ERROR from the Supreme Court, on a judgment entered in pursuance
of the following agreement:
'Montgomery county.
'Richard Smith, lessee of Thomas
Fitzsimons, William M'Mutrie, Samuel W. Fisher, Philip Nicklin, and
Isaac Wharton, v. Edward Burd.
'Ejectment for 130 acres of land in
Perkiomen township, in Montgomery county.
'It is agreed that the above action
be entered, as an amicable action of trespass and ejectment, on the
Circuit Court docket of Montgomery county, as of March term 1800;
that a declaration and pleadings be filed, and issue joined
conformably thereto;
Page 4 U.S. 76,
77
that the annexed state of a case be filed as of June term 1800,
in the nature of a special verdict, with an entry of the confession
of lease entry and ouster; that judgment be rendered thereon for
the plaintiff, without prejudice to the title, or right, of either
party; that a writ of error on the said judgment be taken from the
Supreme Court, tested as of the last day of last December term of
the same Court, and returnable in the same Court on the first day
of March term following; that the said judgment be affirmed, of
course, in the said Supreme Court, as of the same term, without
prejudice to the right of either party; and that no advantage be
taken of any error in the form of the said proceedings, but every
thing be done to give them validity.'
The material facts, contained in the case, to which the
agreement refers, were these: 'That the title deeds of the land,
mentioned in the declaration, were delivered to Mr. Dallas, by Mr.
Blair M'Clenachan, previous to the 2d day of September 1797, to
enable him to draw a trust deed from M'Clenachan to him and Mr.
Huston; which was, accordingly, drawn, and delivered by Mr. Dallas
to Mr. M'Clenachan for the purpose of having the same executed.
'That on the 2d of September 1797,
Blair M'Clenachan was seised in fee of the premises; and, at the
same time, was indebted, on his separate account, and in
partnership with P. Moore to divers persons (some of whom resided
in Europe, and in other places beyond seas) in large sums of money,
amounting, in the whole, to 435,073 dollars, and upwards. Many of
the creditors had commenced suits in the Supreme Court against
Blair M'Clenachan, and against M'Clenachan and Moore, which were
depending on the said 2d of September 1797; in some of them
judgments were obtained on the 4th of September 1797, to the amount
of 216,018 dollars; in others, judgments were obtained in December
and March terms then next following, to the amount of 22,720
dollars; and on the said judgments, or some of them, executions had
issued.
'That Blair M'Clenachan and P. Moore,
jointly, or separately, not being able to satisfy and discharge the
said debts, Blair M'Clenachan, on the 2d of September 1797, made
and executed a certain indenture for several estates, including the
premises in the declaration mentioned, to A. J. Dallas and John H.
Huston, containing (among other things) the following trusts,
conditions, and stipulations:
'Upon the special trust and
confidence and to the sole intent and purpose that they the said
Alexander James Dallas and John H. Huston and the survivor of them
and the heirs of the survivor shall sell and dispose of the lands
and premises hereby conveyed and granted in such manner as the said
trustees or the survivor or the heirs of the survivor shall deem
most adviseable for the
Page 4 U.S. 76,
78
general interest of the aforesaid creditors and upon the receipt
of the purchase monies, or securities for the same, the premises so
sold by deed or deeds to grant and convey unto the purchaser or
purchasers thereof in fee simple and that they the said Alexander
James Dallas and John H. Huston and the survivor of them and the
heirs of the survivor shall pay and distribute the monies arising
from such sale or sales (after all costs, charges and expences
attending this trust being deducted and paid) towards the payment
and discharge of the debts of all such the aforesaid creditors, as
shall in writing agree to accept the same within nine months after
the date hereof at such times as the said trustees shall deem the
most adviseable, rateably and in proportion according to the whole
amount of the said debts of him the said Blair M'Clenachan and of
the said partnership firm of Blair M'Clenachan and Patrick Moore,
and to pay unto the said Blair M'Clenachan his executors,
administrators, or assigns, the proportion of all such creditors as
shall not signify their acceptance within the specified time to the
intent that he may therewith and thereout compound with and satisfy
such creditors. And if the monies arising from the sale or sales of
the lands and premises aforesaid shall be more than sufficient to
answer the purposes aforesaid, that they the said Alexander James
Dallas and John H. Huston and the survivor of them, and the heirs
of the survivor shall pay the overplus monies unto the said Blair
M'Clenachan his executors, administrators, or assigns. And the said
Blair M'Clenachan for himself, his heirs, executors, and
administrators doth covenant, promise and agree to and with the
said Alexander James Dallas and John H. Huston and each of them and
the survivor of them and the heirs and assigns of them and the
survivor of them in manner and form following that is to say that
he the said Blair M'Clenachan and his heirs shall and will from
time to time and at all times hereafter upon the reasonable request
and at the proper costs and charges of them the said Alexander
James Dallas and John H. Huston or the survivor of them or of the
heirs or assigns of them or of the survivor make execute and
deliver or cause to be made, executed and delivered unto the said
Alexander James Dallas and John H. Huston or the survivor of them
or the heirs or assigns of them or of the survivor all such further
and other acts deeds conveyances and assurances in the law
whatsoever, for the better and more perfect granting conveying
assuring and vesting the lands and premises aforesaid in them the
said Alexander James Dallas and John H. Huston and the survivor of
them and the heirs and assigns of them and of the survivor upon the
trust and confidence aforesaid as the said Alexander James Dallas
and John H. Huston or the survivor of them or the heirs or assigns
of them or of the survivor or their or either of
Page 4 U.S. 76,
79
their counsel learned in the law shall reasonably devise, advise
or require. And the said Blair M'Clenachan and his heirs the said
lands and premises hereby granted or mentioned, or intended to be
hereby granted with the appurtenances unto the said Alexander James
Dallas and John H. Huston and the survivor of them and to the heirs
and assigns of them and of the survivor of them, against him the
said Blair M'Clenachan and his heirs and against all and every
other person or persons whomsoever lawfully claiming or to claim by
from or under him them or any or either of them shall and will well
and truly warrant and forever defend by these presents.' And this
indenture was acknowledged on the 4th of September 1797, by the
said Blair M'Clenachan, in the absence of Mr. Dallas, one of the
trustees, and no proof was given whether the other trustee was
present, or not. It was recorded in Philadelphia on the 24th of
November, and in Montgomery county, on the 27th of December,
1797.
'That the yellow fever prevailed in
the city of Philadelphia from the latter end of August, until the
latter end of October, or beginning of November, 1797; during which
the said trustees were absent from the city; but a communication
with some of the printers of the city was kept open, during the
whole period, by the medium of the post-office.
'That on the said 4th day of
September 1797 Edward Burd (the defendant in the ejectment)
obtained a judgment in the Supreme Court, against the said B.
M'Clenachan, for 5,333 dollars, and 33 cents, besides interest and
costs, with a stay of execution for 60 days. A fi. fa. was issued
and returned upon this judgment, in the usual form to ground a
testatum; and, on the 15th of November 1797, a testatum fi. fa. was
issued to the sheriff of Montgomery county, which was delivered to
the sheriff on the next day. On the 24th of November, levy was made
upon the premises in the declaration mentioned; on the 8th of
December an inquisition was held on the premises, which were
condemned; on the 7th of March 1798, a vend. exponas issued to the
sheriff of Montgomery, and the premises were, thereupon, in due
form sold to the said Edward Burd, for 930l.; on the 27th of March
1798, the sheriff made, and acknowledged in open Court, a deed for
the premises to the said Edward Burd; and shortly afterwards
delivered to him the possession.
'That the said Edward Burd had no
knowledge, or notice, of the execution, or existence, of the deed
of trust to Dallas and Huston, or of the proceedings under it,
until subsequent to the 12th of December 1797.
'That, on the 24th of November 1797,
the trust deed was in the possession of the trustees, or one of
them, by delivery of the said B. M'Clenachan; but when the same was
so delivered is not known. The other title deeds remained in the
possession of
Page 4 U.S. 76,
80
Mr. Dallas during the yellow fever of 1797, and until they were
delivered by him to the lessors of the plaintiff.
'That, on the 15th of December 1796,
an advertisement was published, calling a meeting of the creditors
of B. M'Clenachan, and of M'Clenachan and Moore; and at the
meeting, on the 17th of December, the creditors appointed a
committee, though the minutes of the appointment, &c. were not
signed. This committee, on the 19th of December 1796, published an
advertisement called a caution, against making any purchases, or
accepting any conveyances of B. M'Clenachan's estate, from him, or
his children; to which M'Clenachan published an answer, on the same
day; and, on the 21st of December, the committee replied.
'That, on the 12th of December 1797,
Mr. Huston, one of the trustees, published a notice of the trust
deed, to the creditors of M'Clenachan, and M'Clenachan and Moore;
and invited them to give notice of their acceptance in due time. On
the 19th of December, the creditors met upon the subject, in
pursuance of a call published in the papers of the 16th, 18th, and
19th of December. At this meeting, the creditors expressed some
dissatisfaction, relative to the assignment made as aforesaid to
Dallas and Huston, on a mistaken idea, that it contained a
stipulation for a release; and the dissatisfaction went so far,
that they determined not to accept the assignment on any such
condition. But this mistake being corrected, the committee of the
creditors, on the 31st of May 1798, gave notice of their acceptance
of an interest under the trust; and, on the 4th of June following,
the trustees assigned the trust estate, including the premises
mentioned in the declaration, to the lessors of the plaintiff, who
continued to be the committee of the creditors, appointed by the
minutes, as above-mentioned, and were themselves creditors to a
considerable amount. The assignment of the trust was acknowledged
on the 9th of June, and recorded, in Philadelphia, on the 12th of
June 1798.
'That on the 18th of March 1799, B.
M'Clenachan applied to be discharged as an insolvent debtor; but
was remanded by the Court.1
The cause was argued, in this Court, during the 12th, 13th,
14th, and 15th of January 1802, by Ingersoll, Lewis, and M'Kean,
for the plaintiff in error; and by M. Levy, Rawle, and Dallas, for
the defendants in error. The immediate question to be decided was,
whether, under the circumstances stated, the deed of trust from
M'Clenachan to Dallas and Huston, was valid, or void, in relation
to the title acquired by the plaintiff in
Page 4 U.S. 76,
81
error? But, incidentally, the discussion embraced the general
doctrine of the efficacy of voluntary conveyances by debtors, in
trust for the benefit of creditors, upon specific conditions, or
stipulations. The points and authorities were as follow:
For the plaintiff in error. 1st. A voluntary conveyance of the
description now under consideration, tends to defraud creditors of
the just fruits of legal process. 2 Bac. Abr. 601. Cowp. 433. And
is, therefore, void under the statutes of 13 & 27 Eliz. On the
face of the deed, it appears to have been intended to defeat
judgment creditors; to delay and hinder plaintiffs in their
recoveries at law; or, to give it the most favourable construction,
the deed was intended to preserve the property for creditors in
general, instead of allowing those who were suitors in a Court of
law, the advantage due to their meritorious vigilance. 2d. The
terms of the trust are indefinite, as to its mode and time of
execution, even in favour of the accepting creditors; while, from
the very nature and operation of the deed, an interest is reserved
for the debtor. Thus, only those who accept the trust, with all its
appendages, can receive a benefit from it; and that benefit is
confined to a share in the small part only of the debtor's estate,
which the deed attempts to convey. Nine months are allowed for an
election, to the creditors indiscriminately, during which there
could be no distribution, and after the lapse of that period, the
debtor is entitled to the share of every non- accepting creditor,
as well as to the intermediate perception of the rents , &c.
But suppose there was no accepting creditor, did not the property
remain in the debtor? It did not pass to the general creditors; and
the trustees had paid no consideration for it. 3d. Then, it is a
fraud, where there is a conveyance to a trustee for the benefit of
a debtor; and the strongest badges of fraud put in the books, are
to be found in the present case: for the possession remains in
M'Clenachan; the trust was not announced, even by recording, till
the 24th of November 1797; the conveyance was made pending suits,
to avoid judgments; the deed is not made to a creditor, but to
strangers, of the debtor's own nomination; and the possession of
the land was never delivered in pursuance of the deed. Cowp. 435. 3
Co. 80. 2 Lev. 147. Nay, even the deed itself was not delivered to
the trustees, for two months after its execution, during which
period, M'Clenachan might have destroyed it; or he might have sold
the land effectually to others, for a valuable consideration. 2
Vern. 510. 4th. The acceptance of the creditors was a condition
precedent to the raising of a use in their favour; and if no use
was so raised, the conveyance to the trustees was merely voluntary,
and void by the statute of Eliz. against creditors. Besides, the
performance of the condition precedent was legally barred, by the
lien, which the testatum execution had previously secured for the
plaintiff
Page 4 U.S. 76,
82
in error. 2 Bac. Abr. 608. 1 Sid. 133. Cr. J. 454. 5 Vin. Abr.
'Condition.' 76. pl. 20. Ibid. 178. pl. 37. Ib. 89. pl. 10. 5th. By
the express requisition of the deed of trust, the acceptance of the
creditors must be in writing; and, of course, no assent, by
implication, can render the use absolute. Cowp. 117. 1 Cha. Ca.
141. 143. 3 Co. 28. b. 3 Co. 29. It is stated in the case, that the
creditors did once refuse to accept; by which they had determined
their right of election, and could not afterwards reverse it;
particularly so as to affect and destroy the liens of judgment
creditors. And even as to the act authorising an acceptance, it is
a mere minute of proceedings of a meeting; it is not subscribed by
all the creditors at the meeting; and the notice from the committee
can only operate, on the terms of the trust, as a notice in
writing, for those who actually signed it; since, a parol
delegation of power to a committee, could not be deemed a
performance, in writing, of the condition precedent. 6th. The
plaintiff in error obtained a lien upon the land by the delivery of
the testatum fi. fa. to the sheriff on the 16th of November 1797;
and the acceptance of the creditors, even by their committee, was
not sooner than the 31st of May 1798. Then, it would be contrary to
the principles of equity, and to the rules of law, that the estate
thus vested by the execution, should be divested, by a relation
from the time of the acceptance, to the date of the trust deed,
against a person, who is neither party, nor privy, to the
acceptance, or the deed. 3 Co. 25. 27. 26. 2 Vin. Abr. 285, 286.
288. 287. pl. 3. 1 W. Black. Rep. 642. Plowd. 482. b. 2 Ventr. 200.
13 Co. 21. a. Finch. 6. Style's Pr. Reg. 367. 18 Vin. Abr. 162.pl.
1. 5 Co. 119. b.
For the defendants in error. 1st. The title of the lessors of
the plaintiff, arises from a fair and honest transaction; though it
would be enough to remark, that the silence of the verdict (as the
case must be considered) is a legal negative of the insinuation of
fraud. 10 Co. 56. And there is a valuable consideration in law, for
the trust deed, though it is no more than five dollars; which,
however, coupled with a fair intention, completely vests the title
in the trustees. 2 Bl. C. 296. 2d. The statute of 13 Eliz. c. 5.
secures the rights of creditors, against motives of 'malice, fraud,
covin, collusion, and guile,' by annulling the act which they
produce. But if the present case is not so generated, it is not an
act within the letter of the statute, 'to the end and purpose to
delay, hinder, and defraud creditors, and others, of their just and
lawful actions.' In the construction of the statute, it must, also,
be remembered, that there is an essential difference between 'the
end and purpose,' of an act, and the consequence and result, which
naturally follow it. For, certainly, a creditor, on the eve of
obtaining a judgment, may be hindered, or delayed, as the necessary
consequence of his debtor's
Page 4 U.S. 76,
83
making a conveyance of his estate, unquestionably valid, upon a
bon a fide sale. To invalidate a conveyance, therefore, there must
not only be an intent, which consequentially hinders and delays the
creditor; but it must be a covinous and fraudulent intention, to
that end and purpose. Giving, therefore, the statute the most
liberal construction (and it ought to be liberally construed. Cowp.
434.) still the inquiry terminates, in ascertaining whether the
conveyance is fraudulent, or not. 10 Co. 56. 1 Cha. Ca. 291. 1
Vent. 194. 1 Mod. 119. 1 Ark. 15. Cowp. 708. 434. 2 Vez. 11. 2 Atk.
481. And what is fraudulent, depends on the moral intention; on the
impulse of the will, to perform the act, which necessarily produces
the obnoxious consequence. Bull. N. P. 257. By this test, what
taint, or colour, of fraud appears in the present case? The object
of M'Clenachan was not fraudulently to hinder and delay any
creditor; but honestly to secure an equal distribution of the
property among all the creditors. If the purpose was fair land
lawful, the deed contains every formality, that is necessary for
carrying it into effect; and on the 2d of September 1797 the legal
estate was absolutely vested in Dallas and Huston. 3d. Reviewing,
then, the opposite argument, let us give to each point an answer.
It is urged, that the conveyance is not of all M'Clenachan's
property. We answer, that this does not appear from the facts
stated; but admitting it to be true, it strips the case of some of
the badges of fraud imputed to it; and leaves a fund to which the
dissenting creditors might resort for satisfaction. Again: it is
urged, that the deed was made to trustees of his own choice. We
answer, that there is no authority that declares this to be
fraudulent. In the case of General Stewart's settlement on Mrs.
Stewart, though the whole field of legal objection seemed to be
travelled over, this obstacle never occurred. But it is of the
essence of a voluntary conveyance, that trustees should not be
forced on the debtor; and, as it is generally a case of confidence,
not of interest, a friend, or a brother, is more naturally resorted
to, than a creditor. If, indeed, the trustees were insolvent, or if
any collusion could be charged upon them, it might be deemed a
ground to suspect, repudiate and annul the act; but the
circumstances of the present case exclude every idea of the kind;
and a mere possibility of wrong affords no rule for argument.
Again: it is urged, that the deed does not let in all creditors,
but only such creditors as assent in writing, within a limited
period. We answer, that the trust is open to all; Prec. Ch. 105.
and that even if a particular class of creditors only had been
included, the deed would have been valid. Again: it is urged, that
the shares of the non-accepting creditors were to be paid to
M'Clenachan, to enable him to compound with them. We answer, that
there is no evidence in this, of a fraudulent intention; for, it is
merely an arrangement to pay the same debts, through different
hands;
Page 4 U.S. 76,
84
that it was a provision, which depended entirely upon the
creditors; for, if they accepted, there would be nothing payable to
M'Clenachan; that M'Clenachan's person was still liable to a ca.
sa. as no release was exacted; and the effect of the arrangement is
precisely the same, as would be produced by a bon a fide sale of
the premises. 4 T. Rep. 166. Again: it is urged, that if the
trustees had a right to sell, and did sell, before the creditors
assented, and none of them assented in nine months, M'Clenachan
must receive the whole of the money. We answer, that the objection
proves too much; it attacks all voluntary assignments; and, indeed,
almost all conveyances. Assent, ex vi termini, is a matter
subsequent; and trustees never can certainly know, that the
creditors will take their dividends. The rule is, that the legal
estate must operate; and it vests, in the present instance, to the
full extent of selling and conveying the property. If creditors
will not then receive, does their refusal work an avoidance of the
title of the vendee? The vendee, in fact, and in law, has nothing
to do with the creditors, though he is bound to see, that the sale
is in execution of the trust. 1 Vern. 260. 1 Vez. 173. And the
creditors may give notice, and afterwards claim. 1 Vern. 319.
Again: it is urged, that during the period of nine months, the
trustees are restrained from making distribution. We answer, that
it is proper in all such cases to fix a reasonable period for
distribution; and that the bankrupt and the insolvent laws do so,
as well as most voluntary conveyances. Whether the period of nine
months is reasonable, or not, must be determined; but it is unfair
to argue, that the power to fix a reasonable period, carries with
it a power to fix an unreasonable one. And here, it must be
observed, that there is no right reserved by M'Clenachan to receive
the rent of the premises, during that, or any other, period. But,
if the trustees, either as to the sale, or the distribution, were
guilty of any laches, or irregularity, they might be controuled
under the act of 1774. 1 State Laws, 690. Dall. edit. Again: it is
urged, that the possession was not changed. We answer, that the
continuance of possession in the debtor, even of chattels (a
fortiori of real estate) is not, in itself, fraudulent, but
evidence of fraud, which may be rebutted. 1 Ld. Raym. 286. Prec.
Chan. 285. 1 P. Wms. 321. 2 T. Rep. 587. Cowp. 435. But the legal
possession, or seisin, did pass to the trustees, according to the
law of Pennsylvania, at the moment of executing the deed. Though no
rent is paid, the possession of the lessee, is the possession of
the lessor. 3 Ark. 469. Shep. Touch. 65. Ambl. 599. 57. Rep. 424,
5. 1 Eq. Abr. 149. 1 Fonbl. 194. Again: it is urged, that the deed
was executed in secret, and not delivered to the trustees for
sometime after the execution; of which, too, the plaintiff in error
had no notice till it was recorded, on the 24th of November 1797.
We answer, that the execution of a deed does not call for
publicity; that the case does not negative the fact,
Page 4 U.S. 76,
85
that the deed was delivered to the trustees long before the 24th
of November, but simply states that it was then in the possession
of one of them; that the deed shows, by inspection, a sealing and
delivering on the 2d of September, and the legal presumption, till
the contrary is proved, is, that it remained with the trustees,
from the time of the delivery; that the deed was recorded within
six months, and thereby became good, even against a purchaser; and
that there is no evidence, or suggestion, that the plaintiff in
error lost any opportunity of recovering his debt, by the
transactions respecting the deed. Cro. E. 7. Sheldon's case. Cro.
e. 483. 1 Po. Wms. 205. 577. 4th. Having thus reviewed, and
answered, the opposite arguments, it remains to consider, in the
abstract, whether the execution of the plaintiff in error, so
intercepted the interest in the land, as to defeat the trust? From
the very nature and operation of a trust, the legal title, an
estate in fee, immediately passed from M'Clenachan to the trustees.
2 Bl. Com. 271. Nothing was left to him, but a contingent equitable
interest; if none of the creditors accepted; if only a part of the
creditors accepted; or if there should be a surplus of property,
after paying all the creditors. This equitable interest attaches to
the land, if it is unsold; or it follows the proceeds of a sale, in
the hands of the trustees; and this interest, and no more, is
subject to the lien of a judgment creditor; Gilb. Chan. 230. 2 P.
Wms. 491. 2 Vez. 662. 1 Eq. Abr. 325. Pow. Mortg. 197. whose
testatum into Montgomery county cannot, in this respect, enlarge
his right, or his security, beyond the effect of the judgment, upon
lands in Philadelphia county. 5th. The right of a debtor to make a
voluntary conveyance of his estate, independent of the statutes of
bankruptcy, has never before been controverted, in England, nor in
Pennsylvania, even where a preference was given to one, or more, of
the creditors, in exclusion of the rest. 1 Fonbl. 260. 5 T. Rep.
420. 8 T. Rep. 521. 530. Prec. Ch. 105. 5 T. Rep. 530. 532. The
insolvent laws annual private family settlements made by a debtor;
1 vol. State Laws, 257. 259. 4 vol. 270. but as to voluntary
assignments, the right to make them, and their validity when made,
are expressly recognised. 1 vol. State Laws, 690. The practice of
making them in various forms is notorious; sometimes on condition
of a general release to the debtor; sometimes with a classification
of property, according to which the sales must be effected; and
sometimes with a classification of creditors, according to which a
priority of payment is to be observed. The Courts of Pennsylvania
have uniformly recognised and supported, voluntary conveyances, of
these several descriptions, made bon a fide, and not colourably,
with a latent and fraudulent use for the debtor. [
Footnote 2] 1 Dall. Rep. 139. 430. 72. 2 Bl.
Com. 333.
Page 4 U.S. 76,
86
1 Co. 123. 2 Inst. 675. 671. 674, 5. 1 P.Wms. 278. 1 Vern. 260.
10 Co. 56. Cro. E. 550. 13 Vin. Abr. 554. 3 Ca. Chan. 85. In Mather
v. Pratt et al. the Supreme Court was of opinion, that the debtor
might assign, for the benefit of one half of his creditors, upon
condition; and the plaintiff, a creditor, having sued the
defendants, the voluntary assignees, without first complying with
the condition of the assignment, was non-suited.
The Court, after taking time to deliberate, delivered opinions,
seriatim, on the 20th of January 1802; of which the following is
given as a general outline.
SMITH, Justice.
The question to be decided, is whether the deed of trust is
void, or valid, as against the plaintiff in error, upon a just
consideration of all the facts, that belong to the case? The
ostensible reason, for creating the trust, is a desire to make a
fair division of the property among all the creditors of Mr.
M'Clenachan; and, if this is the real and operative motive, the
deed ought to be liberally construed, in order to give it effect:
for, equality is equity. There can be no doubt, likewise, of the
right of a debtor (and cases may be easily conceived, in which it
would be a duty) independent of the bankrupt laws, to give a
preference to some of his creditors, in exclusion of the rest; and,
from such a preference alone, the Court would not be disposed,
hastily, to infer collusion, secret trusts, or meditated frauds.
Hence, it is incumbent upon us to support the present deed of
trust, unless in its provisions, and in its aperation, it is
calculated unlawfully to hinder and delay, to deceive and defraud,
the creditors of the grantor. The facts stated in the case, do,
indeed, acquit Mr. M'Clenachan of any intentional, or mental,
fraud; but it is a distinct inquiry, and the only one before the
Court, whether they constitute a legal fraud; so as to vitiate and
destroy the act, without criminating the agent.
We are sufficient impressed with the magnitude of the subject,
in all its aspects; as it regards the immediate claims of a
numerous body of creditors, and as it regards the precedent to be
established for future times: but, avoiding much extraneous matter,
which was introduced into the argument, we shall form our
judgments, exclusively, upon the facts contained in the special
verdict. We find, then, that, when Mr. M'Clenachan purposed to
create the present trust, he was oppressed by an immoveable weight
of debt. He knew that many suits were instituted against him; that
in some of these suits, judgments would certainly be obtained
within forty-eight hours; and that in others, the delay of judgment
could not exceed a term. The apprehension of these judgments,
produced the determination to make an assignment of the estate in
trust. But still, if there is nothing unlawful in the mode of
effectuating that determination, nothing to justify the suspicion
of a latent unlawful purpose, the deed must, as
Page 4 U.S. 76,
87
I have said, be sustained. The omissions, as well as the
actions, of a man, will often, however, furnish evidence of his
motives. In Mr. M'Clenachan's situation, why not call a meeting of
his creditors? why not appoint some of them trustees? or why not
openly state his object to be an equal distribution, and consult
those, who were most interested, as to the means of accomplishing
that object? From the start, therefore, when things, which ought to
have been done in prudence, as well as candor, are not done, we
find reason to suppose, that there is something more intended, than
is avowed. Again: when the deed is executed, no schedule
designating the creditors, or explanatory of the debts and
property, is annexed; so that the trustees remained ignorant
(though the grantor was not) of the facts, which were essential to
the execution of the trust, until Mr. M'Clenachan's application to
be discharged, as an insolvent debtor, in March 1789: and until
that period, in fact, the absolute controul of the uses of the
trust continued with him.
But, on the very face of the deed, it is void in law. No debtor
has a right to make his own trustees; and the very attempt would,
under some circumstances, be considered as an act of bankruptcy. In
a conflict between the debtor and his creditors, the trustees would
generally prefer his interest; and, it must be remarked, that the
character and conduct of the present trustees, cannot regulate the
decision of a legal question. The assent of one party, as well as
the proposition of the other, is necessary to compleat every
contract. Burr. 2241. The creditors could have no remedy against
the trustees before they assented; and if they did not assent,
there was a resulting trust to the grantor, which placed them
entirely at his mercy.
It is petitio principii, to argue on the ground that Mr.
M'Clenachan might have sold and dissipated the property: and,
particularly, after the caution published by the creditors, a
purchaser would have run some risque in concluding this bargain.
Lord Mansfield somewhere expressly states, that a purchaser even
for a valuable consideration, but with a view to defeat a judgment
creditor, is fraudulent and void.
On these grounds, therefore, that no schedule accompanied, or
followed, the deed of trust; that the deed was made without the
consent of any of the creditors; and that it contains a resulting
trust to the grantor, thereby placing the dissenting creditors in
his power; I think the judgment of the Supreme Court ought to be
reversed.
BRACKENRIDGE, Justice.
I think the deed of trust is void for various reasons. 1st. The
resulting trust, in case of a dissent, on the part of the
creditors, is for the debtor himself. 2d. The time, for sale and
distribution of the trust estate, is indefinite. 3d. The trust was
not accepted by the trustees; or, at least, by the creditors. 4th.
The trustees were appointed by the grantor
Page 4 U.S. 76,
88
himself. 5th. There is no covenant to compel a sale and
distribution. 6th. There is no schedule of the creditors, by which
the trustees could know, to whom distribution was to be made. I
will add a general observation. It has been said, that a debtor may
favour particular creditors. The right has been allowed, perhaps,
on a principle of humanity; or in favour of just debts, to exclude
debts in law, not strictly ex debito justitioe. But I do not think,
that the practice should be encouraged. It is calculated to create
confusion, uncertainty, and collusion. I see nothing that will
prevent the mischiefs of voluntary settlements, and conveyances,
but a general declaration that they are all void, as against
creditors. The general consent of creditors might, perhaps, be a
ground of exception; but not even that should be admitted, to give
retrospective force to a deed, with a view to cut out, and defeat,
an intermediate lien. The judgment of the Supreme Court should be
reversed.
RUSH, Justice. Although it has been thought expedient to
interweave a great variety of facts, into the statement of the
case, now before the Court, yet the decision rests upon a narrow
ground. It is a controversy between the creditors of B.
M'Clenachan, and the general question turns upon the validity of
the deed of the 2d September 1797; by which, the premises mentioned
in the declaration, and much other landed property, were conveyed
in trust, to A. J. Dallas and John H. Huston, to sell and dispose
thereof, in such manner as they should deem most adviseable for the
general interest of the creditors; and also that they should pay
and distribute the monies arising from the sales, towards the
payment and discharge of the debts, of all such of the creditors,
as shall in WRITING, agree to accept the same, within nine months,
after the date thereof, at such times, as the said trustees shall
deem most adviseable, rateably and in proportion, according to the
whole amount of the debts of the said B. M'Clenachan; and also,
that they the said trustees should pay unto the said B.
M'Clenachan, his executors, administrators, and assigns, the
proportion of all such creditors, as shall not signify their
acceptance, within the specified time, to the intent, that he may
therewith and thereout compound with, and satisfy, such creditors.
If this deed be legal and valid, there is an end of the question.
The claim of the plaintiff in error must instantly vanish out of
sight. It is therefore proper to inquire, 1st. Is this deed
fraudulent or not? 2d. If it be not fraudulent, what is the true
construction and operation of it? 1st. The construction of all
written instruments, is the peculiar and exclusive duty of Courts.
They alone decide on the face of
Page 4 U.S. 76,
89
a deed, whether it be void or not; in which cases, such apparent
fraud, is called a fraud in law, because it does not depend upon
any extrinsic matters of fact, but solely upon the inspection of
the instrument, which must necessarily exclude the motive of the
grantor.
The deed of September 2d, 1797, purports on the face of it, to
delay the creditors of their lawful suits, and is, therefore,
within the statutes against fraud. Until the expiration of nine
months, no distribution was to be made, nor any creditor paid,
however vigilant he might have been. If a debtor may in this mode,
and by a device of this sort, frustrate his creditors for nine
months, where shall the line be drawn? Why not delay his suit for
nine years, as well as nine months? His right is the same, in both
cases. As there is no law of the land, that authorises a debtor to
pass an act of limitation in his own favour, I hope this Court will
never do it for him. The conduct of the debtor reduced to plain
language is this: I will bid defiance to my creditors, for any
period I shall think proper to fix; and this without their assent
or concurrence. I will fix on such trustees as will favour me, by
neglecting to advertise till the nine months are nearly expired, in
order that a few creditors only, may have notice of the trust, and
signify their assent.
In deciding this cause, we are to consider it as a general
question. The character of the present trustees is to be kept
wholly out of view; for though they would act uprightly, there are
other trustees that would act differently. Other trustees might
advertise within the last months, in hopes, that only a few
creditors would subscribe, and, consequently, the resulting fund be
larger and more beneficial for the debtor.
The design of the statutes, is expressly to make void such
deeds, as tend to delay and frustrate creditors of their suits. It
is not, therefore, material, whether the deed be made to trustees,
for the benefit of the creditors, without their knowledge, if it
produce this effect. The end shall in no case sanctify the means,
and render that legal, which the law has pronounced fraudulent.
In the case before the Court, we have an instance of a man
plunged into debt, covered with law suits, overwhelmed with
judgments, and others impending over his head, suddenly and
secretly, without the knowledge of a single creditor, conveying to
trustees of his own nomination, an immense property, on such terms
and in such manner, as he has chosen to prescribe. I cannot
conceive any thing more dangerous, than to sanction by a judicial
determination, a deed of this description. It will be vesting the
debtor with unlimited power at all times over his property, to
baffie his creditors, under the specious pretext of paying
them.
Page 4 U.S. 76,
90
A decision of this sort is warranted by no adjudged case in the
books. In Lutwich v. Caillaud, 5 Term, 420. all the creditors,
except one, approved of the conveyance in trust, and that one had
never sued Lord Abington before the deed was executed. In Englis
and others, assignees of Campbell, a bankrupt, v. Grant, it is
expressly stated, not only that the generality of the creditors
assented to the trust, but the conveyance and covenant were with
the creditors of Campbell. The case of Neeve and Ladbroke,
assignees of Wilsmore, v. the executors of Thomas Wilsmore, was a
conveyance in trust, to pay a debt due to one of the trustees;
without any clause limiting the creditors in point of time, with
respect to their demands on the trustees. From the nature and
operation of the deed of the 2d September 1797, as well as by the
express terms of it, the grantor has reserved an interest in
himself, which is an acknowledged badge of fraud. It should be
remembered, that this is an unsolicited deed to trustees, with an
important resulting trust; the value and amount of which, is left
entirely in the discretion of the trustees. By selling when they
think adviseable, and by omitting to give notice of the trust for
seven or eight months, nearly the whole property would, by these
means, revert to the grantor. For these reasons I am of opinion,
the deed is fraudulent. 2d. But if it be not fraudulent, what are
its true operation and construction, in point of law? It might have
happened, and in fact was very near taking place, that the
condition on which the deed was to operate, had altogether failed.
It was not till the 31st May that any of the creditors signified
their assent in writing, as the deed required. It is certain, if no
creditor had ever assented, that the trust would have been
defeated, and the estate have continued in the grantor. Until the
creditors, therefore, or some one of them assented to the deed, it
could have no possible operation, so as to accrue to their benefit.
Until this event, the trustees were seised to the use of B.
M'Clenachan, and the property remained liable to executions as his.
Between the 2d day of September 1797 and the 31st of May following,
the title to the premises in question was legally vested in the
plaintiff in error, and could never afterwards be divested by any
fiction of law. Upon both these grounds I am of opinion, that the
judgment of the lower Court should be reversed.
ADDISON, Justice. All the points in discussion are reducible to
the two questions: 1st. Is the deed of trust valid? 2d. If it is
valid, when did it commence its operation? 1st. The deed was
executed for an honest purpose; for the sole purpose of making an
equal distribution of the property, among all the grantor's
creditors; and there is not the slightest symptom
Page 4 U.S. 76,
91
of meditated fraud, in any part of the transaction. But the
motive, and the effect, of setting this deed aside, will be to
prefer the exclusive claim of an individual judgment creditor, to
the distributive claims of the general creditors; so that by paying
him the whole of his debt, they will be deprived of every part of
their debts. I think it, therefore, a duty, by every legal and
rational presumption, to support, if possible, the deed of trust;
and I find no difficulty, in pronouncing it, in the first place, to
be a valid deed. 2d. I am, likewise, of opinion, that the deed took
effect from its date. It was susceptible of an honest execution;
and it has, in point of fact, been honestly executed. But an honest
execution, might have been enforced, if there had been any
disposition to evade it. One of the trustees drew the deed, and his
name is inserted in it. This was such evidence of an acceptance of
the trust, as would be sufficient, with respect to that trustee at
least, to enable the creditors to compel him to perform it. If the
deed were framed for an unlawful purpose, or if, in its operation,
it must necessarily introduce, dishonest and fraudulent
consequences, it ought to be set aside. But this admission does not
affect its validity, merely because it tended to delay some
creditors. The motive of the party must be weighed. If a deed,
which delays and hinders a creditor, is made upon selfish
interests, or upon a mere impulse of benevolence, it is within the
statute: but a deed made upon a principle of equal justice to all
creditors, however it may intercept the views of a particular
creditor, is good, in law, equity, and conscience. I cannot
persuade myself to think, that a deed formally made, with such
honourable views, can be destroyed by the extrinsic considerations,
that the grantor appointed the trustees; that there was no general
assent of creditors to the trust; or that a schedule of the
creditors was not annexed. And as to the reservation of a
contingent interest, or use, for the grantor, it is enough to
remark, that it arose out of the nature of the transaction; that it
could not take place, but by the negligence of the creditors
themselves; and that any attempt of the trustees to favour the
grantor improperly, or dishonestly, would be defeated by the powers
of a Court of justice. Upon the whole, therefore, my voice is for
affirming the judgment of the Supreme Court.
COXE, Justice. I have been led to consider the case, with a
double aspect, to ascertain, 1st. Whether the deed is, in itself, a
good legal conveyance? And, 2d. Whether the trust created by the
leed is such as a Court of equity would support? 1st. We are bound
by the facts stated in the case, or special verdict; and there,
(independent of the deed itself) no allegation, or suggestion, of
fraud can be discovered. Consider the transaction
Page 4 U.S. 76,
92
in its progressive steps. The very execution of the deed, (which
the case states) imports a delivery; and as the fact is not
contradicted, it is a necessary legal presumption, that there was a
delivery. The subsequent acknowledgment of the execution, is not
inconsistent with this presumption; because it is an acknowledgment
before a magistrate, of a previous delivery, for the purpose of
placing the deed on record. The pecuniary consideration, though a
nominal, is a legal consideration; and this is fortified by the
equitable consideration, for which the deed was made, a payment of
debts. Then, the acceptance of the trust, to execute it, is,
likewise, a matter of legal presumption, from the delivery of the
deed to the trustees; and, indeed, any other evidence of
acceptance, is seldom to be obtained.
Still, however, the great question recurs: is the deed on the
face of it, a fraudulent, or a bon a fide, conveyance? A candid and
just interpretation of the trust must enable us to decide. It is
true, that the trustees derive from the deed a power to sell the
property, as they deem most adviseable; but this is a discretion to
be exercised, expressly, for the general interest of the creditors.
It is true, that the trustees are only authorised to distribute the
fund, among the creditors, who shall agree, in writing, within nine
months, to accept their shares; but the exclusion from a share must
be the act, or omission, of the creditor himself. It is true, that
the shares of the non-assenting creditors are to be paid to Mr.
M'Clenachan; but even this payment is to be made, 'to the intent
that he may therewith, and thereout, compound with, and satisfy
such creditors.' These provisions, however, are the principal
sources of objection to the deed itself, as inherent badges of
legal fraud. But are there not, on the other hand, unequivocal
marks of a fair and lawful trust, that must, at once, obviate and
remove such slight and doubtful causes of suspicion? In the first
place, there is an equal distribution of all the property conveyed,
among all the creditors. In the next place, there is no stipulation
for a release in favour of the grantor. And, finally, the
creditors, notwithstanding the acceptance of a share in this fund,
are left free to pursue every legal remedy, for the recovery of a
full satisfaction, against the person, as well as against any other
property, of their debtor. It is not to be denied, that the
conveyance was made for the very purpose of hindering the lien of
future judgments and executions upon the trust property; or, in
other words, to preserve the property for an equal distribution
among the creditors, instead of leaving it exposed to the priority
of judgment creditors alone: but so far from vitiating the deed, so
far from justifying the imputation of fraud, this motive has been
considered at the bar (and so I consider it) as the best
foundation, in law and equity, for the trust. There is no positive
statute, there is no rule of the common law, there is no principle
of equity, to be traced in the Code of England, or of
Pennsylvania,
Page 4 U.S. 76,
93
that would warrant us in declaring this deed void, upon such a
view of its intention, and its effect.
I will consider, however, more particularly, some of the
additional objections, that have been made to the validity of the
deed, by the counsel for the plaintiff in error. 1st. It is said,
that the trust is general: but both in the manner, and in the time,
of executing it, the trustees must act conscientiously, or they
will incur a responsibility, as for a breach of trust. 2d. It is
said, that the assent of the creditors, in writing, within nine
months, is a condition precedent, to the investment of the trust. I
am rather disposed, however, to treat it as a condition subsequent,
for obvious reasons. The legal title passed on the execution of the
deed, and the trust immediately attached to the estate. The assent
of the creditors must, to be sure, be given afterwards, in order to
entitle them to distributive portions of the fund; but how is the
assent to be made a condition precedent, in relation to the legal
estate, and the trust, both of which were previously established?
The trustees might have sold the property, immediately after the
execution of the deed, before any assent declared; and as to a
declaration of assent in writing, this has always been regarded as
a non-important part of the proceeding. 3d. It is said, however,
that there should, in some form, be an assent of the creditors to
the trust, in order to render it valid. A difficulty seems here to
have arisen from confounding the particular assent, required by the
deed to share in the trust fund; and the presumed assent in law,
from the date of the instrument: for, whenever a trust is raised
for creditors, their acceptance of it is a legal presumption.
Nothing remained in M'Clenachan from the execution of the deed, but
a mere contingency; and even that contingency, depended entirely
upon the act of the creditors. Until the trust was defeated, no
judgment, or testatum execution, could affect the property; and,
consequently, if it was a good subsisting trust on the 2d of
September 1797, it was good against all subsequent liens. 4th. It
is said, that there was not a schedule of creditors annexed to the
deed; but although this may be convenient to the execution of the
trust, it does not appear to me to be essential to its validity.
The trustees might easily have supplied the want of it, by calling
a meeting of the creditors. And the nine months allowed for
declaring their assent, and making a distribution, seems but a
reasonable period, considering the dispersed state of the debts.
5th. It is said, that the payment of the shares of nonassenting
creditors to M'Clenachan, placed them at his mercy; but suppose the
objection to this part of the deed should be well founded, does it
follow that the whole deed is void? Shall all the assenting
creditors be deprived of their interest, because the dissenting
creditors have produced a dilemma, in the appropriation of a part
of the trust fund? I would rather say, that the trust is bon a fide
and operative, as to the assenting creditors; but void
Page 4 U.S. 76,
94
in its modification, as to the shares of the dissenting
creditors. 5 T. Rep. 432. 4.
2d. It is my opinion, likewise, that the trust, created by this
deed, would be supported and enforced in a Court of equity. A
condition subsequent (as I consider the assent in writing of the
creditors to be) is seldom literally enforced in a Court of equity;
which looks only to the substance of the trust. For instance,
either by negligence, or owing to the public calamity of the yellow
fever, three months elapsed before the deed of trust was
advertised; but Chancery (where time, not being the material point,
is often enlarged) would not allow this period to be lost to the
creditors. It is not probable, therefore, that there would be an
outstanding creditor, in such a case, as the present; and, at all
events, so remote a probability ought not affect the decision. A
Court of equity could, I think, mould all the powers and forms of
the trust, so as to do complete justice to the parties. And what a
Court of equity would do, the Judges of Pennsylvania, deciding upon
a subject of equity jurisdiction, are in the uniform practice of
doing.
For these reasons, I am of opinion, that the judgment of the
Supreme Court, ought to be affirmed.
By the COURT, however,
Let the judgment be reversed.
Footnotes
Footnote 1 Mr. M'Clenachan,
on the first alarm of the failure of M'Clenachan & Moore (whose
business was left entirely to the management of Moore) made several
voluntary conveyances to his children; and on this ground,
principally, the Supreme Court refused to discharge him as an
insolvent debtor.
Footnote 2 This was agreed
to be law by the counsel, on both sides; and SMITH, Justice,
(during the argument) declared, that it had been frequently so
decided in the Supreme Court.