1798, or the day following the original deed of assignment. It recited that deéd, and the trusts of it, and then, by virtue of the power reserved, it directed Clark 8f Murray to retain and pay. the expenses of the trust, and, also, to retain and pay to themselves, and for divers other purposes therein specified, several sums therein mentioned, reserving still the power, by deed, at any time before a complete adjustment of the trust, within one year to be made, to alter, revoke, add to, or vary, the said appointments.

We come next to the deed of the 21st of March, 1799. That deed revoked and annulled, to all intents and purposes, the appointments and trusts of the deed of the 24th of March, 1798, and appointed and appropriated the property before assigned, to the payment of the expenses of the trust, and then that the trustees should retain and pay to themselves, and to certain other persons therein mentioned, such sums, and in such proportions, as the grantors should at any tim.e thereafter, by deed, direct and appoint.

[ * 575 ]

The fourth deed, of the date of the 22d of March, 1799, contains a very explicit and entire control over the whole assignment of 1798, and as well of the payments to be made to the trustees, as to the other specified creditors. It recited the original assignment, and the powers therein reserved, and then directed the trustees to retain and pay, out of the proceeds of the property assigned, the expenses of the trust, and then to retain and pay to themselves, and to divers other creditors, the debts owing to them, and to *such other creditors, in the manner, at the times, in the proportions, and upon the terms and conditions therein expressed. By this deed the grantors also reserved to themselves full power, by any other deed, at any time before a complete and final adjustment should be made, the said, and first before mentioned instruments, (referring to the first deed of 1798,) to alter, and revoke all, or any part of the said directions and appointments, and to add to and make any further and other directions and appointments, &c.

We come, lastly, to the deed of the 31st of May, 1800. That deed recited the substance of the original deed of assignment, and of the declaration of trust of the 22d of March,-1799, and then recited that the grantors were desirous to alter the directions and appointments in the last deed, and to make others. They accordingly direct the trustees, out of the property originally assigned, to pay the expenses of the trust, then to pay, not exceeding 2,000 dollars a year, to each grantor towards his support, next to pay certain creditors in England, and, fourthly, to retain and pay the debts due to themselves, and the house of Murray &/■ Mumford, as therein specified, and also to pay certain other creditors, &c.

. Though as-^"tme“tvsith ™ power of rovogooTm^miiy settlements, yet

[ * 576 ]

There is no further express reservation in this deed, of a power of revocation. The grantors seem, at last, to have grown weary of sporting with the property as their own. It may be doubted, however, whether the power of revocation in the prior deed was not still in force. It was to continue until a complete and final adjustment of the accounts, and whether such an adjustment took place before the act of bankruptcy committed, does not appear from the case. This last deed proves, beyond contradiction, that the assignment of 1798 was as much under the control of the grantors, in respect to the payment of the debts due to the trustees, as in respect to the payment of any other creditors. The deed was made between Robert Murray 8f Co., of the first part, Clark 8f Murray, as trustees, *of .the second part, and the said parties of the second part as creditors, and all such other creditors who should become parties to the deed, by executing it, or otherwise consent to its conditions, of the third part. It appears that Clark &f Murray did, as creditors, become parties to this deed, by also executing it; for it was made upon this express condition, that the parties of the third part should accede to the terms of the deed, by becoming parties to it, and that those who should refuse or neglect to accept of the conditions annexed to the deed, respecting the credits, &c. within one year, should be forever excluded from the benefit of its provisions.

This last deed professed to be nothing more than a declaration or appointment of trusts, created by the first deed of 1798, and founded on the powers reserved in that and the subsequent deeds. It was not, of itself, any assignment or transfer of the property. It referred to the deed of 1798, as the only subsisting title or assignment, and if that deed be removed, or declared void, the whole superstructure falls to the ground.

[ * 577 ]

It may, also, be assumed, as a clear and undisputed fact, that, whether these deeds be viewed separately, or taken (as they ought to be) in connection, as parts of one whole, and forming one entire act, they were made subject to the future disposition and power of the grantors, as well in respect to the debts due to Clark fy Murray, as in respect to the debts of the other creditors, alluded to in those deeds. This leads us to the consideration of the important question arising out of this case, whether such an assignment, by an insolvent debtor to a few select creditors, with such a power of revocation attached to it, can be deemed valid in law. The necessary inference seems to be, that it was made “ to delay, hinder, or defraud creditors.” Family settlements may often require such powers of revocation, to meet the ever-varying interests of family connections; but it is difficult to perceive a proper motive *in a debtor who means nothing more or less than the payment of a debt, to reserve, in the very instrument of assignment, a right to recall the payment. The only effect of such an assignment is to mask the property. If tolerated, it would become an inlet to fraud, and lead to all imaginable abuse. Insolvent debtors are, no doubt, permitted to give preferences, where no legal claims exist, and to pay one creditor to the exclusion of another; but this has not a very extensive application in the English law, for it is controlled by the operation of their bankrupt system, in which equality is equity, and preferences are forbidden. If the rule was not thus checked in practice, and confined to cases which usually do not relate to commercial dealing, I much doubt whether it would have been so long endured in the English administration of justice. The rule in chancery, when property is placed under the jurisdiction of that Court for distribution, has always been different; the creditors are paid, pari passu, in ratable proportions, and the same rule is adopted in all our statute distributions of property for the payment of debts. “ It is founded on this,” says Lord Talbot, “ that, by natural justice and conscience, all debts are equal, and the debtor himself is equally bound to satisfy them all.”

a power of revocation, reserved by a debtor, in an assignment of his property to pay certain creditors, renders the instrument fraudulent and void. In equity, the rule of distribution is equality, and creditors are paid, pari passu, in ratable proportions. Where there is no bankrupt law, the principle of which is equality among creditors, an insolvent debtor may prefer one creditor to another 5 but such preference is to be viewed with jealousy, and should be strictly construed, so as to guard against abuse and fraud.

The doctrine of equality in payment prevails also in the bankrupt system in France, (Code de Commerce, art. 443. 558.) and all partial assignments, by an insolvent debtor, are considered in that country as fraudulent and void.

[ * 578 ]

As we have no bankrupt system, the right of the insolvent to select one creditor, and to exclude another, is applied to every case, and the consequences of such partial payments are extensively felt, and deeply deplored. Creditors out of view, and who reside abroad, or at a distance, are usually neglected. This checks confidence in dealing, and hurts the credit and charatcer of the country. These partial assignments are, no doubt, founded, in certain cases, upon meritorious considerations; yet the temptation *leads strongly to abuse, and to the indulgence of improper motives. The master of the rolls, in Small v. Oudley, (3 P. Wms. 427.) and the lord chancellor, in Cock v. Goodfellow, (10 Mod. 489.) admit that such preferences, by a sinking debtor, may, and, in certain cases, ought to be given, and are called for by gratitude and benevolence; yet, at the same time, it is acknowledged that the power may be abused, and be rendered subservient to fraud. Experience shows, that preference is sometimes given to the very creditor who is the least entitled to it, because he lent to the debtor a delusive credit, and that, too, no doubt, under assurances, of a well-grounded confidence of priority of payment, and perfect indemnity, in case of failure. How often has it happened, that that creditor is secured, who was the means of decoying others, while the real business creditor, who parted with his property on liberal terms, and in manly confidence, is made the victim. Perhaps some influential creditor is placed upon the privileged list to prevent disturbance, while those who are poor, or are minors, or are absent, or want the means or the spirit to engage in litigation, are abandoned.

The law recognizes no distinction among creditors, or of such debts as are honorary or privileged to be paid before others.

The grantors mentioned, in their deed of 1798, that they were bound in honor to secure the two assignees; this would seem to imply that they were not equally bound in honor to pay all their just debts. The notion of honorary debts, in contradistinction to the other debts, founded on fair and adequate consideration, is a dangerous distinction, and calculated to injure or mislead the moral sense. The law does not recognize such a principle of honor, and we have no means by which we can test its purity, or separate it from arbitrary, selfish, or vindictive motives of preference. The principle is too uncertain, flexible, and capricious in the application.

[ * 579 ]

I do not question the legality, however I may doubt the policy, of the rule which sanctions such partialities. It has been long established, and the authorities to this point *were referred to by me, in the case of Hendricks v. Franklin.

Footnotes

•

† I mean, however, to be understood, that the application of the rule is always to be watched with jealousy, and that we are not required, by any reasons of expediency or justice, to enlarge the rule by giving it a new and dangerous facility. We ought to require of the insolvent, when he undertakes to make preferences, by assignments in favor of a class of honorary or privileged creditors, that he should do it absolutely and definitively, and not make the assignment to depend upon his future will and pleasure. Such a reservation gives an alarming aspect to the assignment, and betrays some forbidden or lurking design. I have no difficulty, therefore, in considering the deed in question as colorable merely, and fraudulent in respect to the general creditors.

That such powers of revocation are fatal to the instrument, and poison it throughout, appears to have been well established by authority.

The statute of 27 Eliz., and which we have re-enacted, (Sess. 10. ch. 44. s. 5.) declares all grants of land, with power of revocation, void, against subsequent purchasers, for a valuable consideration. In Tyrer v. Littleton, (2 Brownl. 190.) Winch, J., said, that a deed with power of revocation, was apparent fraud by the statute, and the Court might take notice of it without averment. The meaning of that opinion was, that such a deed is fraudulent in law, and that there is no need of proof of fraud, in fact. So it was said in Twine’s case that the statute had put voluntary estates, with power of revocation as to purchasers, on the same footing with conveyances made by fraud. Such a power in a conveyance is recognized by that statute, as a clear and distinct mark of fraud; and that, and the other statutes of fraud, were only declaratory of the known principles of the common law.

[ * 580 ]

The law is so jealous on this subject, that if the deed contains a power in any way equivalent, in its effects, to a *power of revocation, it is fatal. Thus, in Lavander v. Blackstone, (2 Lev. 146. 3 Keb. 526. pl. 11.) it was held by the K. B. that a conveyance by an insolvent debtor, in trust to pay debts, was fraudulent, because, among other things, it had a proviso, enabling the grantor to make leases for any term, without rent, and this was considered as putting it in his power to defeat the whole settlement, for though the consent of the trustees wcs necessary, yet they were trustees of his own nomination. So exceedingly strict and scrupulous was the K. B. on this point.

But the case which comes nearer to the one before me, is that of Tarback v. Marbury. (2 Vern. 510.) The defendant there made a conveyance of his estate to trustees, to the use of himself for life, and with power to mortgage the same, the remainder to the trustees to sell and pay his debts. The question was, whether creditors by subsequent judgment must submit to come in under this deed of trust, and the lord keeper held the deed fraudulent, because, the defendant having reserved to himself a power to mortgage and charge the estate with sums he thought fit, he might have charged it to the full value, which amounted, in effect, to a power of revocation, which rendered it fraudulent against the creditors.

A reservation of a part of the interest to himself, as in that case, and in the one of Estwick v. Caillaud, (5 Term, 420.) does not destroy the provision in respect to the residue, though if the part unreserved be deficient, the creditors might, perhaps, apply to a Court of equity for the residue. But if the power enables the grantor to defeat the whole provision, all the cases concur in declaring it null and void.

[ * 581 ]

The principle established in these cases is perfectly applicable to the deeds before us. The only difference, if any, is, that the mischiefs and frauds to which the power of revocation may be made subservient, render the rule *more valuable, and more indispensable, in the disposition of pereonal estate.

The assignment of property, in discharge of a debt, is a very simple transaction; yet the one in this case was wonderfully complex. There were five deeds, all relating to one subject, and annulling each other in rapid succession. Nothing is pretended to have been done, between March, 1798, and May, 1800, that was stable or definitive. The case is destitute of that simplicity which attends fair and ordinary dealings. To sanction such transactions in a debtor, who was at the time avowedly insolvent, and professing to make partial dispositions of his property, would be dangerous, and is inadmissible upon principles of policy as well as of law and justice. The last deed was poisoned by its connection with those that preceded it, and by the aliment which it drew from them.

Even if the deed of the 31st of May, 1800, was to be considered independently of those which preceded it, it was so clogged with conditions and provisions in favor of the grantors, as to be- unfit to be sanctioned as a valid partial assignment.

It was made to depend, in the first place, upon the agreement of the grantees, and of the other specified creditors, within the space of twelve months, to all its conditions.

[ * 582 ]

One of the earliest provisions in the deed, and which had preference to all others, except the one relating to the expenses of the trust, was to allow to eách of the insolvent grantors a sum not exceeding 2,000 dollars a year, for their support and maintenance, from March, 1798, “until they should be completely released and discharged from all their debts, or until twelve months after they should have secured such release and discharge by law.” Another condition was, that the specified creditors were to give “ security to use all means in their power to render the property, lodged in trust with them, productive, &c.” It was, finally, added, that “ if any of the persons intended to *be parties of the third part,” (and which of course included the grantees, Clark 8f Murray,) “ should, at any time, knowingly and wilfully embarrass, or attempt to injure the objects therein contained, such party should be forever excluded from a share or participation therein.”

If an insolvent debtor may make sweeping, dispositions of his property, to select and favorite creditors, yet loaded with such durable and beneficial provisions for the debtor himself, and encumbered with such onerous and arbitrary conditions and penalties, it would be impossible for Courts of justice to uphold credit, or to exact the punctual performance of con tracts. It will not, therefore, be in my power to give to the defendant John B. Murray, any aid under the assignment; and his petition, for the property received by the plaintiffs from the executors of Clark, must, of course, be denied.

[ * 583 ]

The next question is, whether I ought not go further, and make the defendant account for the property he has received under the assignment, and place that also in the hands of the plaintiffs, for general and equal distribution. I do not see any principle that will justify me in denying to the plaintiffs the full object and entire equity of their bill. The defendant ought not to be permitted to avail himself of any advantage over the other creditors under an assignment fraudulent on its face, and to which he, no doubt, lent his voluntary sanction from the beginning. If the assignment was void, as against the general creditors, the title of the defendant to the property which he received under it fails, He came by it wrongfully, and to permit him to hold it, by setting off his own debt against it, would be giving effect to a transfer condemned in law. It cannot be done without a sacrifice of the principle. The doctrine of set-offs is founded in natural justice, and never was applied to a case where the party came by property wrongfully. He can no more be allowed his set-off against property acquired by a fraudulent deed, than if he had acquired *it tortiously; and though the grantor himself might be estopped from recalling the property, yet his assignees under the bankrupt act represent the creditors at large, and are not so concluded. If the defendant is entitled to be paid under the assignment, the other creditors who were specially named in it, have, at least, equal, if not superior pretensions, and we should thus confound all distinction between one kind of assignment and another, and render the conclusions of law vain and nugatory. I cannot perceive any other alternative, but either to give complete effect to the assignment as a fair and valid instrument, free from any noxious quality, or to make the defendant account for the property he received under it. The latter is the proper conclusion. It gives triumph to principle, and becomes, as a precedent, beneficial hereafter.

The great amount of the property in question, is a circumstance I have felt, and it has awakened much anxiety in the consideration of the case. But, it must not, and cannot, affect the operation of established principles. Having satisfied myself that it is legal and just, it then becomes a duty to make the defendant account for the property he received under the assignment. He will still stand on an equal footing with the general creditors, and be paid in a ratio, to the amount of his debt. He may lose part of his demand by this means, but he will be placed upon an equality with other creditors, whose demands are equally just, and equally necessary to them, and who must lose in the same proportion.

[ * 584 ]

It is scarcely necessary for me to add, (though it was made a point on the part of the defendant,) that there is nothing in the proceedings which excludes the plaintiffs from the full assertion of their rights. The settlement with the executors of Clark, (and with which this Court had no concern,) was made under an express reservation, acceded to on the part of the defendant John B. Murray, of the right to litigate with him the validity of the assignment; *and in the rule, referring, as a provisional measure, the accounts of the defendant to a master, all questions were reserved. This is the first time that the validity of that assignment, and of the deeds dependent upon it as incidents, has been submitted to the consideration of the Court.

I shall, accordingly, decree, that the defendant John B. Murray account to the plaintiffs, for the 81,836 dollars and 97 cents, which, it appears by the master’s report, was the net sum, after deducting charges and commissions, which he had received under the assignment; and he must account for that sum, with interest from the date of the report, and with costs of suit. The bill, as to the other defendants, is dismissed without costs.

Decree accordingly.

Ante, p. 283,