Perkins v. Webster

This action of trover is brought by the assignee of certain insolvent debtors, upon the ground, that the notes which are the subject of the action, were good and valid notes belonging to the insolvents, who had a disposing power over them, and that the insolvents, within six months, next before the commencement of proceedings in insolvency, voluntarily gave the notes to the defendant, in trust, to collect the proceeds, and pay first seventy-five per cent of the debts of the two attaching creditors, who had suits pending in the courts of the United States, in full satisfaction of their debts, and then, if there should be any surplus, to pay it to certain other creditors named. The ground of the action is, that this transaction was intended as a fraudulent preference ; and that as such, it was void against the creditors of the insolvents. To determine this question, it is necessary to consider what was the origin of these notes; the relations of the parties when the notes were placed in the hands of the defendants ; the motives to that transaction; and the purpose to be accomplished by it.

After the sale by the insolvents to their brother of their entire stock, for which they took the purchaser’s negotiable notes, the same goods were attached at the suits of two of the insolvents’ creditors, living out of the state, by process from the circuit court of the United States, on the ground, that the sale was fraudulent and void against creditors. As the law then stood, such an attachment, by process from the United States courts, would not be dissolved by the operation of the insolvent law of this state, if the actions were maintained, and the attaching creditors could prove, that the sale was made for the purpose of delaying or def auding creditors. *484Those creditors held demands constituting a good cause of action. The fact, that the debtors sold out their entire stock, to a near relation, in consideration of negotiable notes only, without indorser or surety, was a strong badge of fraud, with which the attaching creditors would have assailed that conveyance. But, if that sale could have been avoided, and set aside, so that Jedediah, the purchaser, could not hold the goods, his notes would be without consideration, and void in the hands of the vendors; who could make no use of them in settling with their creditors, unless the attachment of the goods should be withdrawn. The debtors then had an interest in procuring those attachments to be withdrawn, and the attaching creditors were probably willing to abate something of their demands, in order to avoid the expense of litigation and the risk of ultimate failure. The sale was good and valid, as between the parties, and could only be avoided by a creditor. Under these circumstances, it was agreed, as one entire transaction, in which the stipulations on the one side must be taken in connection with those on the other, as mutual considerations and motives, that the attachments should be withdrawn, by which the sale would be affirmed, the notes made good, and the power of the debtors over them complete. It was also agreed, that the notes should be placed in the hands of a third person, to be collected by him, and the proceeds applied to the payment of seventy-five per cent of the debts of the attaching creditors, and the surplus, if any-, to the payment of other creditors. To the extent of the claims of these attaching creditors, the defendant became responsible, at the time of taking the notes; they were delivered to him on that trust; and so far he holds them for value; and it is conceded, that these demands exceed all that the defendant has received on the notes, and probably their value.

The suits of the attaching creditors formed a compulsory process, to enforce payment from the debtor, accompanied by an attachment, which, if valid, would deprive them wholly of their disposing power over the notes, held by them; nor did the attaching creditors relinquish that process, until the *485delivery of the notes to the defendant, to be held by him for their use as a substituted security. It appears to the court, that, before the right of the plaintiff, as assignee, accrued, the insolvents had disposed of their notes to a holder for value, as a trustee for those who were proceeding by compulsory measures to enforce payment of their debts, with a reasonable chance of success; that such transfer, instead of being made with a view of giving an unjust and fraudulent preference to those creditors, was made as a composition, by which satisfaction of the whole was obtained by means of a payment of part, and to relieve themselves from the pressure of a claim, which, if it could be successfully enforced, would have deprived them of all control and benefit both from the goods and notes.

Perhaps it may be suggested, that if the sale of the goods by the insolvents, to their brother Jedediah, was fraudulent against those attaching creditors, it was equally fraudulent against all creditors, and that after the withdrawal of the attachments, the goods might have been taken by the assignee as the representative of all the creditors. But a moment’s reflection suggests the answer, which is, that such a sale is voidable only, and not void; that it is at the option of creditors to disaffirm it, and attach the goods, or affirm it, and take the consideration given for them. By claiming the notes, the assignee makes his election to affirm the sale and hold it valid, and therefore he cannot now disaffirm and hold it void. But if it were otherwise, it would not aid him in this action of trover, to recover the notes.

If it be said, that the assignment of these notes was to pay other creditors than those, who, in effect, paid value for them by relinquishing their attachments, it may be answered, that there may be no surplus; but if there were, it could not be recovered in this action; and whether any other would lie, as for money had and received, we are not now called upon to decide.

It was intimated, that the note held by one of the attaching creditors once belonged to the defendant; that, in fact, *486it belonged to him, being a Massachusetts man, at the time the suit was commenced; and that it was sued in the name of a person residing in another state, in the United States court, in fraud of the law ; but there is no proof to substantiate that fact, and it is useless therefore to consider what its effect would be, if proved.

Judgment for the defendant.