Long v. Meriden Brittania Co

• Decision Date: 17 June 1897
• Parties: LONG et al. v. MERIDEN BRITTANIA CO. et al.
• Court: Virginia Supreme Court

27 S.E. 499

94 Va. 594

LONG et al.

v.MERIDEN BRITTANIA CO. et al.

Supreme Court of Appeals of Virginia.

June 17, 1897.

Assignments for Benefit of Creditors — Releases— Preferences — Assignment by Partners—Individual Property—Life Insurance Policies—Collateral Security—Omission of Property.

1. A deed of assignment by a debtor for payment of his debts, which stipulates for his release by his creditors from personal liability for such part of their debts as the fund may not discharge, though it gives preferences to some of the creditors, is valid.

2. A deed of assignment by partners for benefit of creditors was not invalid because it did not show on its face that individual property was included, since the law would not presume that they had intentionally excluded it to secure it for themselves, and it was competent to prove its inclusion by evidence aliunde.

3. A deed of assignment for benefit of creditors was not invalid because it omitted policies of insurance on the life of the grantor, which had no surrender value, which the trustee could have kept in force only by payments from the trust fund until they should mature in the future, and which were omitted by the grantor in the belief that they would not materially increase the fund.

4. A deed of assignment which stipulated for a release by creditors from the grantor's personal liability for such part of their debts as should not be discharged by the fund was not invalid because it did not include policies of insurance on the life of the grantor held by a creditor as collateral security, on the ground that, by executing a release, he would lose his insurable interest, and thereby forfeit his rights under the policies; since the release was confined to the personal liability of the debtor, and would not extend to the security, or render the policies illegal as wagering contracts.

5. A deed of assignment for benefit of creditors was not invalid because it omitted certain property of small value, where the omission was due to the advice of counsel and of the trustee, on the ground that the property would be a burden to the trust fund, and not to the purpose of the grantor to withhold the property from creditors, or to secure a benefit.

Keith, P., dissenting.

Appeal from corporation court of Lynchburg.

Bill by the Meriden Brittania Company and others against A. R. Long, trustee, and others. From a decree in favor of complainants, defendants appeal. Reversed.

Harrison & Long and Kirkpatrick & Blackford, for appellants.

Wilson & Manson and Kean & Lile, for appellees.

RIELY, J. It is not contended that there was any actual fraud in making the deed of assignment in controversy. The ground of the attack upon the deed is the constructive or legal fraud claimed to result from the alleged failure of the grantors to surrender their entire estates for the payment of their debts, although exacting from the creditors who should accept the benefits of the assignment a release from personal liability for such part of their debts as the fund should be insufficient to discharge.

Whatever may be the course of decision in other states, it is established in Virginia that a debtor may convey his property in trust to secure the payment of his debts, and impose upon his creditors the condition that those who participate in the fund shall release him from the residue of their demands. And, in making such deed of assignment, he may give preferences among his creditors as in other deeds of assignment which do not contain a release clause. This was first decided in this state in 1837, in the case of Skipwith's Ex'r v. Cunningham, 8 Leigh, 271. The principle of that decision has since been repeatedly followed. Kevan v. Branch, 1 Grat. 274; Phippen v. Durham, 8 Grat. 457; Wickham v. Lewis, 13 Grat. 427; Gordon v. Cannon, 18 Grat. 387; Paul v. Baugh, 85 Va. 955, 9 S. E. 329.

Thirty years after the decision in Skipwith's Ex'r v. Cunningham, supra, we find Judge Moncure, who was long the able president of this court, in discussing this doctrine in Gordon v. Cannon, supra, saying: "Whether the doctrine be sound in its origin or not, it ought to govern our courts until otherwise provided by the legislature." Thirty years have elapsed since then, and considerably more than a half a century since the doctrine was promulgated in Skipwith's Ex'r v. Cunningham, but in all that time the legislature has not seen fit to interfere or provide otherwise. So that, if anything can be considered as settled by repeated judicial decisions and lapse of time, it may be considered as thoroughly established in this state that a deed of assignment by a debtor of his property for the payment of his debts, which stipulates for his release by his creditors from personal liability for such part of their debts as the fund may not discharge, though giving preferences to some of the creditors, is valid. It is too late at this day to depart from a doctrine so consistently recognized and uniformly enforced by this court, and to question the validity of such a deed of assignment.

But it is an essential condition of the doctrine that the debtor should convey by the deed all, or substantially all, of his estate. He cannot stipulate for his release from his debts, when the conveyance for their payment does not embrace substantially all his estate. He may, by an honest surrender of his estate, protect his future earnings from the pursuit of such of his creditors as may accept the provisions made by him for their benefit, but he cannot do so by giving up a part of his present property, and reserving the other part for his own benefit. The provision made for his creditors must be substantially a surrender of all his property, or it will come within the condemnation of the statute against fraudulent conveyances. "Any omission of property for the purpose of securing a substantial benefit to the debtor (except such property as may be exempt by law from distress or levy) conclusively shows such an intention;" that is, an intention to delay, hinder, or defraud creditors. From the omission of the debtor to surrender a substantial part of his estate or property of substantial value the law conclusively infers an intent to delay, hinder, or defraud creditors, and precludes all inquiry to the contrary. The omission is deemed to constitute fraud in law, and evidence cannot countervail this conclusion. The provision made for the benefit of creditors is therefore declared by the law, in such case, to be fraudulent and void.

This being the law, it was claimed that the deed in the case at bar was fraudulent on its face, and void, because it conveyed only partnership property, and included no individual estate of the grantors. It was contended that the law would presume from the failure to include any individual estate in the conveyance that all the individual property of the grantors had been intentionally omitted, in order to secure it for their own benefit. The law makes no such presumption. The presumption of the law is always in favor of innocence and honesty, and never in aid of the establishment of fraud. And, moreover, it was not necessary that the conveyance should show on its face that it embraced all the estate of the grantors, but it was competent to prove that fact by evidence aliunde. Gordon v. Cannon, 18 Grat. 396.

This brings us to the consideration of the evidence in regard to the property claimed to have been omitted. Does it show that all, or substantially all, the estate of the grantors, was conveyed by the deed?

The trustee, upon the deed of assignment being made to him, caused an inventory to be made of the property conveyed, upon the basis of its cost, and it amounted to the sum of $65,732.48. Its net cash value, as estimated by a witness for the complainant, a person in the same line of business as the grantors, and therefore peculiarly competentto value the property, was $32,256. The liabilities were ascertained to be $37,587.56.

The property charged to have been omitted, and on account of which omission it was claimed that the deed was fraudulent and void, was the following:

(1) Certain lots in the vicinity of Lynchburg and elsewhere.

(2) Five shares of Bohls Cigarette Machine stock.

(3) The household and kitchen furniture of F. D. Johnson, the piano given by him to his daughter, and a one-horse carriage belonging to him.

(4) The household and kitchen furniture of J. B. Johnson, and the piano claimed by his wife.

(5) Three policies of insurance on his life, amounting to $4,000.

(6) Certain policies of insurance on the life of F. D. Johnson.

It will be briefly considered in the above order.

First. As to the lots.

It appears from the evidence that the lots were bought during the period of wild speculation that passed over the country a few years since, and were what are commonly known as "boom lots." The grantors desired that these lots should be included in the conveyance when the assignment was made, and they were only left out upon the advice of their counsel and the trustee, upon the sole ground that the lots really possessed no value, and, if included in the conveyance, would prove to be a burden and an expense to the trust, instead of a profit or benefit. And the testimony certainly tends at least to sustain that conclusion, especially as under the test of an actual sale, made under the supplemental deed, of the only lots which, it was thought, would justify the costs of a sale, the net result was only $35.04. The testimony is to the effect that the remaining lots would not pay the expenses of a sale.

Second. The Bohls Cigarette Machine stock.

This stock, though standing in the name of F. D. Johnson, was bought and paid for by the firm. It was treated as an asset of the firm, and at the time of the assignment was held as collateral security for a debt due by the firm. It was in fact partnership property, and passed to the trustee under the deed of assignment. Hardy v. Manuf'g Co., 80 Va. 404.

Third. The household...