Englebert v. Blanjot , 2 Whart. 240 ( 1837 )

The opinion of the Court was delivered by

Gibsopt, C. J.

The bact of 1818 is not only remedial, but greatly beneficial; and it is consequently to be liberally construed in suppression of the mischief. It has lessened, if it has not eradicated, abuses by which creditors were baffled, and sometimes eluded. The debtor not only makes his own bankrupt law, but appoints his own assignees: the consequence of which was a defect of accountability, and sometimes an ineffectual pursuit of the fund by actions at law against successive trustees, who had it in turn, till pursuit were abandoned. The provision for registration extends to all the cases that are subject to the chancery powers of settlement of accounts and removal; and if an assignment for the benefit of particular creditors, be not within the one, it is not within the others. In the interpretation of such a lawr, the spirit of the enactment is to be extended to cases within the mischief, though not within thé letter. But what is the letter ? Not express, that the trust must be for all the creditors, but, speaking in reference to the debtor, that it be “ for the use of his creditors,” or “ for the use of such person to whom such assignment is made, and the other creditors.” Strike out the word ‘his’ in the first clause, and the remaining words, “for the use of creditors,” are literally satisfied by a trust for less than the whole. The assignment here is certainly for the use of creditors. But granting that the words, ‘his creditors,’ and ‘the other creditors,’ comprise the whole number, yet the reprobated construction put upon one of the best remedial statutes that ever was enacted, which was frustrated by the introduction into conveyances of a few insignificant words, should warn us of the danger of expounding remedial laws too narrowly. What was effected by those words in respect to the statute of uses, might, under the interpretation of the court below, be effected with equal facility in respect to the statute before us, which might be eluded by the simple device of leaving a single creditor out of the trust. Subject to be thus parried, the provisions of the law would be of little worth. It is known that this interpi'etation produced the specific provision for cases like the present, which is found in the act of 1836 ; and which had been indispensable, were it not entirely clear that a trust for particular creditors, is within the purview of the original act.

Taking the assignment, then, to be void, how far was the property vested in the plaintiff by the proceedings on the petition of the assignor as an insolvent debtor 1 The avoidance of the assignment for defect of registry, as to creditors, had relation to its date ; yet being good between the parties, the trustee acquired the property of the debtor as it stood at the time of his appointment. But he acquired it as-it stood, obnoxious to payment of the debts. What then is the interest of a debtor in property fraudulently conveyed by him? As regards benefit to himself,.'absolutely nothing; but as regards benefit to those attempted to be defrauded, something tangible and substantial. For the benefit of these, the ownership remains in him as a trustee ex maleficio. On no other principle could the legal title be sold even on a judicial process against him ; yet it is constantly seized in execution as his, and sold as his. The title remains in him, so far as is necessary to protect the interest of his creditors. A subsequent assignfee for his own benefit, would take nothing in prejudice of his predecessor; but an assignee by process of law,.or perhaps even by voluntary assignment, adding the character of a creditor to the operative words of the conveyance, stands on more advantageous ground. It is conceded, that a purchaser at sheriff’s sale takes paramount to the preceding assignment ; yet he purchases no mofe than what was the debtor’s property, which however includes all thdt-was potentially his property for payment of his debts., If a fraudulent conveyance be no conveyance as to creditors, it follows that the title remáins in the debtor as to his creditors ; and why may he not convey it for their benefit ? It would be a shallow rule that would disable him from yielding to them voluntarily what they might wring from him by process. To allow the trustee to distribute it, would more conduce to that sort of equity which consists in equality of participation, than to make it the subject of a judicial scramble in the hands of the fraudulent assignee. The difficulty is to tmderstand how the trustee, succeeding as he does to the property of the debtor, who may not dispute the legality of the conveyance, can claim what the debtor had not. But if 'the fraudulent conveyance be, as it has frequently been pronounced, a nullity as to the interests, attémpted to be defrauded, the debtor actually has the estate for purposes of satisfaction; and there is no great difficulty in conceiving that he may transmit it to the representative of his creditors, even by a voluntary conveyance. But the cessio bonorum to a .trustee who comes to the title not under, but paramount to, the debtor, so far from being voluntary, is extorted as the price of the debtor’s liberty. It is the fruit of mesne or final process, and not the less compulsory'for having been embraced as an alternative. Even where ebmpulsion is out of the question, if the representative of the debtor be also the representative of unsatisfied creditors, though deriving his title immediately from the debtor, the effect is the same; as was held in Buehler v. Gloninger, (2 Watts, 226,) where the administrator of an insolvent estate was allowed to show that a bill of sale executed by the intestate, was fraudulent: whence an irresistible inference that a fraudulent assignor may transmit more to the representative of his creditors than he could insist upon for himself. Nothing is to be found in Ankrim v. Woodward, (4 Rawle, 345,) which conflicts with this. There no more was ruled than that trustees in a domestic attachment are not exempt from defalcations, from which the absconding debtor would not have been exempt; for the only principle that could touch the point in question, was disposed of by the attachment law of 1807 ; which, by investing the trustees with property fraudulently conveyed by him, is only declaratory of the common law. In like manner, Krause v. Beitel, (3 Retirle, Í99,) barely determines that the interest of a trustee in debts due to an insolvent debtor, is no greater than the interest of the insolvent himself at the time of the cession—a very different thing from his fiduciary interest in property fraudulently conveyed by him. In Thompson v. Dougherty, (12 Serg. & Rawle, 448,) it was held, however, that a trustee by deed for the benefit of creditors, may not avoid a previous fraudulent assignment. . That case might, if necessary, be distinguished from the present, where the transfer is by process of law; but in order to avoid misconception in respect to the foundation of the principle to be established, it is better to say at once, that we consider that case as a nisi pñus decision of a single judge, and unsustainable by principle or authority. No other decision can be thought to bear on the point; and it would therefore seem, the plaintiff had made out a case to recover.

Judgment reversed, and a venire de novo awarded.