Pfaff v. Prag

McShebjry, J., delivered the opinion of the Court. There are but two questions presented by this appeal. The first and principal one is this: Is a voluntary deed of trust, conveying, without reservation or exception, all of a debtor’s property to a trustee of his own selection, for the benefit of all the grantor’s creditors, without preference or priority, an act of insolvency within the meaning of Art. 47, sec. 24, of the Code? And the second and subordinate one is, whether the deed is defective on its face, and as a consequence constructively fraudulent?

We think both questions are entirely free from difficulty. Pfaff, the appellant, being a merchant and trader, and being indebted to sundry persons, executed to one Rountree a deed of trust, bearing date September 13th, 1893, whereby he conveyed all of his property of every kind and description, in trust, to be applied “without unnecessary delay,” to the payment in full of all debts due and owing by him “without preference or priority * * * * if the net proceeds shall be sufficient therefor, and, if —sufficient, then to the payment of the aforesaid debts pro raía,without preference or priority.” Rountree accepted the trust, and then proceeded to collect, and did collect, and convert into cash, the bulk of the estate, which he now holds under the deed of trust. On December the 29th, 1893, the appellees, creditors of Pfaff, filed a petition against him in insolvency, alleging that this deed was an act of insolvency; and after an answer was filed, denying the averments of the petition, the Court adjudged Pfaff to be an insolvent, and struck down the deed of trust as a fraudulent and pro ³⁷¹ Mbited conveyance under section 24, Article 47 of the Code. From that order or adjudication this appeal was taken.

The section just alluded to provides that "if any deed, conveyance, assignment, gift, transfer or delivery be made of any goods, chattels, money, choses in action, lands, tenements or other property, or lien created thereon by any person belonging to any of the classes mentioned in section 14, when insolvent or in contemplation of insolvency, the same shall be prima facie intended to hinder, delay and defraud the creditors of the person by whom the same is made, and the burden of proof shall rest upon him and the grantee to explain the same and show the bona fides thereof; provided, the creditors of the grantor in such deeds, conveyances or assignments shall avail themselves of the provisions of this Article.” It is clear, we think, that this provision was levelled at all conveyances which strip an insolvent of any part of his property, and at the same time place that property beyond the reach of his creditors. And as the primary object of the whole insolvent system was to devote the debtor’s estate to the payment of all his creditors, without other priorities than such as exist by law, a conveyance which, though voluntary, is designed to serve, and does serve precisely the same end, is within the policy of the insolvent system, and not repugnant to it, unless tainted with actual fraud on the part of both the debtor and trustee. H precisely the same result which the insolvent law seeks to accomplish is attained by means of a deed of trust, it is difficult to see how such a deed is, per se or prima facie, intended to hinder and delay creditors. IJpon its face it shows just the opposite purpose.

It does not put the debtor’s property beyond the reach of his creditors; on the contrary, it devotes his whole estate to the payment of their claims. It secures no more benefit to the debtor than if he had gone into voluntary insolvency, and it burthens ³⁷² the creditors with no greater cost or delay. The statute was passed to strike down all conveyances and transfers which interfered with an equal distribution of a debtor’s estate, unless those conveyances and transfers were shown by both grantors and grantees to be bona fide; and from the nature of the mischief intended to be remedied, the enactment does not include, and was obviously never intended to include, a conveyance or transfer which, without creating preferences or priorities, effects, through a trustee, just exactly that same equal distribution of the grantor’s assets. In Collier and Shea vs. Hanna and Smith, 71 Md., 257 , we said, in speaking of the duty of an insolvent firm: “The firm, as well as the individual partners, were then insolvent, and knew that they were so.

The obvious, honest and straightforward course for them to pursue, if they were unwilling to go into voluntary, or to be thrown into involuntary, insolvency, was for both of them to convey, by a joint deed, all their partnership and individual