Opinion
August Term, 1855.
Where an insolvent debtor transfers his effects to an infant, upon an agreement, made bona fide, that the infant should pay certain debts contracted by them both, as a firm, without providing security for the performance of such stipulation, such transfer is fraudulent in law and void as against creditors.
ACTION of TRESPASS, tried before his Honor, Judge SAUNDERS, at the Fall Term, 1854, of Rowan Superior Court.
Boyden and Osborne, for plaintiff.
Wilson, for defendants.
This action was brought by the plaintiff, W. A. McCorkle, for the seizure and sale, under an execution, of certain goods sold and transferred to him by his father, W. B. McCorkle, under the following circumstances:
William B. McCorkle, the father of the plaintiff, was engaged in the business of merchandise at Wadesborough and Monroe. In the spring of 1849 he established another store at Gold Hill, in Rowan county: the old and unsaleable goods on hand at Monroe, and part of those at Wadesborough, were put into this store at Gold Hill, and a small purchase of new goods added. The plaintiff, who had managed the business at Monroe, was admitted as a partner in this new establishment, upon the terms of attending to the business, and receiving one half of the nett profits. This firm was called by the name of "Wm. B. McCorkle Son." The goods sent to Gold Hill had cost about $2,700 and were invoiced at what they had cost. In the fall of 1849 and the spring of 1850, other goods, to the amount of $3,000, were purchased at the north, on the credit of the firm. It was in evidence that during the summer and fall of 1849, the son remitted to his father $2,700 in cash, and returned about $300 worth of the goods originally put in, making the amount paid the father $3,000. The purchases made in 1849 and '50 were mostly on a credit; and there was evidence that $600 were at one time advanced by the father to assist in renewing the stock.
About the last of May, 1850, Wm. B. McCorkle, the father, was indebted beyond his ability to pay, and was urged by one of his largest creditors to make a deed of trust: with the view and purpose of doing so, he went to Gold Hill to take an inventory of the goods and debts, and with a view of selling out his interest if he could. From an inventory then taken, and an investigation of the affairs of the firm, it turned out that they had made between $900 and $1,000, if all the debts should prove to be solvent. This inventory was taken about 1st of June, 1850. It was afterwards agreed between the father and his son, the plaintiff, that the former should sell to the latter his entire interest in this concern at Gold Hill, consisting of his share of the debts due and the capital advanced in goods and money; he, the son, paying all the debts of the firm. This sale was accordingly made, at a full price, and the son executed his notes to the father for the price thereof, at one, two and three years, with interest after one year. It was in evidence that previously to making this transfer, H.B. Hammond, the defendant, S.W. Cole and E. J. Waddell, the other trustees, were consulted about this arrangement, and that they approved of it. The said Wm. B. McCorkle, the father, then executed the deed of trust, dated 29th June, 1850, to Hammond and the other trustees, conveying all his property, including the notes taken from his son. The son was an infant when these notes were given and had no other means, in the beginning, than those furnished by the father.
The son then continued the business at Gold Hill, till ________, when the defendants, having obtained a judgment against the father, seized all the goods that had belonged to the old firm, advertised and sold them for the father's debts.
The father swore that the sale to his son was at a full and fair price, and for more than he could have sold them to any other person; that the sale was approved of by the defendant, Hammond and the other trustees, and was made with the honest purpose of enabling him to discharge his debts, which were greater than his means: that he had great confidence in the integrity and capacity of his son, and that the credits of one, two and three years were given, the better to enable him to comply with his contract, and not with any purpose of hindering or delaying his creditors in the collection of their debts, or of benefitting himself; that though his son was an infant when the notes were given, yet it was his firm belief, that they, as well as all the debts of the firm, would be paid off, and he still believed they would have been, if the property for which they were given, had not been levied on and sold by the defendants, before they fell due; that as it was, his son had pleaded infancy to a suit brought on one of the notes, and had thus defeated a recovery on it: that suits had been brought on the other two notes which were still pending, and that the plea of infancy had been put in to them.
The seizure and sale of the goods were under a regular judgment and execution upon a debt, due and owing at the time of the transfer of the store goods, but the judgment and execution were after the purchase by the son from the father: this debt was for about $2,000, with the defendant H.B. Hammond and others as sureties, and had been included in the deed of trust.
The counsel for the defendant asked the Court to instruct the jury, that if the facts stated by the plaintiff's witness, W. B. McCorkle, were true, he was indebted to a much larger amount than his property was worth at the time of the sale to his son; that the son was a minor and without means; that the sale was on time, 1, 2 and 3 years, without security, and that the sale was therefore fraudulent in law and void. And further, if not absolutely void, that these facts raised a presumption of fraud, and there was nothing as testified to by the witnesses in the cause, to repel this presumption, and their verdict should be for the defendant.
The instruction, as asked for by the defendant's counsel, the Court declined to give, but charged the jury: "That there was fraud in law and fraud in fact: that whilst it was the duty of the Court, in a certain state of facts, to pronounce the transaction void, yet, as the Court thought, it did not exist in the present case.
"So it was the duty of the jury to pass upon the intent and motives of the parties, which they were to collect from the facts and circumstances, and decide whether the transaction was fraudulent and void or fair and honest.
"First, As to the transaction of May, 1849: if the jury should believe that the father entered into this arrangement under the honest belief that it was to aid him in the discharge of his debts, and not with the view, or upon any secret trust or understanding with the son, in contemplation of his failure, that the son would hold any part of the property for the father's benefit, or to enable the son the better to provide for the future case or comfort of the father, then the transaction would be valid and not fraudulent.
"Secondly, As to the sale of June, 1850: the Court charged that the father had the right, (though embarrassed in his circumstances, and the son a minor and without means,) to sell to the son: but that when this appeared, the presumption was against the transaction, and it was incumbent on the son to show that the sale had been at a full and fair price, and such a sale, as a prudent man, under like circumstances, would have made to a stranger. If the jury should believe that this sale had been made with an honest purpose, and not with an intent to defraud, hinder, or delay the creditors, in the collection of their debts, then the sale would be valid: otherwise void. If the father was to be believed, in the fact he had stated, that he had reason at the time to repose confidence in the capacity and integrity of his son, that the concern was indebted for the new goods, and the old stock on hand was not saleable, he had the right to make the arrangement he did, provided the jury should believe such to have been the honest purpose of the parties: and the declaration of the father, that he had given the son the credit he had, the better to enable him to pay the liabilities of the firm, and discharge the balance due himself, would not vitiate the sale but it would still be valid." For these instructions defendant excepted.
Verdict for plaintiff. Judgment and appeal.
One has a right to sell his property at any time, until a lien is created by force of an execution. But when a debtor finds that he is hopelessly insolvent, although he still has the power to sell and otherwise dispose of his property for the purpose of discharging his debts, he is required to act with perfect honesty and fairness, and to dispose of the property with a single eye to the benefit of his creditors; he is at liberty to make a preference among them, if he sees proper, but it must be a disinterested preference, and any stipulation for his own benefit, or of a member of his family, or of a stranger who has no claims as a creditor, will vitiate the transaction. Rea v. Alexander, 5 Ire. 694. Hardy v. Simpson, 13 Ire. 132.
We see no error in the general remarks set out in the charge, but we think the defendants had a right to insist that his Honor should be more specific, and that he ought to have charged that the father, being upon the eve of bankruptcy, the son being a minor, and with no means, the transfer to the son without taking any security, except his mere promise to pay off the debts of the Gold Hill concern, and his notes at one, two and three years for the amount agreed on between themselves, was a violation of the rights of creditors and made the transaction void.
Had the father executed a gift of all this property to the son, it is yielded that the gift would be void as against creditors, and in legal contemplation, there is no difference between making a gift and letting a minor have property without surety, or other means of compelling the performance of the stipulations on the part of the minor, which can be made available, either in a court of law or of equity. The father in self-justification may say, "I had entire confidence in my son's honor, and believed it best for the creditors to let him go on with the management of that concern, and certainly I had a right to give him his own time." All this is no doubt true, but the creditors will say, "we don't choose to trust to the honor of any one, and under existing circumstances, if we were disposed to do so, we could hardly be expected to ask you to make the selection for us," and might be allowed to say besides, "this interferes with our legal rights; the fact of your selecting your son and putting in his power and control, a fund, to which we have the legal right to resort for our debts, may not be as entirely disinterested on your part as might at first sight appear, as it will keep him in business for a few years at least." But apart from this, we put the rights of the creditors on the broad ground, that the debtor had no right to transfer his property to one whom the law does not consider responsible, and against whom it gives no remedy.
The arrangement which McCorkle attempted to make in regard to the Gold Hill store, may have been a judicious one, and we suppose the jury thought it fairly meant by him, so as to come under the general terms "fair and honest," used in the charge, which in this point of view had a tendency to mislead, because these defendants, as creditors, had put themselves upon their legal rights, and the transfer of the property by their debtor was void as to them.
It is stated in the case, that Hammond, one of the defendants, upon being consulted before the arrangement was concluded, assented to it, and that the son's notes were inserted in the deed of trust as a part of the fund. How far this consideration may affect Hammond, or the other defendants, is not now the question; it was calculated however to mislead, as are several other matters, set out in the case, which had no bearing upon the legal rights of the parties. There is error.
PER CURIAM. Venire de novo.