O'Neill v. Kilduff , 81 Conn. 116 ( 1908 )

The court might lawfully infer from the state of the evidence, and the conduct of the parties in the presentation of the evidence and of their case upon argument, that from June 16th, 1902, the time of the voluntary conveyance in question, until the bankruptcy proceedings in July, 1904, all the property owned by Edward G. Kilduff and his brother, both individually and as partners, was the partnership assets and the piece of land in question. The transactions in respect to the piece of land mentioned in the first count do not affect the questions before us.

The essential facts upon which the judgment of the trial court is based are these: In July, 1902, Edward G. Kilduff accomplished a voluntary conveyance to his wife of property belonging to him individually of the value of $9,000. This property, and the property of the business firm of which he and his brother were sole members, and to which he had furnished all the money put into the business and in which he had a three-fourths interest, constituted all the property belonging to him and his brother individually and as partners. At this time the partnership was insolvent, and all the property of the partnership and of the individual partners was insufficient to pay the partnership debts. Edward G. Kilduff, in the exercise of reasonable diligence in the examination of the books and papers of his firm, would have had full knowledge of this insolvent condition. The partnership and its members continued to be thus insolvent, and continued the partnership business, until July, 1904, when, as partners and individually, Kilduff and his brother were duly adjudged bankrupts, having then liabilities of about $27,000 and assets of about $7,900. Upon these facts the court correctly held that Mrs. Kilduff could not hold the property thus transferred to her by voluntary conveyance, as against the trustee in bankruptcy.

Our State early adopted as a part of its common law the broad principle of public policy that "every man should pay his debts with his estate, be it what it will be, either real or personal," and if his estate be insufficient to pay all creditors, each one shall have a "suitable proportion to his debt." 1 Col. Rec. p. 151. This principle has influenced the course of our legislation and judicial decisions in respect to insolvency, and underlies our statute against fraudulent conveyances, as well as against preference of creditors with a view to insolvency. It is in view of this principle that our statute against fraudulent conveyances, first enacted in 1702, has been construed, extended and applied. Curtis v. Lewis, 74 Conn. 367, 50 A. 878; 1 Swift's Digest (266), (281), (282); Trumbull v. Hewitt, 62 Conn. 448, 455,26 A. 350. Our law is now settled that a voluntary conveyance by an insolvent is void as against his creditors, as obnoxious to the principles of our common law and to the construction we have given to our statute against fraudulent conveyances. Quinnipiac Brewing Co. v.Fitzgibbons, 71 Conn. 80, 85, 40 A. 913, and cases there cited;Whittlesey v. McMahon, 10 Conn. 137, 142; Abbe v. Newton, 19 id. 20, 27;Clarke v. Black, 78 id. 467, 471, 62 A. 757.

The defendants claim that the facts appearing in the finding are legally inconsistent with the court's conclusion that the conveyance to Mrs. Kilduff was without valuable consideration. There is plainly no merit in this claim. Clarke v. Black, 78 Conn. 467, 472, 62 A. 757.

There is only one other alleged error stated in the assignment which calls for special mention. The defendant strenuously urges that the voluntary conveyance to Mrs. Kilduff is not void as against the trustee in bankruptcy, because it does not appear that any debt or duty of her husband or of his firm, which belonged to any other person at the date of the conveyance, was still unpaid and unsatisfied at the time of the bankruptcy. The claim is, that the voluntary conveyance of a debtor actually insolvent is not void as against subsequent creditors unless the subsequent debts are contracted while the particular debts existing at the date of the conveyance, or some of them, are still unpaid.

This claim, as applied to this case, is not in accord with our law. InPaulk v. Cooke, 39 Conn. 566, 572, it appeared that Cooke made a voluntary conveyance to his wife while largely indebted although not actually insolvent, his assets exceeding his liabilities by a little more than the value of the property conveyed. He continued his business, and fourteen months after the conveyance a trustee in insolvency was appointed, the assets, including the property conveyed, being insufficient to meet the liabilities. During the fourteen months from the date of the conveyance to the appointment of the trustee, Cooke had paid all the creditors existing at the time of the conveyance except one, although his indebtedness was not thereby diminished but continuously increased. The action was brought by the trustee in insolvency against Mr. and Mrs. Cooke. We held that the trustee was entitled to recover the property thus voluntarily conveyed, and stated the controlling principle thus: "But it is said that the debts which existed at the time that this conveyance was made, have since, with one exception, been paid; and that a voluntary conveyance can be impeached only by those who were creditors at the time, not by subsequent creditors. This principle clearly has no application where there has been a continued, unbroken indebtedness. The debts are owed, though they may be due to new creditors. It is a most unsubstantial mode of paying a debt, to contract another of equal amount. It is the merest fallacy to call such an act getting out of debt. From the time of this conveyance Mr. Cooke continued to be in debt, and at the time of this assignment that indebtedness had largely increased." This principle has been recognized in subsequent decisions (Quinnipiac Brewing Co. v. Fitzgibbons, 71 Conn. 80, 40 A. 913), and applies with greater and controlling force to the present case. As applied to a case like the present one, we think the principle is sound. It assumes that the property of an insolvent trader is charged with the payment of his debts, and that a gift of any substantial part of that property, even if binding as between the donor and donee, charges the property given with the satisfaction of the insolvent's indebtedness. It is the condition of insolvency rather than a deliberate intent to injure or defraud any particular person, that invalidates the conveyance. It is true that the insolvent may continue his business, without his true condition being known, so fortunately as to become entirely free from debt. He then will hold his property absolutely with a complete right to give it away; and in this way he may satisfy also the charge to which the property he gave away while insolvent was subject. Expressions have been used in the decision of cases involving a state of facts different from that in the present case, which, if read apart from their setting, apparently give some support to the defendants' claim; but our attention has been called to no case where, upon a state of facts such as that found by the trial court, a voluntary conveyance has been held good as against the trustee in bankruptcy. An insolvent has no property he can legally give away. All, whether in his possession or that of his donee, is charged with the satisfaction of his indebtedness. Insolvency is the cause of this charge; the cause and its effect are co-existent. The charge cannot be released so long as the cause continues, and the trustee in bankruptcy takes all the insolvent's property (including that he has illegally conveyed during the insolvency) for equal distribution among the then existing creditors.

After the rendition of judgment the court, upon application of the plaintiff, appointed a receiver to take charge of the land which was the subject of the judgment, to collect the rents, pay proper sums chargeable against the premises in connection with the maintenance of the same, and to hold the balance until further order from the court. The appeal assigns error in making this order. Such an order was within the power of the court. 2 Swift's Digest (159).

It is unnecessary to discuss the sufficiency of the application, even if that question can be regarded as properly raised by the appeal. In this case the defendants can suffer no harm.

There is no error in the judgment of the Superior Court.

In this opinion the other judges concurred.