§ 650. In the next place, as to fraud upon third persons, Where any agreement is made which operates as a fraud upon third persons, it is void as to them, though it may be good between the parties.2 The principal class of cases to which this rule applies are cases where a debtor, on the verge of insolvency, makes an assignment of his goods to some person in trust for himself, and without consideration to support it. Such contracts are utterly void at common law, not only because they operate as a palpable fraud upon creditors, but also because they are not founded upon a sufficient consideration.3 But so anxious has been the desire to protect creditors against such frauds, that the statute of 13 Elizabeth, ch. 5, was passed, ex majori cauteld, affirming the rule of the common law, and declaring all conveyances of goods and chattels, not made bond fide, and upon good consideration, but in trust for the use of the persons conveying them, or made to hinder, delay, or defraud creditors, to be void. This statute has been
1 1 Story, Eq. Jur. § 206; 2 Kent, Comm. 490, 491; Ellard v. Llandaff, 1 Ball & B. 250; 1 Story, Eq. Jur. § 692, 769, 770.
2 Dyer v. Horner, 22 Pick. 253; Haney v. Varney, 98 Mass. 118. As where the fraud is subsequent to the execution of the contract, and consists in an improper performance of it, especially if it be known and approved by the other contractor. See Hardy v. Stonebraker, 31 Wis. 640 (1872).
Contracts in fraud of the government are also void; as contracts to ctear persons from a draft for the army in time of war. O'Hara v. Carpenter, 23 Mich. 410 (1871).
3 Cadogan v. Kennett, 2 Cowp. 432; Hamilton v. Russel, 1 Cranch, 316; Meeker v. Wilson, 1 Gall. 419; 2 Kent, Comm. 515; Copis v. Middleton, 2 Madd. 428; 1 Story, Eq. Jur, § 353; Partridge v. Gopp, 1 Eden, 166,167, re-enacted in New York, and its essential provisions have been universally adopted in the United States.1
§ 651. This statute does not, however, apply to voluntary assignments by a debtor, for the benefit of all his creditors, -or of a part of them,-provided it be upon a sufficient consideration; for the mere fact that it operates to give one or more creditors a preference over the others is not sufficient to invalidate it.2 So, also, at common law, a debtor may assign or transfer all his property to a single creditor, for the purpose of giving him a preference over all the others, provided such transfer be not manifestly excessive, and disproportioned to the debts which it is intended to cover. And in such a case, the other creditors can only satisfy their debt out of the surplus.3 But where there is a statute of bankruptcy, it supersedes any arrangement which may be made between the debtor and creditor in contravention of its policy or provisions.4
§ 652. Where an assignment is made, it is not ordinarily necessary that the creditors should be made technical parties thereto, or give an express assent at the time it is made, but if they subsequently sign it, or expressly assent to it, or receive the benefit of it, they will be bound in like manner as if they had originally been parties.6 Indeed, where an assignment is
168; Edwards v. Mitchell, 1 Gray, 239; Wyles v. Beals, 1 Gray, 233. And a note given in payment for property transferred to the maker by the payee, to defraud his creditors, cannot be enforced by him. Church v. Muir, 4 Vroom, 318 (1869).
1 1 Story, Eq. Jur. § 352, 353; 2 Kent, Comm. 515.
2 Holbird v. Anderson, 5 T. R. 235; Pickstock v. Lyster, 8 M. & S. 371; Stevens v. Bell, 6 Mass. 342; Murray v. Riggs, 15 Johns. 571; Haven v. Richardson, 5 N. H. 113; Burd f. Smith, 4 Dall.85; Halsey v. Whitney, 4 Mason, 211; Ingraham v. Wheeler, 6 Conn. 277.
3 Pickstock v. Lyster, 3 M. & S. 371; The King v. Watson, 3 Price, 6; Wilt v. Franklin, 1 Binn. 502; Hendricks v. Robinson, 2 Johns. Ch. 307, 308; Nicoll v. Mumford, 4 Johns. Ch. 529; Brown v. Minturn, 2 Gall. 557; Marbury v. Brooks, 7 Wheat. 556; Brashear v. West, 7 Peters, 608; Grover v. Wakeman, 11 Wend. 194; Moffat v. M'Dowall, 1 M'Cord, Ch. 434. In many of the States the rule is confirmed by the statute.
4 Halsey v. Whitney, 4 Mason, 210; Binns v. Towsey, 3 Nev. & P. 91; Davies v. Acocks, 2 C. M. & R. 461; Knight v. Fergusson, 5 M. & W. 389, supra.
5 Halsey v. Whitney, 4 Mason, 210, 215; Hastings v. Baldwin, 17 Mass. 552; Marbury v. Brooks, 7 Wheat. 556; 11 Wheat. 78; Brashear v. West, absolute, their assent will be presumed; but not where it is conditional.1 The mere fact that an assignment is conditional, - as if it require a general release of liability from the creditors, or that it reserves the ultimate surplus to the debtor, or does not purport to convey the whole property of the debtor, -will not render it fraudulent. But whether an assignment on condition that a release shall be given does not contravene the statute by tending to delay and defeat creditors, has been a subject of much discussion and contradictory decision, although it seems finally to be settled that such a condition does not vitiate the agreement.2
7 Peters, 608; Ellison v. Ellison, 6 Ves. 656. But see Widgery v. Haskell,
5 Mass. 144.
1 Halsey v. "Vyiiitney, 4 Mason, 210; Marbury v. Brooks, 7 Wheat. 556; s. c. 11 Wheat. 78; Seaving v. Brinkerhoff, 5 Johns. Ch. 329; Thompson v. Leach, 2 Vent. 198; Austin v. Bell, 20 Johns. 442; Small v. Marwood, 9 B. & C. 300; Estwick v. Caillaud, 5 T. R. 420; Pickstock v. Lyster, 3 M.
& S. 371.
2 Halsey v. Whitney, 4 Mason, 227. In this case Mr. Justice Story fully reviews the cases on this subject in this country, and affirms the rule of the text. He says: *' A far more difficult question is that presented by the consideration, whether a debtor can rightfully stipulate for a release from his creditors, as the condition of yielding up his property to them. I am aware, that it may be said, that the property may be reached by a trustee process, so that it cannot be absolutely locked up from his creditors. But the question never can be, whether a remedy exists for the creditors, but whether the debtor has not endeavored fraudulently to delay or defeat them. This objection has struck me to be of great force, and I have paused upon it with no small hesitation of opinion. Where a debtor assigns all his property for the benefit of all his creditors, without stipulating for any favor to himself, he cannot be said to lock up his property from his creditors. The most that can be said is, that he locks it up from one, by giving it unconditionally to all. But where he stipulates for a release, he surrenders nothing except upon his own terms. He attempts to coerce his creditors by withholding from them all his property, unless they are willing to take what he pleases to give, or is able to give, in discharge of their debts. This is certainly a delay, and if the assignment be valid, to some extent a defeating of their rights. It is not sufficient to say, that it is a proposition to creditors; so would be a condition by the debtor to receive a gross sum. The object and nature of the proposition are to be considered in order to decide whether it be fraudulent or not. Has it not a tendency to obstruct the common rights of the creditors ? Is not its design to prevent creditors from receiving compensation out of the debtor's property, without yielding up some portion of their debts, and conferring on him a substantial benefit, which he has no certain proportion of their claims, in consideration of a discharge of their demands, - if he privately agree to give a better or further security to one than to the others, the contract is void, because the very basis of the composition is, that each creditor shall receive an equal benefit, and take a proportionate share.1 A composition deed, to which the signatures of some creditors are obtained by pecuniary considerations outside of the deed, unknown to the others, is void as to the latter.2 So, if a debtor gives one of his creditors notes for more than is really due, to enable him to obtain a larger dividend under aside by the creditors, if it appear that the grantor was in embarrassed circumstances when he made it; for, as it has been said, a man should be just before he is generous, and he is bound, both legally and morally, to pay his debts before giving away his property. But the mere fact that a man is indebted will not render his gift voidable, provided it appear that he is only indebted to a small amount in proportion to his property, and is wholly unembarrassed, and is able to make the conveyance.1 Nor does his subsequent insolvency entitle his creditors to set aside a conveyance made by him at a former time, when he was in perfectly unembarrassed circumstances, and done bond fide. And, although the cases are by no means free from apparent diversity on this point, it will be found to arise only from a difference of opinion as to what amount of indebt-ment constitutes sufficient evidence of fraud.2 Of course, a voluntary conveyance of property which could not be appropriated by creditors, would not come within the rule, and would be valid, although founded on a merely good consideration.3 A creditor cannot, in legal contemplation, be defrauded by the mere conveyance by his debtor of property which by law is exempt from attachment.4