A voluntary settlement executed by a man on the eve of going into trade, and whether at the time actually contemplating trade or not, is void as against those who may become his creditors in the course of his trade. A., while contemplating entering a firm as partner, and being at the time interested with the firm in certain mercantile speculaitons, but not actually indebted, made a voluntary settlement of all his property upon himself, his wife and family. Six weeks afterwards he became partner, and in about seven months from the commencement of the partnership the firm became insolvent :-Held, that the settlement was fraudulent and void as against creditors. This was a suit to set aside a voluntary settlement executed by the defendant William Douglas, as fraudulent and void against creditors. In the year 1863, Douglas was managing clerk to Messrs. Smith & Grant, who carried on business as merchants in London, Liverpool and Calcutta, under separate firms, and were then and for several months afterwards engaged in extensive and hazardous speculations in jute, in which Douglas himself was also interested. In the month of September, 1863, arrangements were in progress for the retirement of Mr. Grant from the business, which, it was proposed, should be carried on by Mr. Smith alone or in partnership with such persons as he should think proper, and it appeared from the correspondence in the suit, that Douglas at that period entertained an expectation of being taken into partnership by Mr. Smith. In November, 1863, Douglas purchased a leasehold house with a sum of 1,800l., which he had saved during his clerkship. On the 12th February, 1864, while still contemplating the probability of his being admitted into the business, he gave instructions to his solicitor to prepare a settlement of this leasehold house, which then constituted, in fact, his entire property, with the exception of the profits (if any) which he might derive from the hazardous speculations above mentioned, and on the 24th February, he executed the settlement in question, by which he settled the property upon trust for his wife (whom he had married some years before) for her life, for her separate use, with remainder upon trust for himself, if he should survive her, for his life or until he should become bankrupt. Then followed the usual trusts for the benefit of children, with an ultimate trust for himself absolutely. In the month of April, 1864, it was finally arranged that the business of the old firms in London, Liverpool and Calcutta, should be continued by Messrs. Smith & Douglas in partnership, and accordingly on the 8th April, about six weeks after the date of the settlement, articles of partnership were executed, by which it was agreed that the new partnership should continue for three years from the 1st May, 1864, it having been arranged that Grant should retire on the 30th April, 1864.. In the month of November, 1864, the affairs of the partnership became embarrassed. In March, 1865, the London and Liverpool firms failed for about 364,000l., and by a deed dated the 15th May, 1865, and duly registered under the Bankruptcy Act, 1861, the plaintiffs were appointed inspectors for the purpose of getting in and realizing the assets of those firms, and also the separate estate of each of the partners. In February, 1866, the Calcutta firm also stopped payment, and by a deed dated the 22nd February, 1866, the interest of Douglas in that firm was vested in trustees for the benefit of the creditors, and by the same deed the plaintiffs and other creditors of the firm released the defendant and his separate estate from all demands provable thereunder. It appeared, however, that neither the plaintiff's nor the other creditors who executed the release of the 22nd February, 1866, were aware of the existence of the settlement, or that the defendant had any interest in the property comprised therein. This bill was then filed by the inspectors appointed by the deed of the 15th May, 1865, against Douglas and the trustees of the settlement of the 24th February, 1864. It alleged that the settlement was executed by Douglas at a time when he was engaged in and contemplated further embarking in extensive mercantile speculations, which he knew might very possibly, as they did in fact, prove unprofitable, and prayed for a declaration that the settlement was fraudulent and void as against the creditors of Douglas, and that the premises therein comprised might be sold for the benefit of such creditors, and also for costs as against all the defendants. By his answer Douglas alleged that his sole object in executing the settlement in question was to make a provision for his wife and family, no settlement having been made upon his marriage, and that at the time he executed it he was only indebted in sums of trifling amount for personal expenses, all of which had long since been paid, and that all responsibility on his part in connexion with the speculations above referred to had then ceased. He admitted, however, that when he became a partner in the firms he did as such partner contract debts and liabilities to an extent far beyond his private means of payment, but not beyond what he had reason to believe that the assets of the firm would be in a position to meet. He positively denied that he executed the settlement with any intention of defrauding future creditors, and he relied on the release of the 22nd February, 1866, as a defence to the suit. The trustees of the settlement also put in an answer supporting the settlement. Mr. Cotton, Mr. Lindley, and Mr. Fellows, for the plaintiffs.-This settlement is fraudulent and void within the statute, 13 Eliz. c. 5. Even assuming that the defendant was not indebted at the time he executed it, yet he was then contemplating entering a business which he knew to be of a speculative and hazardous character. It is not necessary that a man should be actually indebted at the time he executes a voluntary settlement to make it fraudulent; for if he does so with a view to his being indebted at a future time, it is equally fraudulent and ought to be set aside Stileman v. Ashdown, 2 Atk. 477; Ware v. Gardner, 38 Law J. Rep. Barling v. Bishopp, 29 Beav. 417; sen. 1. The defendant having become insolvent shortly after the execution of the settlement, the burden lies on him to prove that he was in a situation to justify his making such a settlement— Crossley v. Elworthy, 40 Law J. Rep. (N.S.) Chanc. 480; Law Rep. 12 Eq. 158; and that burden he has not discharged. Mr. Bristowe and Mr. Fischer, for all the defendants.-Douglas had no fraudulent intention in making this settlement; his object simply was to make a provision for his wife and family, and he accordingly gives the first life interest, not to himself, but to his wife. He was not indebted at the time, and the partnership was only a possibility. The mere fact of a settlement being voluntary is not sufficient to render it void against subsequent creditors; the settlor must not only be indebted at the time Holmes v. Penney, 3 Kay & J. 90; s. c. 26 Law J. Rep. (N.S.) Chanc. 179; Skarf v. Soulby, 1 Mac. & G. 364; s. c. 19 Law J. Rep. (N.S.) Chanc. 30; Freeman v. Pope, 39 Law J. Rep. (N.S.) Chanc. 689; Law Rep. 5 Chanc. app. 538; Russel v. Hammond, 1 Atk. 13; Walker v. Burrows, Ib. 93; Townshend v. Windham (ubi supra); Stephens v. Olive, 2 Bro. C.C. 90; Kidney v. Coussmaker, 12 Ves. 136; Holloway v. Millard, 1 Madd. 414; but indebted to the extent of insolvency Martyn v. McNamara, 4 Dr. & War. 411, 427; and it must also be shewn that the settlor had no reasonable expectation of being able to pay his debts— Spirett v. Willows, 3 De Gex & S. 293; s. c. 34 Law J. Rep. (N.S.) Chanc. 365. As the settlor was not indebted at the time the onus of proving fraud is thrown on the other side Richardson v. Smallwood, Jac. 552, 557. Intention to defraud must be actually proved; it is not enough to shew that the settlement may happen to have the effect of defeating creditors. In all these cases the Court will sit as a jury and look at the circumstances in order to ascertain whether there has been an intention to defraud; Thompson v. Webster, 9 W. R. 641; Henderson v. Lloyd, 3 Fos. & Fin. 7. We also contend that the release of the 22nd of February, 1866, is a bar to the plaintiffs' right to sue. They also cited— In re Kerrison's Trusts, 40 Law J. MALINS, V.C., after stating the facts, said-This case seems to me to raise a most important point. Can a man who contemplates trade-or who, in point of fact, whether he contemplated it at the precise moment when he executed the voluntary settlement or not, does, very soon after executing a voluntary settlement, enter into trade, thereby incurring liabilities which end in a disastrous state of affairs-make a voluntary settlement which shall be good against the creditors who become so in the course of his trade? I am not aware of any case upon the exact point, and very few of the cases cited have any immediate bearing upon it. But is the statute of Elizabeth so very short in its effect that it will not cover a case where a man, on the very eve of entering into trade, takes the bulk of his property and puts it into a voluntary settlement, and then becomes insolvent a few months afterwards? Is it to be said that that settlement cannot be reached by any principle of law? My opinion is, that the law is in a totally different condition, and that when a man gets into difficulties shortly after the execution of a voluntary settlement the practice of the Court is clear. I had occasion to consider the subject recently in Crossley v. Elworthy (ubi supra), and Lord Langdale considered it very fully in Townsend v. Westacott (2 Beav. 340), where the insolvency did not arise until nearly three years after the voluntary settlement, and there he laid down the rule that the burden of proving that the settlor was in a position to make the voluntary settlement was shifted and thrown upon the man who executed the voluntary settlement, and not upon those who sought to set it aside. In Crossley v. Elworthy (ubi supra), the settlor got into difficulties nine months after making the settlement, and I thought, following the previous decisions, that the whole burden was thrown upon him of shewing that he was not only solvent, but in a situation to justify his making a voluntary settlement. I say in the same way that this gentleman, Mr. Douglas, having become bankrupt or insolvent-he was completely insolvent within seven months after the execution of this settlementupon him rests the burden of shewing, not merely that he was solvent, but that he was in a situation which justified him in making a voluntary settlement of the great bulk of his property. In Crossley v. Elworthy (ubi supra) I carried the rule further perhaps than it had been carried before, because I did not put it on the mere question of actual solvency or insolvency, but considered that it applied to any case where it is doubtful whether the settlor is, when he makes the settlement, in a solvent condition, and, if so, uncertain whether he is likely to remain so. Now, was Douglas in a situation to make this settlement when it was executed? It has been very truly said that, in a great part of this case, I am to exercise the functions of a jury. Now, sitting as a jury, what conclusion can I draw but this, that the inducement to him to make this settlement on the very eve, because forty-four days was, I consider, the eve, of his going into business (and I regard it almost as if he had done it the very day before he signed the articles of partnership), was to protect this property from any risk. It is perfectly plain from the evidence that from the month of September down to this very time he contemplated going into partnership and was daily in expectation of this partnership being formed; and the motive, therefore, in executing this settlement, was to protect this property against his creditors, if creditors he should have; in other words, to take the bulk of his property out of the reach of his creditors if any disaster should befall him. The law is now settled that it is not at all necessary to shew that a man had any fraudulent intent in making a settlement. It is very true that some of the old decisions proceeded upon the assumption that there must be an intention to defraud, and that the settlement could not be set aside unless there was such an intention; but it is not now necessary to shew that, because if the settlement has the effect, in the words of the statute, of "in any ways disturbing, hindering, delaying or defrauding creditors, the Court presumes the intention, and will attribute the intention to the settlor. That is distinctly laid down in Freeman v. Pope (ubi supra) and I acted upon that principle in Crossley v. Elworthy (ubi supra). Now, it is not necessary in this case to say that Mr. Douglas had any fraudulent intention. According to his view of the matter I daresay he had not any fraudulent intention, and thought it a very prudent thing to protect his wife and children. But in doing that, within the meaning of the statute he has certainly committed a fraudulent act, because, going into trade, he was taking the only property which would be available for his creditors out of their reach, although nobody could have supposed at that time that he was going to be indebted to the amount of 364,000l., or thereabouts. He was, therefore, in my opinion doing an act calculated to defeat or delay them, and, within the meaning of the statute, to defraud them, and an intention of so doing I must attribute to him. This happened to be a small amount of property with reference to the debts incurred, and with reference to the position of Mr. Douglas when the settlement was executed. If I am to decide against the plaintiffs in this case my decision would be applicable to any case. The law is perfectly settled that if a man is solvent at the time he executes a voluntary settlement, and does not at the time contemplate doing anything which may lead to insolvency, and remains solvent for some time afterwards, the settlement will be good. Holloway v. Millard (ubi supra) illustrates that proposition. So, in the present case, if Mr. Douglas had not gone into trade, and had not contemplated trade at the time, but some years afterwards, under a totally new state of things, had made up his mind to go into trade, I should have had no hesitation in coming to the conclusion that, inasmuch as he was solvent at the time, and had not entered into or contemplated any contract which could lead to insolvency, his subsequent insolvency could have had no effect in invalidating the settlement which he had made upon his wife and family. The rule laid down by Lord Hardwicke in Stileman v. Ashdown (ubi supra) is one which commends itself to one's judgment, and I read it thus, that if a man executes a voluntary settlement with a view to a state of things when he may become indebted, that makes it fraudulent just as if he were indebted at the time. In the present case Mr. Douglas made the settlement, I am perfectly satisfied, with the view that he was going into partnership; that in that partnership he might become bankrupt or insolvent, might be utterly ruined; he did it with the view that he might be indebted, and therefore in that view the settlement, in my opinion, was fraudulent and void against creditors. The conclusion which I arrive at in this case proceeds upon the broad ground that a man who contemplates going into trade cannot, on the eve of doing so, take the bulk of his property out of the reach of those who may become his creditors in his trading operations. His doing so, as Lord Hardwicke said, with a view to his becoming indebted, would be as fraudulent as if he owed the debts at the very time. In the present case, if Douglas had been at the time a member of the partnership which became insolvent, no question could have been raised, and I regard the settlement as having been made for the purpose of avoiding the consequences of that insolvency, and in my opinion, therefore, it is equally fraudulent. I do not think it necessary to enter into that part of the case, but it was very much pressed upon me that he did not contemplate going into partnership. [His Honour then read parts of the correspondence during the months of October, 1863, and January, 1864; and, after stating that he was satisfied that Douglas was then in fact contemplating going into partnership, continued:] Upon these grounds, therefore, I am of opinion that the settlement having been executed by a man who, although not indebted at the time, yet contemplated and was upon the eve of entering into the arrangement which resulted in his being largely indebted, falls within the rule laid down by Lord Hardwicke, and that it is impossible for any man, in contemplation of trading which may result in his being indebted, to take the bulk of his property out of the reach of his creditors. On these grounds, therefore, I hold that the settlement of the 24th of February, 1864, was absolutely null and void against the creditors within the meaning of the statute of Elizabeth, and consequently that when he executed the deed by which he vested all his property either at law or in equity in the inspectors or trustees, this property vested in them as being his just as much as if the settlement of the 24th of February had never been executed. That therefore brings me to the next point which was so much relied upon, namely, the effect of the release of the 22nd of February, 1866. It is said that that release had the effect of depriving these plaintiffs of their right to sue in this suit. I am of opinion that it has no such operation. First of all, for the reasons I have stated, I am of opinion that the effect of the deed is that the trustees, on behalf of the creditors, say, "You have given up all you have to give; we are satisfied you have stripped yourself of everything, and in consideration of your having done so, we release you." Now, if Mr. Douglas, instead of giving up this property, had concealed it, I am of opinion that he could not take the benefit of that release which was procured by his concealment of the facts; and in order to have the benefit of that release he should, in my opinion, have fully disclosed the facts to the parties who executed it. Upon that ground alone I should have come to the conclusion that the release for this purpose was inoperative; but upon the other ground I say that the property was at that time vested in him; the trustees did not intend to give anything up; they took all the property of which this is part, and therefore the release has not the operation contended for by Douglas. The result is that there must be a decree setting aside the settlement, and I am sorry to say that I see no ground whatever upon which I can relieve either Mr. Douglas or his trustees from the costs. It is very unusual for trustees to come forward, as these have done, actively to support such a settlement. In Crossley v. Elworthy (ubi supra) the guardians of the infants appeared to support it, and I therefore made them pay the costs. in this case, as the trustees have come forward to uphold the settlement, they, with Mr. Douglas, are liable for the whole costs. The decree will be to set aside the settlement with costs against all the defendants. So Solicitors-Messrs. Fenwick & Stibbard, for plaintiffs; Messrs. Tamplin & Turner, for defendants. 2 |