Hubbard v. McNaughton

Campbell, J.

Complainant filed her bill as' an execution creditor in aid of a levy upon lands. McNaughton and Blass were the judgment debtors against whose property the execution was directed, and Blake is assignee under a general assignment dated February 2, 1878, which is attacked as fraudulent against creditors.

The bill avers a fraudulent intent and alsq sets up as a specific objection to the assignment that it imposes a release from creditors as a condition of receiving dividends.

Before considering the merits it is proper to notice two objections — one to the sufficiency of the bill and its averments, and the other in the nature of a waiver of objection to the assignment.

It is claimed that the allegations of fraud are too general, and that this defect has been properly demurred to in the answer. The answer, however, has been put in denying fraud and raising all necessary issues, and testimony has been' taken. It is very questionable whether an answer can be made use of in lieu of a special demurrer for lack of specific averments of that which is averred broadly enough if too generally. But there are difficulties in requiring very special averments in eases of fraudulent intent, and the rules of pleading do not contemplate that evidence shall be set out in a bill. *223 Tong v. Marvin 15 Mich. 60. No universal rule can be laid down where most of the facts must necessarily be within the knowledge of defendants. Under the old practice, before parties became competent as witnesses it was often necessary to draw out .such matter by discovery, and it is still competent, although not common, to do so. We are not satisfied that the bill before us is open to serious criticism, but where it has been answered, and the parties- themselves have been sworn, there would be no propriety in listening to such an objection now.

■ We do not find any satisfactory evidénce that complainant ever induced the assignee or any other person to act upon the understanding that he was willing to accept the assignment as valid. Mere inquiry to ascertain whether it would be profitable for him to do so is not in any way equivalent to inducing others to act upon it, and no one was misled by him. It was not dishonest or unreasonable to make such inquiry, or to consider whether he could do better by approving than by contesting it.

The defects relied on are acts in fraud of creditors, and fraudulent provisions in the assignment.

It appears affirmatively that lands which should have been included were not included, and that no transfer was made to the assignee of this excepted property until 'April 11th, 1878, something more than two months after the assignment, and — unless the judgment was more speedily obtained than usual, — after the complainant’s suit was commenced. It also appears pretty clearly that chattel mortgages- were given on the partnership stock on the day or next day but one preceding the assignment, to relatives or near friends of the mortgagors for amounts exceeding the debts due them. It also appears that a large quantity of notes belonging to the firm was paid over at that time to the wife of one of the firm, at not far from $300 less than their face upon an old note held by her which was in part without consideration. *224 This note does not seem, however, to have been a dishonest transaction, but it was not a partnership liability, but, if valid at all, a private note of the husband, Mr. Blass.

The fraudulent character of an assignment cannot depend upon the opinions of the assignors that what they do is not legally fraudulent. If they withhold from the assignment what should be put into it, and if they make gifts or excessive liens on property which should not be thus encumbered or given away, it is a fraud, and their belief that it is not wiE not save it from the consequences of fraud. See Price v. Haynes 37 Mich. 487 ; Smith v. Mitchell 12 Mich. 180 .

The amounts thus withheld or encumbered made up a large percentage of the assets, and materially cut down the probable dividends. But beyond this we think the assignment contains a provision which cannot be sustained. After providing in a proper manner for paying over the proceeds to creditors ratably in certain classes, it ends with this clause:

“And the creditors of the said parties of the first part agree to their said assignment, and that they will, as soon as their just proportion of the proceeds of said property shall be paid to them, release their claims in full and discharge 'said parties from aE liabilities to them.”

We cannot accede to the correctness of the suggestion that this clause is surplusage and not intended to bind the creditors. The assignment must be taken together, and we think the only reasonable construction it will bear is that every creditor by accepting his dividends releases the debtors.

Such a condition has been maintained in some States. But it seems to us to be entirely repugnant to the whole theory of general assignments. While a debtor at the common law, and until restrained by statute, could pay creditors in such order of preference as he chose, he was nevertheless bound to devote all his unexempted property unreservedly to the payment of his debts. Under this *225 assignment, if all the creditors should decline giving releases, the whole trust would fail, if this condition were enforced. An insolvent debtor has no right to dictate terms which shall make him independent of his legal obligations. It may be that this is not technically a trust for his own benefit, — which would be in plain violation of law, — but it is practically so, and accomplishes more sweeping results. If the property were not assigned, creditors could by legal process exhaust it and still leave him liable on all debts not fully satisfied. A general assignment can only change the method of applying property in payment, by what ought to be a fairer and less wasteful division. But it is contrary to justice and against public policy to allow debtors to coerce their creditors into releasing their debts.

The New York doctrine, which is set out in the cases collected in Burrill on Assignments, 331, 343, appears to us the sound rule on this subject, and most in harmony with our own decisions on the general subject of assignments. This particular question has not been formally before us. See also Spencer v. Slater 4 Q. B. Div. 13.

The decree below dismissing the bill must be reversed with costs of both courts and a decree entered holding the assignment void as against complainant’s levy.

Marston, C. J., and Graves, J., concurred.