AARONSON 11. DEUTSCH.
stand on the letter of his deed, and if that is in oontravention of the law it is void. The deed was fraudulent and void in law, and this fact supports the attachment. Dodd v. Martin, 15 FED. REP. 338; Whedbee v. Stewart, 40 Md. 414; Teah v. Roth, 39 Ark. 66.
AARONSON 'V. DEUTSCH.
(Circuit Court, E. D. Arkansas. July 25, 1885.)
ARKANtlAB STATUTE OF ASSIGNMENTS-POSSESSION OF ASSIGNED PROPERTY.
Under the Arkansas statute, if the parties to a deed of assignment for the benefit of creditors agree, at the time of the execution of the deed, that the possession of the property assigned shall be delivered to the assignee before he has given the bond and filed hhe inventory required by law, and that agreement is carried into effect, it avoids the deed, and is good ground for an attachment again,;t the debtor.
RULE AS TO VALIDITY OF DEEDS VALID IN THEIR INCEPTION-DoES NOT Ap· PLY, WHEN.
The rule that a deed valid in its inception will not be rendered invalid by any subsequent fraudulent or illegal act of the parties has no application when the fraudulent or illegal act is the consummation of un illegal agreement made contemporaneously with the deed. In such case the illegal act is part of the original deSign, and the deed is void ab initio.
At Law. T. B. Martin, J. M. Taylor, and Cohn wCohn, for plaintiff. w. E. Hemingway, for defendant. CALDWELL, J. This case turns upon the validity of a deed of assignment for the benefit of creditors. Much of what is said in the opinion in the case of Ricl' V. Flrayser, ante, 460, is applicable to this case also. There are some points of difference which will be noticed. The plaintiff claims the deed of assignment is fraudulent in fact, and that it is void by reason of an agreement, carried into effect, to transfer the possession of the property to the assignee upon the delivery of the deed, and before the latter had given the bond and filed the inventory required by law. There is much in the evidence tending to show that the assignment, which prefers a relative of the debtor for a sum sufficient to swallow up the whole estate, was one step in a scheme to delay and defraud his creditors. It does not matter that the assignee was not a party to this scheme. He does not stand on the footing of a purchaser for value, and his participation in the fraudulent purpose does not have to be shown. But, in fact, he did agree to and participate in an act which was in violation of the statute, and therefore a fraud upon the law. It was the understanding of the parties to the deed that possession of the assigned property should be delivered to the assignee upon the execution and delivery of the deed, and before the assignee had qualified by giving bond and filing an inventory. Accordingly, imv.24F,no.8-30
mediately after the execution of the deed tl1e assIgnor put the aBsignee in possession of the property. The key to the store-house containing the property, and the property itself, was delivered to the assignee; the assignor withdrew from the place and abandoned all watch or care over the property, leaving the assignee to exercise absolute and unrestricted dominion over it. The assignee had not given bond and filed the inventory up to the time the goods were attached. 'rhe contention of the learned counsel for the defendant is that, because this illegal understanding and action of the parties was not in terms provided for in the deed, the validity of the assignment is not affected thereby; and that the wrongful possession of the assignee was a matter occurring subsequent to the execution of the deed, and cannot affect its validity. The mere act of taking possession was su bsequent to the execu tion of the deed; but it was done in pursuance of an understanding had at the time of the execution of the deed, and when that fact is shown, its legal effect is the same as if the deed had provided for it. When the parties to the deed enter into an agreement to do an act in violation of the requirements of the statute of assignments, and that agreement finds expression in the deed, the instrument is fraudulent and .void in law npon its face. Where such an agreement is made, but is not disclosed on the face of the deed, it must be proved; and when it is proved, and it is also shown that the parties are ca1'l'ying out their illegal purpose, the effect upon the validity of the assignment is precisely the same as if the illegal purpose had been declared on the face of the deed. The rule which the defendant seeks to invoke, that a deed valid in its inception will not be rendered invalid by any subsequent fraudulent or illegal act of the parties, has no application where the fraudulent or illegal act is the consummation of an illegal agreement made contemporaneously with the deed; and the rule must be taken as not intended to deny that such subsequent acts may reflect light back upon the original intent, and help us to ascertain that correctly; and if the illegal acts are part of the original design, the deed is void ab initio. Shultz v. Hoagland, 85 N. .Y. 464. Where the assignment is tainted with either moral or legal fraud, the property does not pass. Burrill, Assignm. § 501. In the brief filed by defendant's counsel it is said: "To place an assignee in possession of goods. without bond or inventory. puts it in his power to defraud creditors; he may make way with or secrete the goods, if he can do so without the creditors' knowledge, but he has less power to do it than the debtor, for if he is seen doing it, being the trustee of the creditors, they through chancery can control his conduct and enforce their rights." Speculation as to the efficacy of the statutory provision in question, to prevent fraud, is bootless. Ita lex scripta est. Courts must give it effect. And a delibemte agreement, in or out of the deed, made at the time and carried into effect, to violate the statute, i.E a fraud upon the
AARONSOX V. DEUTSCH.
statute, and a fraud upon the legal rights of creditors, which the law will redress by removing the fraudulent barrier to the assertion of their legal rights against their debtor. It is useles'> to inquire whether equity could give relief in such case. Conceding that it could, its jurisdiction is not exclusive, and it is certain that the parties to the fraud cannot insist that those injured by it shall be denied redress at law on their legal demands. The case of Clayton v. Johnson, 36 Ark. 406, gives no sanction to the proposition that where an assignment is void for matter either in or dehors the deed, that creditors mllst appeal to a court of equity to purge it of the fraud, conform it to the law and the court's ideas of justice, and enforce it as thus reformed. All the court said in that case about invoking the powers of the court of equity was to announce the familiar rule that where the assignment was valid, and the assignee failed to qualify, the creditors might apply to chancery for the appointment of an assignee who would qualify and execute the trust. See page 422 of opinion. Undoubtedly, if a trust is once properly created, the courts will not allow it to fail for want of a trustee. But it was never heard that a court of equity could metamorphose a void deed or trust into a valid one. But argument on this question, in this state, was set at rest by the judgment of the supreme court in Teah v. Roth, 39 Ark. 66. That was a case in which the deed authorized the assignee to sell the assigned property in a mode different from that prescribed by the statute. The creditors of the assignor; lolelieving this rendered the deed fraudulent and void, and that it constituted a good ground of attachment, sued out an attachment and levieli on the assigned pl'Operty in the hands of the assignee. The court say:
"SMITH, J. 11'. these cases the plaintiff\! brought actions against the maker of an assignment for the benefit of certain enumerated creditors, and caused attachments to be levied upon portions of the stock of goods assigned. 'fhe defendant interposed no defense to the mr"rits, but contested the ground of attachment, which was that he had fraudulently disposed of her property; the fraud relied upon being the making of said assignment. The attachments were sustained, and we affirm the judgments below upon the authority of Raleigh v. Griffith, 37 Ark. 150."
The court gave no consideration to the suggestion that it was the duty of non-assenting creditors to file a bill to perfect a void assign'ment. The laws of this state are exceedingly liberal to debtors in the matter of assignments for the benefit of their creditors. They may make preferences, exact releases, and appoint their own assignee. They may, in a word, make their own bankrupt law. In view of these large powers of the debtor, the legislature has prescribed a few wholesome rules for the protection of the creditors, and these the debtor cannot strike down or evade with impunity. They are mandatory, and any stipulation in the deed, or any agreement of the parties to the deed at the time of making it, carried into effect, contravening them, annuls the assignment. Rice v. Prayser, ante, 460.
(District Court, N. D. New York. July, 1885.)
An order in composition proceedings, based upon a resolution passed by the requisite majority of the creditors, cannot deprive It non-consenting creditor of a vested right with which the bankruptcy court has no power otherwise to interfere.
Motion for an Injunction. On the seventh of J nne, 1876, the bankrupts above named made an assignment to Samuel W. Perry, pursuant to the statutes of New York, for the benefit of their creditors. The assignee duly qualified and entered upon the duties of his trust. On the twenty-second of August, 1883, Perry died. 'l'he petitioners are his executors. On the fourteenth of February, 1878, a year and eight months after the assignment, a VOluntary petition in bankruptcy was filed by the Stowells in this court, and on the twenty-seventh of the same month they were adjudicated bankrupts. On the first of April, 1878, the bankrupts submitted a proposition for composition under the bankrupt act, by the terms of which they agreed to pay to their credito.t:S 20 cents on the dollar, upon condition that the creditors would release and discharge whatever right they had in the property theretofore assigned to Perry, and consent that it be restored to the bankrupts. This offer was accepted, and the condition duly agreed to by the requisite majority of creditors. The assignee, and the firm of Fraser, Bell & Loughran, the creditors who oppose this petition, had due notice of all the bankruptcy and composition proceedings; their names, addresses, and indebtedness appearing in the statement pro, duced by the bankrupts at the meeting of creditors, as required by the bankrupt law. On the sixteenth of April, 1879, this court made an order that the resolution accepting the said composition be recorded, and that the statement of assets and debts be filed. Thereafter all the creditors were paid, except Fraser, Bell & Loughran, who declined to receive the 20 cents upon their indebtedness, which waEl duly tendered them. After the creditors were all paid and the tender made, Perry turned over to the bankrupts all the property and assets which had been assigned to him. Fraser, Bell & Loughran are now seeking to have the petitioners substituted as the representatives of Perry, for the purpose of compelling them to account for the property received by him under the assignment. On the second of August, 1881, there was entered an order of the county judge of Chemung county, deciding that Perry was excused from rendering a further account, upon the ground that be was justified, after the composition proceedings, in turning over the property in his hands to the bankrupts. Upon an appeal t(' the general term of the supreme conrt this order of the county judge was