D. & J. Ames vs. Blunt and others, 5 Paige Ch. 13

The Chancellor. The vice chancellor was right in refusing to go into an inquiry whether the assignment of 1817 was not fraudulent as respected the creditors of E. M. Blunt. It was valid as between the parties thereto; and as the complainants were not then creditors, it could not have been made to defraud them. Those who were then creditors, had a right to elect to take the provision made for them by the assignment, even conceding it to have been fraudulent.

And they have a prior equity to be paid out of the property then assigned, or the proceeds thereof, if it can now be traced and identified, although it may have passed into the hands of the new assignees, for the benefit of other creditors. And if there are no creditors having such prior claims, then the rights of the complainants are the same, whether the first assignment was or was not fraudulent; as their judgments are against both the assignor and the assignee in that assignment. Since the. decree of the vice chancellor was made in this cause, the case of Grover v.

Wakeman, (11 Wendell, 187,) has been passed upon by the court of dernier resort. It cannot therefore be any longer doubted that the decision of the vice chancellor was correct, in declaring the last assignment fraudulent and void as against the creditors of the assignors; as those creditors could never get any part of the assigned property without submitting to the terms imposed, of giving up all farther claims against their debtors. But the vice chancellor has done what this court did in the case of Wakeman v.

Grover—-refused to charge the assignees with that part of the proceeds of the assigned property which had been paid over to the preferred creditors, or distributed among them, previous .to the filing of the complainants’ bill. And, in reference to this question, a distinction is now attempted to be taken between an assignment fraudulent in law merely, and an assignment which is fraudulent in fact.

The distinction between what is now called fraud in law, and that which is denominated by the counsel fraud in fact, appears to be that in the first case it is apparent from the terms of the assignment itself that the parties intended to do

an act the legal effect of which would be to defraud the creditors, and that in the other the assignment upon its face is legal, but the fraudulent intent is made out from extrinsic evidence.

Without stopping to inquire whether there is any real difference between the two cases, except as to the nature of evidence-by which the fraud is established, I must be permitted to say that I do not think the question, whether the assignees are to he charged with what they have distributed among the honest creditors, before the complainants had obtained either a legal or an equitable lien upon the property, depends upon any such distinction.

It certainly would afford no protection to a person claiming as a'bona fide purchaser of real estate, under a deed or assignment which was fraudulent on its face, to insist that he was ignorant of the principle of law which rendered it fraudulent. The law presumes that every man is aware of the legal consequences of his own voluntary acts; although such may not always be the case in point of fact. And, acting upon that presumption, courts are not guilty of the absurdity of considering

an act honest and fair as regards the rights of creditors, when at the same moment .they are bound to consider the act itself as illegal and fraudulent. The validity of the assignment depends upon the intention of the parties to commit or not to commit a fraud, presuming that they are aware of the legal consequences of that which they intend to do.

I apprehend, therefore, that the liability of the assignees, for the proceeds of the assigned property which have been distributed to the bona fide creditors under the assignment, must depend upon the question whether the legal or equitable rights of the complainants have been impaired or affected by such distribution. In other words, whether they have been in fact defrauded thereby. The principle, then, upon which the decision of this court in Wakeman v.

Grover and of the vice chancellor in the present case is sustainable, is, that the proceeds of the assigned property had been distributed, according to the directions of the assignors, in payment of bona fide creditors; to whom such proceeds might have been lawfully distributed by the assignors themselves at any time before the complainants had obtained any legal or equitable lien thereon ; and therefore that the complainants have not been .defrauded or injured by such distribution.

But if the assigned property, or the proceeds thereof, had remained in the hands of the assignees, undistributed, at the time of filing the bill, which would have given to the complainants a lien thereon as the property of their debtor, the assignment being voidable by them at that time, it would be a fraud upon their rights to distribute the proceeds afterwards. The decree of the vice chancellor, therefore, appears to afford to the complainants all the relief to which they are entitled in such a case.

No part of the assigned property remained in the hands of the assignees, in specie, at the time the complainants’ executions were issued; as it had all been sold to J. Blunt for its full value before that time. The remedy of the complainants, so far as the assignees were concerned, is therefore. against the proceeds remaining undistributed among the bona fide creditors at the time of filing the complainants’ bill. If the assigned property had been in the hands of J.

Blunt undisposed of at the time the complainants’ executions issued, it might be necessary to.inquire whether he could be considered a bona fide purchaser, so as to defeat the lien of those executions; inasmuch as he claimed through or under an assignment, which was fraudulent on its face. I am inclined to think the property would in that case have been liable to the lien of the executions, and might have been sold under the same. It does not appear, however, that any part of the assigned property, which was the proper subject of a seisure and sale on execution, remained undisposed of at that time.

And even if that fact did appear, it still would be doubtful whether the lien of the executions was not lost by returning the same unsatisfied, without any attempt to make a levy. (See Opinion of Mr. Justice Nelson, 9 Wendell’s Rep. 561.) The price paid by Joseph Blunt, for the property on hand at the time he purchased, was the full value thereof.

So much of the purchase money therefore as had been paid to the assignees, or applied to the payment of bona fide debts before the filing of the complainants’ bill, ought not, in justice and equity, to be charged upon him the second time; and so much thereof as remained then undistributed is already provided for in the account which is directed to be taken.

If any of his notes were unpaid at the time of filing of the complainants5 bilí, and had not been turned out in payment of bona fide creditors previous to that time, the amount thereof will appear from the account which has already been directed ; and provision may be made in the final decree, making him liable over to the complainants, if the assignees should be found to be insolvent, so that the amount could not be collected of them. I presume he has not paid the notes to any other than a bona fide holder, since the commencement of this suit, without requiring an adequate indemnity.

The whole value of the property sold to him being thus disposed of, it would be a useless expense to take an account for the mere purpose of attempting to trace the proceeds of that part of the property. And from the manner in which the business has been subsequently transacted, it would probably be impossible to take any thing like a correct account of such proceeds.

As there was no fraud in the sale of the property to Joseph Blunt, he having purchased for the full value, and the proceeds being all applied to pay bona fide creditors, I cannot see any thing objectionable in the arrangement he subsequently made with his father and brothers to endeavor to turn the property into cash, and at the same time to furnish his father with the means of livelihood. Even if he had given the whole of this property to his father, or had secured the use of the whole to him in such a manner as to protect it against the claims of creditors, it would be far from furnishing any evidence of fraud.

Whatever frauds upon his creditors the father may have been guilty of, it cannot be a fraud in the son to pay the full value of the property out of his own funds for their benefit, and then to insure his parent a maintenance out of the property thus acquired. I think the vice chancellor has in this decretal order done all that was necessary or proper to be done, in this stage of the cause, to protect the rights of the complainant against the fraudulent assignment of January, 1823 ; and that there is nothing in the decree which requires to be altered or modified.

The decree or order appealed from must therefore be affirmed, with costs.