045-NLR-NLR-V-01-SILVA-v.-MACK.pdf
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SILVA v. MACK.D. C., Colombo, 61,400.
(Roche Victoria's case.J
Fraudulent deed—Want of consideration—Insolvency of grantor—Creditors,antecedent and subsequent to date of deed—English laio and Roman-Dutch law—Ordinance No. 7 of 1853, s. 58.
A bond given without consideration by a person in a state ofinsolvency is void, as a fraud upon all persons who were creditors atits date and prejudiced by it.
A deed cannot be set aside as fraudulent by a creditor who becomessuch after the date of the alienation, unless it be proved to have beenmade with an intention to defeat future creditors.
11 iHE following judgment of the learned District'Judge (Mr.
Berwick), delivered on June 22, 1874, fully sets out thefacts of the case.
“This is an action against the administrator of the estate of thelate Roche Victoria by an alleged creditor on a bond by the intes-tate dated 25th January, 1867, for Rs. 7,150 and interest. The libelsues for this sum and interest from the date of the bond, totalRs. 11,938, and prays that 64 shares of the ship Geraldina Alexan-dria Roche, specially mortgaged therefor, may be declaredexecutable for the claim. The plea of the administrator is that thebond was voluntary and without consideration, and fraudulentlymade to defeat creditors. It does not specify any particular
1875.
February 0.
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1875. creditor as prejudiced or intended to be defrauded. The replica-Febm-ary 9. tion is a traverse and demurrer. A question having arisen whetheran administrator could maintain such a plea, setting up as a defencethe fraud of the party he himself represents, certain creditors ofthe deceased were allowed to intervene against the plaintiff, and intheir libel of intervention have repeated the plea of the adminis-trator. These creditors are Cargill & Co., Armitage Brothers, andE. Labroy, executrix of the estate of the late Mr. Lorenz.
“ As to the want of consideration and indebtedness generally.The bond is dated January, 1867. The consideration set up isan anterior and old loan said to have been made in March, 1861,of £250; another loan in September, 1866, of £220; compoundinterest on these loans from 1861 till the date of the bond, at 15 3per cent., £245, making a total of £715.
“ It is admitted that no security of any kind was given for theseloans till 1867 ; that there was no document of any kind to vouchthem ; no witness of the payments ; no evidence whatever of thembeyond the unsupported statement of the plaintiff, who is thedeceased’s son-in-law and a party interested among the heirs indefrauding legitimate creditors ; and that no interest was ever paidon the stale alleged debts for which it was said the bond wasgiven. It is proved that the existence of this bond was suppressedfrom the administrator and from the legitimate creditors for along period after the deceased’s death, under circumstances whichnaturally gave both special occasion and abundant opportunity forbringing it forward; that the claim was not inserted in a listof Roche Victoria’s liabilities prepared by his son, a youth whowas acting throughout under the constant advice and assistanceof the plaintiff himself ; and that the existence of the bond wasconcealed from the deceased’s legal adviser, Mr. Loos, who says‘he (Roche Victoria) never did anything without taking my‘advice,’ and whose client the plaintiff himself in fact was. Seethe evidence of Messrs. Nicholls, Loos, and Mack.
“ Roche Victoria has died insolvent, and we have now to examinehow far back in point of date his embarrassments extended.
“There is ample evidence that, as far back as the date of thebond, he was largely indebted, and in difficulties. On the very daybefore it was signed we find him writing to Mr. Lorenz (G 1) :‘No one knows but the Almighty God who created me. I was‘ obliged to beg my friends to assist me on this occasion.’ Docu-ment E shows that in 1863 he owed Nany Tamby £435, and thenborrowed a further sum of £1,700, agreeing to repay it in monthlyinstalments, and it would appear from the deed of assignment ofthis debt (marked D) that this debt was still subsisting in 1872.
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•Mr. Dawson’s award (Q) showB that in 1870 he was indebted toNany Tamby in £1,472, balance dne on promissory notes unsettledsince 1865. The letters by him to Mr. Lorenz in 1868 are not toofar removed in point of date from that of the impeached bond(and these were not objected to on any other ground) to berelevant as to the state of his affairs when it was granted. In theabsence of any evidence of sudden and independent pecuniaryreverses having occurred in the interval, to which, and not to oldindebtedness, the impecuniosity there referred to might reasonablybe ascribed, the whole tenor of those of 18th March and 30thSeptember, 1868 (G 4 and 5), admits of no explanation consistentwith solvency. In the latter he writes : ‘ I must confess the‘truth in this matter that if you are [had] not interfered in‘ this matter in time, I would have [been] smashed, and would have
‘ [been] exposed to the public long agoNot only I, Sir,
‘ but every mother’s child will say even now or up to date that
‘ the poor Roche is living on Mr. Lorenz’s bread,’and
much more language to the same effect, such as only an insolvententreating a creditor’s indulgence wpuld use. In the same letterhe alludes to the imminent seizure in execution of one of hisships on a judgment obtained by the bank. It is true that thereception in evidence of other letters by him to Mr. Lorenz wasobjected to as inadmissible when tendered on behalf of theintervenients to show Roche’s insolvent circumstances at the dateof the bond, and that I sustained the objection ; but on furtherreflection I am not quite satisfied that my decision, made on thespur of the trial, and necessarily with little leisure for consideringthe point, was correct, and 1 have no hesitation in quoting fromthe letters marked 6, because they were only objected to on theone ground of remoteness of date (which I think is an untenableobjection), andnoton the ground on which the others were rejected.But there is sufficient evidence even without the documentaryproof. Mr. Loos, who was his trusted and confidential legaladviser, consulted by him on and cognizant of all his affairs,swears as follows : ‘ I was his professional adviser in 1867. From‘ 1867 down to the time of his death he was in rather embarrassed‘circumstances. His circumstances were bad in 1866 and for‘ some years before 1867,’ and then he goes on to give details.
“ The result is such an exceedingly strong prima fade case asto call for rebutting evidence, and failing this I muBt find asfacts that the bond was without consideration, and executed in astate of insolvency. Equally by Dutch and English law thesefindings make it a fraud upon and void as against all persons whowere creditors at its date and prejudiced by it.
1873.
Fiirttaty V.
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1876.“ But of the several intervenients Cargill & Co. were certainly*
February 8. noj; creditors at the date of the bond, and neither wereArmitage Brothers (at least there is no proof that they were);and it is a question whether there is admissible evidence thatMr. Lorenz was. Is such a bond void as against subsequentcreditors ?
“ The English cases turn on the construction of 13 Eliz., cap. 5,and the most important recent cases to the point are Jenkyn v.Vaughan, 3 Drew, 419; Spirett v. Willows, 34 L. J., ch. 365;and Freeman v. Pope, 39 L.«/., ch. 148 and 689. In the first Vice-Chancellor Kindersley held that a subsequent creditor may file abill if any debt due at the date of the voluntary settlement remainsdue at the date of the bill. In Spirett v. Willows, a distinctionwas taken between an impeachment by an antecedent creditorand by a subsequent one, it being there held by Westbury, LordChancellor, (1) that when any debt contracted anteriorly to avoluntary settlement is impeded thereby, and still exists un-satisfied, such a creditor may impeach the settlement, howeversolvent the debtor may have been at its date; but (2) when subse-quent creditors impeach it, they must show either insolvency (ordeep indebtedness) or express intent to defraud creditors. Lastly,Freeman v. Pope, 39 L. J., ch. 148 and 689, seems to have dissolvedthis distinction, and has decided in effect that when any debtcontracted before the settlement still exists unsatisfied, either theantecedent creditor or a subsequent creditor may impeach thesettlement, however solvent the debtor may have been at its date,or however remote it may have been from his intention to delayor defraud creditors. Vice-Chancellor James, dealing in thatcase with the claim of a subsequent creditor, and an antecedentdebt still existing, when stating the results of the previous cases,says: ‘ It is immaterial whether the debtor had any intention
‘whatever of defeating his creditors,’and again, ‘however
‘ honest the settlement was, and however solvent the settler was,‘at the time.’ These principles are however to a large extentopposed to the Civil law and to other systems of enlightenedjurisprudence, as well as to former English cases. See 2 Bell'sCom. on Scotch Laiv, 182-186; 2 Kent's Com. on American Law,part V., 38; Story's Equity Jurisprudence, sections 349, 361,362, &c.; Chitty's Coll, of Statutes, tit. Fraudulent Conveyances;and on Civil law see Voet ad Pand., XLII. 8, 14. Further,Vice-Chancellor James came very reluctantly to his decisionin Freeman v. Pope; and Spirett v. Willows on which thatcase hangs) has been acutely criticised (May's Voluntary andFraudulent Alienations, p. 43), and has been brought forward
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and overruled in America (ib. 46); and the effect of it isconsiderably modified by the grounds given for affirming Freemanv. Pope in appeal (L. R. 5, eh. 538-541).
“ It is unnecessary in the present case to decide what the right ofcreditors would be in the case of both innocent intent and perfectsolvency at the date of the fraudulent settlement, because here Ifind as a fact that there was insolvency at that time ; but it is notso clear that there was an intention to defraud the present or anythen future creditors by it. I am therefore called upon todetermine whether, by the law of this country, when there hasbeen insolvency at the date of the settlement (or producedthereby), a creditor to whom the debtor subsequently becameindebted, but whom there was no intention to defrand thereby,may impeach it; and whether the existence of some antecedentunsatisfied debt is necessary to enable him to do so.
“ The subject is one on which there is much conflict of laws.The law of Scotland differs from that of England, and the lawsof the United States of America differ among themselves. Mr.Justice Story, rather however expressing hiB opinion, as a legalphilosopher, of what the law ought to be, says : * Where the con-veyance is intentionally made to defraud creditors ’ (antecedentcreditors, I presume he means) ‘ it seems perfectly reasonable that‘ it should be held void as to all subsequent as well as to all prior‘ creditors on account of ill faith.’ (Equity Jurisprudence, section361.) According to English law, the element of fraudulent intentseems now to be altogether eliminated by Freeman v. Pope, and asubsequent debtor, as already stated, may impeach a voluntarysettlement if (as settled in Jenkyn v. Vaughan) there be stillexisting at the time of impeachment any debt contracted ante-cedent to the settlement. I think thiB condition of an antecedentand still existing debt is sufficiently proved in this case in respectto the sum entered in the list of registered claims as due toNicholls & Co., who are the last of a series of assignees of adebt contracted by Roche Victoria to Nany Tamby. But, is thisalso the Roman-Dutch law ? Or, failing facilities for answeringthe question in this form, is it the Civil law ? For I cannotacquiesce in the argument that section 58 of the InsolvencyOrdinance, introducing English law in certain cases, applies to thepresent one. The word ‘ insolvent ’ must be there construed to bea person who has been adjudicated insolvent under the Ordinance.
“ It appears to me that the Civil law requires a concurrence ofprejudice and fraudulent intention immediately directed againstthe person who seeks to impeach the deed ; that is to say, theremust be both those circumstances, and they must also meet in the
1878.
February 8.
1875.
February 9.
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same person ; Voet indeed says : Competit haec actio creditoribusin quorum prejudicium res fraudulenter alienatae sunt (AdPand, XLIl. 8, 3). The passage, however, which he cites from theDigest in support of this statement (XLIL 8,1 pr.) nsesthe expres-sion * fraud,’ and not * prejudice,’ and is immediately followedthere by the explanation quo edicto consuluit creditoribus revocandaea qucecunque in fraudem eorum alienata sunt (Digest, XLII.8,1, s. 1). In XLIL 8,10, s. 1, we find a distinction taken wherethe claim of the antecedent creditor has been settled, but othercreditors remain. Ita demum revocatur, qu-od fraudandorumcreditorum causa factum est, si eventnm fraus habuit scilicet sihi creditores, quorum fraudandorum causa fecit, bona ipsius ven-diderunt. Geterum si illos dimisit quorum fraudandorum causafecit et alios sortitus est, si quidem simpliciter dimissis priori bus,quos fraudare voluit, alios postea sortitus est, cessat revocatio / siautem horum pecunia, quos fraudare noluit, priores dimisit,quos fraudare voluit, Marcellus dicit, revocationi locum fore.Secundum hanc distinctionem, et ab Imperatore Severo et Antoninorescriptum est, eoque jure utimur; that is to say, ‘ subsequent‘creditors who were not intended to be defrauded by the‘ fraudulent act cannot impeach it, unless the creditor who was* intended to be defrauded has been paid off with their money.’(This is analogous to the Scotch law, 2 Bell's Com. 184; Erskine'sInst. 4,1, 29, 30, and manifestly falls far short of the Englishlaw as settled in Jenkyns v. Vaughan.)
“Accordingly Voet, when he is enumerating the various featureswhich the actions Pauleana and Recissoria have in common(there being much resemblance between them, but the latterrestricted to alienations after the judicial execution against aninsolvent’s estate called the missio in possessionem), says at para-graph 14, that one of the features they have in common is fraudon the part of the debtor, but that in this fraud two things mustconcur, to wit, the intention or design of defrauding, knowing thathe was insolvent, and that he was nevertheless diminishing hisestate, and a result corresponding to that intention, whereby hiscreditors are unable to recover their rights ; and he adds: 4 and‘finally [it is necessary] that the fraudulent intention and the‘ result concur in the person of the same creditor, unless he whom‘ the debtor originally intended to defraud has been settled with‘ out of the money of the creditor defrauded in fact.’ He closesthe paragraph by deducing the consequence that no action iscompetent unless the debtor was insolvent at the time of thefraudulent gift or sale, or unless the alienation itself would havethe effect of making him so.
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“A case very much in point is thus pnt in the. Digest (XLII.1876.
8,15):—‘ If one who is a debtor to Titins, and is aware of his February 0.‘ own insolvency, gives his slaves their freedom by his testament,
‘ and then, after having paid off Titius, becomes indebted to‘Sempronius and dies, leaving his testament unrevoked, the‘ manumission of his slaves remains valid, although his estate be‘ insolvent.’ So far this shows that a voluntary settlement madeby a person who is at its date in a state of insolvency is goodagainst subsequent creditors, if no antecedent creditor’s debtremains unsatisfied (compare Freeman v. Pojie), but what if the debtremained due to Titius at the time that the debt to Sempronius waBincurred, or if both remained due at his death ? That Titiuscould set aside the voluntary settlement there is no doubt (Instil.lib. 1, tit. 6, section 3), but could Sempronius, who was not a creditorat its date, do so as in the English law ? The reasoning given inthe Digest {XLII. 8, 15) for the decision there mentioned equallyapplies to and answers this question; and in the negative quia liber-tates ut rescindantur, utrumque in eorundem persona exigimus etconsilium et eventum: et si quidem creditor cujus fraudandi con- .silium initum erat, non fraudatur; et adversus eum, quifraudaturconsilium initum non est; libertates itaque rataesunt, i.e., ‘because‘ in order that the manumission should be set aside we require both‘ [fraudulent] intention and a result corresponding therewith;
‘ and inasmuch as the creditor, who was the object of the' fraudulent intention, is not defrauded, as regards him who is‘ defrauded, the fraudulent design is wanting.’ In the case Ihave put it is true that Titius is defrauded, but in respect to theplaintiff Sempronius, who alone impeaches the deed, a fraudulentdesign is wanting. This passage, together with the text whichfollows it in the Digest, is one of the authorities which Voet citesfor his definite proposition that the fraudulent design and theissue thereof must concur in the same creditor, except whenthe antecedent creditor has been paid with the money of thesubsequent one.
“ I shall certainly desire to give what the Germans call anexpansive interpretation to the law against frauds on creditors, ashas indubitably been largely done both in England on the Statutesof Elizabeth, and in Scotland on the corresponding Statute 1621,
18. But to do that is one thing, and to decide in expresscontradiction to law is another; and I feel constrained to hold onthe authority of Voet {XLII. 8, 14), that in order to a voluntarysettlement or fictitious objection (which is the matter here) beingimpeached, it must be shown that there was an intention todefraud the very creditor who has been actually prejudiced by
Vol. I.T
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1875. it: and 1 can find no authority for holding that any creditor whofibnary 9. ,g not ;u that category can come into Court to impeach it.
“ This opinion, however, does not necessarily infer that in nocaseis a person who only became a creditor after its date outside ofthat category. For the fraudulent intention may have been todefeat future as well as antecedent creditors.
“ Whatever contrarities exist among different systems of juris-prudence as to the rights of subsequent creditors when there wasno actual intention to defraud any one, or an intention to defraudany one, or an intention to defraud antecedent creditors only, Ithink there is no room to doubt that, where there has been anactual intention to defraud future creditors as well, any one ofthem who is prejudiced may set aside the deed.
“ I have therefore further to find whether this intention existedin this case. I believe that it did. It almost happens in thiscountry that gratuitous alienations and mortgages for sham debtsare made by persons in insolvent circumstances, for the purposeof the alienee or mortgagee being a secret trustee to preserveproperty for the debtor’s fraudulent benefit after he has gonethrough the insolvency court, and to put his estate out of thepower of subsequent as well as prior creditors, while he goes ontrading recklessly and on a false display of capital. I am boundin fairness to the deceased to say that there is no evidence beforeme that he traded recklessly after creating this fictitious debt,which indeed was registered in usual course. But at the sametime we know that the mortgage of the vessel would have beenfutile without registration, and we know how notorious it is toevery one that, except where special inquiries become necessaryin transactions regarding the very land or subjects mortgaged, howlittle wiser the public are as to encumbrances or alienations ofproperty which remains in the possession, and apparently theproperty, of the ostensible owner. I place little account thereforeon the mere fact of registration in dealing with a question ofintent to put property beyond the reach of future creditors, and Ithink it is a legitimate presumption that, where an insolventcarries on trade and incurs considerable debts after creating a shamdebt by way of a secret trust, which would have the effect of pre-judicing future as well as prior creditors, his intention was inaccordance with the result. In this I only apply the legal maximthat a man must be presumed to have intended the natural conse-quence of his own acts, a maxim which is ten-fold strongerwhere that act is fraudulent. At the same time I must add thatan intention to defraud future creditors by this mortgage has notappeared to me free of fair ground for doubt, and it is therefore
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that I have felt it necessary to consider the law which mnst be 1875.applied in case of its absence. If thid case should be appealed, Mmerg 8.and this intention be ultimately negatived in appeal, then, onthe view I have arrived at on the law, I think the plaintiffwill be entitled to judgment against both the defendant and theintervenients.
“ On my finding, however, and on the foregoing view of the law,it is necessary to decide whether Roche Victoria was indebted toMr. Lorenz (represented by the intervenient La Brooy) at the timethe deed was executed or not. It is sufficient to set aside thedeed that I have found as a fact that it waB to the best of my judg-ment intended to defraud some future creditor, and two of theintervenients are in that category. I need scarcely observe that afictitious debt, putting oneself under an obligation for what hedid not owe (which is the case here), stands in all respects on thesame footing as a voluntary settlement. The Digest has Sive seoibligavit fraudandorum creditorum causa (XLII. 8, 3). Thebond and mortgage will be declared fraudulent as against theintervenients. I cannot dismiss the plaintiff’s claim against thedefendant, because he represents not creditors but heirs, and asagainst them the plaintiff’s claim is good, and mnst be upheld;for the transaction is good as between the parties to it and theirheirs, though bad as against all creditors. The defendant asadministrator will therefore pay the plaintiff’s cost, but theplaintiff will pay the intervenients’ costs.
“As the law applicable to a case of this kind has been very fullydiscussed in this suit, and that adopted (mainly on the authorityof the Civil law as interpreted by Voet in XLII. 8,14 of his Com-mentaries on the Pandects) is in conflict with English law, thoughI feel fully fortified by the examplars of the Scotch law and thelaw of Louisiana, the jurisprudence of which kingdom and stateare both founded, like our own, on the basiB of the Civil law,it will be useful to put in a concise proposition what I have nowheld to be the law of Ceylon. In a note to Kent's Commentaries,vot. 2,p. 442, will be found the following passages :—* In Louisiana‘a deed cannot be set aside as fraudulent by a creditor who‘ becomes such after the date of the alienation, unless it be proved‘ to have been made with an intention to defeat future creditors.’
This I consider exactly to express the law of this country, if weadd the words ‘or unless it be proved that a person who was‘ a creditor at its date has been paid with the money of the sub-* sequent creditor who seeks to set it aside.’ And with thisaddition it exactly and tersely summarizes what I have decided onthe points raised in this suit.’’
13-
1875.
February 0.
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The mortgage bond in favour of the plaintiff having been setaside as fraudulent, he appealed.
Fitzroy Kelly (trith him Samuel Grenier) appeared for him.
Ferdinands (with him Layard) for defendant respondent.
1Gur. adv. vult.
The case was argued in appeal on 2nd February, 1875.
9th February, 1875. The judgment of the Supreme Court wasdelivered by Sir Richard Morgan, Acting Chief Justice, asfollows:—
The Supreme Court concurs with the learned District Judgein holding that the bond upon which the plaintiff sues was given,by the deceased without consideration, and with intent to defraudhis creditors.
Affirmed.