Equity Jurisdiction, To reach and apply property conveyed with intent to hinder, defeat or defraud creditors.
A corporation, being unable to liquidate its outstanding obligations in full or to meet them as they matured, and desiring an extension of time from its creditors, executed an assignment and transfer of all its property to trustees under an agreement which, after reciting that the corporation "is now possessed of assets ample and sufficient to pay its indebtedness in full," provided that the business of the corporation was to be continued until full payment was made of certain promissory notes to be executed by the corporation unless the business should sooner be liquidated by the trustees; and that the trustees were vested with full discretion as to whether they should discontinue the operation of the business and liquidate it. The face of the instrument showed that the transfer was not made for the general benefit of all the creditors but primarily for the benefit of creditors who had assented and had accepted notes in settlement of their debts. A creditor who had not assented to the assignment sought by a bill in equity to reach and apply property in the hands of the trustees in payment of his debt. Held, that
(1) The recital of the trust instrument, that the "corporation is now possessed of assets ample and sufficient to pay its indebtedness in full," was not conclusive of that fact;
(2) It was not necessary for the plaintiff in the circumstances to prove an actual intent of the corporation to hinder, delay or defraud its creditors;
(3) While no question of moral turpitude was presented, it must be presumed that the corporation intended the natural consequences of its act, which would place the defendant's property beyond the legal pursuit of creditors;
(4) The plaintiff, not having become a party to the trust, was not bound by it and was entitled to maintain the bill.
BRALEY, J.
The answer admits that on April 23, 1921, the Cowan-Myers Company, a corporation engaged in the business of selling at wholesale and retail jewelry, watches and kindred merchandise, transferred to the individual defendants as trustees for the benefit of creditors, all of its property consisting of stock in trade and bills receivable. The trustees were given full power to continue the business, or, if in their judgment advisable, they could discontinue, sell the assets in bulk or by parcel, and pay all present creditors holding claims amounting to $100 or less, and upon full payment of the charges and expenses of administration, and of certain promissory notes which were to be given by the corporation to assenting creditors in settlement of their respective claims, the property was to be reconveyed to the corporation discharged of the trust. See Hatch v. Smith, 5 Mass. 42; Andrews v. Tuttle-Smith Co. 191 Mass. 461. The recital that the corporation "is now possessed of assets ample and sufficient to pay its indebtedness in full," is not conclusive. Hardy v. Skinner, 9 Ired. 191. Hardy v. Simpson, 13 Ired. 132. It is apparent from the tenor of the conveyance and the admitted allegations of the bill, that at the date of transfer the corporation, being unable to liquidate its outstanding obligations in full, or to meet them as they matured, desired an extension, and the trust was created to enable the debtor to gain time. The face of the instrument also shows, that the transfer was not made for the general benefit of all creditors, but primarily for creditors who assented, and accepted notes in settlement of their debts. It was not necessary for the plaintiff under such conditions to prove an actual intent to delay, hinder or defraud creditors. Norton v. Norton, 5 Cush. 524, 528. While no question of moral turpitude is presented, it must be presumed that the corporation intended the natural consequences, which were to place the debtor's property beyond the legal pursuit of creditors. Bernard v. Barney Myroleum Co. 147 Mass. 356. Gray v. Chase, 184 Mass. 444. Matthews v. Thompson, 186 Mass. 14. Smith v. Clark, 242 Mass. 1, 6. The plaintiff, a creditor at the date of the transfer, not having become a party to the trust, is not bound by it, and can reach the funds in possession of the trustees in satisfaction of its debt, the amount of which with interest is not contested. Widgery v. Haskell, 5 Mass. 144. G.L.c. 214, § 3, cl. 9. The judge found, that the trustees, who endeavored to carry on the business, were not successful, and that, after paying three of the sixteen payments on the notes as specified in the assignment, they converted the assets into cash, of which $3,000 has been paid into court to be held subject to its order.
The decree for the plaintiff directing payment from the deposit should be affirmed with costs of the appeal.
Ordered accordingly.