M'Menomy v. Roosevelt , 3 Johns. Ch. 446 ( 1818 )

The cause stood over for consideration until this day.

The Chancellor.

The object of this bill is to set aside the deed to Jones fy Townsend, of the 15th of April, 1800, and the judgment in their favour, which Was entered up and docketted on the 19th oí April, 1800. The deed was given, and the judgment confessed by Mfirk, to secure the defendant Roosevelt, for advances made, and responsibilities incurred for M. S.

The objection to the validity of these securities is, that, 1. They were given with intent to delay, hinder, and defraud creditors; and, 2. That the were given in contemplation of bankruptcy, and in fraud of the bankrupt act of the United States.

1. Roosevelt was a bona fide creditor of the house of M. 8f S. on the 1st of January, 1800, to a large amount, if we include all his loans and engagements for them. He had long before, or between 1795 and 1799, become their surety and endorser, and also accommodated them with loans; and it appears, that when he first became their surety, he was promised security, and indemnity. After repeated applications, he obtained, in December, 1799, from Mark, who had assumed all the debts, and taken all the property of .the house of M. S., a sealed note for 50,000 dollars, with a warrant of attorney to confess judgment. But the note was placed in the hands of a third person, (Nicholas J. Roosevelt,) at the request of M., who afterwards refused to give it up, to have judgment entered upon it. It accordingly ceased to be any security to the defendant, and the defendant then renewed his applications to M. for other and better security. In the beginning of April, 1800, M. agreed to give farther security to the defendant, R., by vesting lands in Jones and Townsend, as trustees, for his reimbursement and indemnity. The deed and judgment bond were accordingly prepared and executed on the 15th of April, and the object was to give the defendant R. a preference, in consequence of his disinterested loans and engagements for M. 8f S., and then-long previous promise to secure him. The terms of the trust were then agreed upon, and after the defendant R. was satisfied, the surplus property so to be secured, was to be appropriated to the discharge of the debts of the other American creditors. The declaration of trust was not executed until the 31st of May following, which delay arose, according to the testimony of Jones, the trustee, from accident and the pressure of other business. There can be no doubt but that the declaration of trust in May was only a written and more authentic evidence of the terms and conditions of the trust agreed upon by the parties, at the execution of the deed and judgment bond in April; and Jones says, he considered himself such a trustee from the execution of the deed.

Upon what grounds can it be contended that these securities were fraudulent, within the statute of frauds? They were not made for the purpose of defeating executions, but to secure the defendant; and M. felt himself under the most pressing obligations to give Roosevelt a preference. It is not now to be denied, as I have fre.quently had occasion to say, and generally with regret, that a debtor in failing circumstances, and even avowedly insolvent, may give such preference; and the only question is, was this a bona fide, or only a covenous preference for fraudulent purposes'? There can be no just pretence for that inference.

number of other acts of M. &? S. have been stated from which evidence of a general fraudulent design has been attempted to be deduced; but they have no necessary connection with this case, and ought not to affect the rights of the defendant R. under these securities, created for a valid and meritorious purpose. I do not, however, believe there was any actual fraud or a fraudulent intent in any of the proceedings of M. fy S. They secured their German creditors by one deed in trust, founded on original promises made at the creation of the debt. They gave the defendant a preference founded on a like original ^promise, and then the surplus of that very property was to go to all their other ¿huerican creditors. These unfortunate debtors had invested a great proportion of their capital in wild and unproductive lands, and their efforts in 1199 and 1800, were to save their property, as much as possible, from useless and ruinous sacrifices, for the very purpose of enabling it to pay all their debts. The most unfavourable act that M. did, was giving the bond and mortgage to Murray for 6,000 dollars, but its object at that time was one of self preservation and necessity. It was to enable him to live while in prison, and to have the ability to manage his extensive and complicated concerns for the settlement of his debts. The act was dictated by an anticipated necessity, and as the necessity did not occur, the -act was rescinded, and the bonds never made use of.

The bills of sale of the furniture of M. Sf S. were fraudulent only in judgment of law, because of the indulgence of the trustees in allowing the grantor to keep possession. They were made to pay creditors, and I do not pel-ceive the evidence of fraud in fact, or how they can or ought to affect the trust deed resting on a fair and valuable consideration.

dome stress was laid, also, upon the assignment of a share in the Tontine Coffee House, as if that was merely colourable on the part of M. This appears tobe a most unfounded surmise; the share always belonged to Lewis Marie, a nephew of M., and for whom he acted as trustee, in consequence of his infancy.

I have carefully examined all the transactions on the part of M. fy S., and the details as stated in the answers, and I have been struck with the candour of the narration, and the close correspondence between the answers and the proofs. I should deem it a misfortune to be obliged to draw the conclusion of fraud, in this case, after the lapse of so many years, and when several of the actors are dead, and when two distinct juries have passed upon the case, and contradicted the charge. Indeed when I consider that these deeds and assignments in trust were all prepared under the direction and advice of Mr. Jones, one of the trustees for Roosevelt, it would be difficult for me to believe that fraud could have been devised and matured by the debtor, and yet have escaped the observation of an agent so incapable of aiding, and yet so capable to detect it.

2. The next point is, whether the deed and judgment were void, because given in contemplation of bankruptcy.

The first point embraced the consideration of the question of actual fraud. This only relates to a technical fraud, or an act done to defeat the equality of the bankrupt law.

The bankrupt act of the United States, was passed on the 4th of April, 1800; and the first section declared that, “from and after the 1st day of June, then next, if any merchant should, with intent unlawfully to delay or defraud his creditors, depart from the state, or conceal himself &c., or fraudulently procure himself to be arrested, or his property taken in execution, or secretly convey away or conceal his goods, or make any fraudulent ■conveyance of his lands or chattels, or make or admit any false or fraudulent security, or evidence of debt, &c. every such person shall be deemed and adjudged a bankrupt.

These acts of bankruptcy include the very acts charged ' upon M. by the plaintiff, and yet the statute expressly confines its operation to such acts committed “ from and after the 1st of June.” If such acts as those enumerated, are not within the purview of the bankrupt act, though committed on the 1st of May, then surely an honest preference given to a creditor, on the 15th of April preceding, cannot come within the reach of the act. There is no reason why a preference given even in contemplation of bankruptcy should fall within the act, when a fraudulent concealment or conveyance of property will not. The latter mischief is direct and great, and involves moral turpitude. The other act is innocent and just, but breaks in upon the policy of the law.

The 10th section of the act has the same meaning as the first, when it declares, that the assignment shall be good against the bankrupt, and “ all persons claiming by, from, or under, him, by any act done at the time, or after he shall have committed the act of bankruptcy.” The 17th section seems to be retrospective, and to allude to acts of the bankrupt done “ prior to his becoming a bankrupt ;” but it only applies to conveyances of property c< with intent to defraud creditors,” and gives to the commissioners power to assign property so conveyed; and such conveyances are void at 'common law. If conveyances of property made merely in contemplation of bankruptcy were to be affected by the act, though done prior to the first of June, or, in the words of this section, “ prior to his becoming a bankrupt,” we should have had some express provision, as in the other case. Nothing can be clearer, than that the bankrupt act ought not to be construed to control acts done prior to the day on which it was to go into operation. It would require a very express provision to give it such a retro-active effect, because it is repugnant to another express provision.

The case of Vickars v. The Atty. Gen. of Ireland, (6 Bro. P. C. 491.) was mentioned by one of the counsel for the plaintiff. In that case certain tobacco was imported, on the 28th of December, 1771, and the existing duties paid. On the 1st of January, 1772, a statute passed, imposing an additional duty, and on information filed, the importer was held to pay that additional duty, for the intention of the legislature was known, as the vote on the bill had passed the House of Commons on the 21st of December. The decision strikes me as unfounded in principle; and it cannot be justified on any other ground than the one taken in support of it, and which is, that where no particular time is specified, a statute does, by legal relation, take effect from the first day of the session. And that rule was abolished by the statute of 33 Geo. III. c 13.,from “its great and manifest injustice,” as the preamble in that statute stated.

The plain rule in this case is, that the debtor was left free to act, according to the existing law of the land, down to the day on which the bankrupt act was to control and govern the conduct of the merchant. That day was expressly declared to begin “ from and after the first of June,” and the statute had nothing to do with his prior conduct, except in the specified cases. This is the only safe and practicable doctrine, and therefore we have no concern with the question, whether the deed of the 15th of Jlpril was done in contemplation of bankruptcy. It is immaterial whether or not it was done under that impression, if it was not done in fraud of the rights of creditors. And if that was truly the inquiry in this case, I should incline to think the deed good, because it was founded on a prior engagement, made at the time, to give to R. security for his loans and name. It was the condition on which the responsibility was incurred. The engagement was found - cd on a good consideration, and was binding in conscience; a conveyance in preference, founded on such an agreement, and in fulfilment of it, would probably be good, though bankruptcy were contemplated when the conveyance was made.

This doctrine of contemplation, in cases of bankruptcy, ought not to be pressed with too much force, seeing we have nothing, either in the common or statute law, to show what it is. This was admitted by the judges, in Fidgeon v. Sharpe. (5 Taunton, 539.) The cases make it to depend upon the quo animo. The act must be done with intent to contravene, the bankrupt laws. It cannot be in fraud of the bankrupt laws, unless the actor meant it should be so. It is a question of fact. A man may be in difficulties, and not stop payment; he may stop payment, and not be insolvent; and he may be insolvent, and not be a bankrupt. There is a distinction between bankruptcy and insolvency ; and the court of C. B., in the case I have last referred to, forbear to decide whether the contemplation of insolvency' only, will prevent a trader from giving a preference to one creditor over another.

My opinion upon the case is, that the deed of the 15th oi April, to Jones Sf Townsend, and the judgment in their . favour of the 10th of April, are to be deemed valid securities, for the purposes declared in the declaration of trust of the 21st of May, and there is, consequently, no foundation for the bill. If, however, the plaintiff shall deem a reference material, in respect to the demand of the defendant Roosevelt, and the state of the property so held in trust, he is at liberty to have it, within thirty days, otherwise the bill must stand dismissed.

Decree accordingly-