WOONSOCKET RUBBER CO.
and others v. FAT,LEY and Qthers. March, 1887.) ,
, (oirc'ttit OO'ttTt, D. Indian"".
In Indial:la, notwitnstandingRev.St. 1881, § 2662, providing that thereafter , all assigri-mentsmade by debtors in embarrassed Or failing circumstances, except general assignments of all their property, in trust, for the benefit of all their bona creditors, Should be deemed fraudulent and void, such debtors may still prefer their creditors by confession of judgment: or by selling, mortgaging,'oripledging their property; but an assigJ;1ment by a partnership of all the firm assets, preferring certain cre(litjors. is neither a sale, a mortgage, nor It in the na.ture of ,8: mort.gage, ,and', at the suit of an tlupreferred ?reditor, WIll be declaredtb be 'an the equal benetit'of all credItors. 1
Iil Equity. De Witt Wa'llace, Harris & Oalkins" and Wm. J. Manning, for complain," ' , ,
Ooffrmh&!Bf:ilhrt, H; TV. Oluiae; and Mr. Adams, for defendants.
GRESH A:MT Jl. On thEdhirddaf of' 'January, 1887, Joseph D. Falley alld Roesi. partne'rsin business as manufacturers of boots arid at:La Fayette, under the firm name of Falley & Hoes; .executed a written'insttuillent" whereby they bargained, soid, transferred, and assigned to James' B.Falley, in trust, all their partner-' ship property,f of every kimf,' i'IlCluding choses inaction, for the benefit, of specified creditorS;: After' specifically describing the property; and the debts to be paid out of its proceeds, the instrument declares that"This sale anl,l transfh is the that is to say: ' The said'}ames B. Fallily'shall take 'immediate possession of the property herebytransferred, and, proceed to the collection o:f:the notes and accounts aforesaid, and shall proceed to convert said property into cash by saleor otherwise, and, if he shall deem best, m,anufacture the said material on hand into, boots and shoes, and then sell said Ja,mes B. Falley shall sell' and diRpose of the said propertYllereby transferred in stich manner as to him shall be deemed most advantagebus to the trust hereby created, and the said James B. Falley shall apply the proceeds ariSing from -the collection of said notes and accounts. and from the ,sale of said property-First, to the payment of the expenses attending :th.e. execution of tile; trust hereby created; IMcond, to the payment and discharge of the indebtedness hereinbefore enumerated, upon which the said James B. Falley & Co. are liable as surety; and, third, to the pro rata payment and discharge of the other indebtedness of the said Falley & Hoes hereinbefore enumerated. In the event of any surplus remaining in the hands of the said James B. Falley. either of money or pNperty. after the payment of said indebtedness, the same shall be paid or turned over to tlle said firm of Falley & Hoes." This suit is brought by part of the creditors, not preferred, against Falley & Hoes, the assignee, and the preferred creditors. The firm was insolvent. The preferred debts amounted to $73,000, and the unpreferred debts to $100,000 or more. The bill prays for a
lSee note at end of case.
decree declaring that the assignment inured to the benefit of all creditors of the firm Ullder the assignment laws of Indiana, and that the trust be executed, and the property or its proceeds distributed ratably al.DOng all creditors; or, if the court shall hold tbat the instrument cannot be so treated, tbat it be declared void as a hindrance and delay to creditors; that a receiver be appointed to take possession and control of the property; and for such other relief as is consistent elluity. Although the deed>does not ia terllls convey all the firm assets, the proof that it does; and obviou!:'ly it was not the intention that all the credik-rs should share ratably in the proceeds of the assets. The question .that arises can the deed be treated as a general aj'signmentw;J.qer (he statute, for, the benefit of all the firm creditors, when; !u, fil!ct, it was intended to, for the benefit of only part oftheJ;q? The legislature of Indiana passed a general assignment law in the first section of which reads: co or debtors in or failing may make a general assignmentof·all bis or their property, in trust, for the. benefit of all his' 'Or tfreir liona jlde creditors; and all assignments hereafter made" by suchpj}l'son Or persons· for such purposes;·except as provided for in this shall be deemed fraudulent and void." Rev. St. § 2662. . :,This statute'is the onlyrestl'i6tion'nponthe an insolvent 'debtor in Indidna'to prefer oDe or more creditors to the exclusial) of aU others. Credit6rsmay still be preferred in this state by confession of judgment, or by selling, mortgaging, Or pledging property; An 'assigIuuent, however., by which a debtor ves.tsin a trustee all his property for the benefit of all or only 'part of his creditors, is a sale, a mortgage, nor a sale in the nature of a mortgage. Such an instrument'abs,olutelyappropriates the property thus conveyed, .beyond the conttoldf the debtor, to the payment of his debts. No title. legal or equiw,bl.e,; remainsin him; and the trustee is required to preserve the property, and administer upon it under the direction of the court. It is so farinthe custody ofthelaw that executions ca.nnot be levied upon it, as in the case of mortgaged property. Grubb8 v. MorriB, 103, Ind. 166, 2 N. E. Rep. 579; State v. Benoist, 37 Mo. 500; Orow v. Beard8ley, 68 Mo. 485; Burrill, Assignm.§ 6. Falley· & Hoes· assigned· all thei):, firm property to a trustee for the. S<'l,tisfaction of part of their debts in full. This was in violation of the spirit and purpose of the statute. It was to prevent insolvent· debtors from assigning their property" in whole or in part, to trustees other than for the equal benefit of alLcreditors, .that the statute was passed. If a failing debtor may assign to a trustee all his property for the benefit of one ol'nlore creditors, to the exclusion of all others,· and then quit businesEl,'tp'ifSfutute has little" if any, practical force.. In. Thwn;P8on.y. Pa.rke:r, 83. IllQ..96, the third paragraph of the ,com,plaint averred' thllrtthe an insolvent firm I conveyed their !>roperty to Kent by a deed absolute on its face, but with a secret agreement that he should sell the property, and apply the proceeds to satisfy creditors, and pay the surplus back to the Parkers, which was a fraud upon
the plaintiffS, who were also creditors. In sustaining this paragraph, the court say: "From the facts stated in the third paragraph of the complaint, the conclusion is inevitable that Kent took the title to the property of the Parkers as a forhia own benefit, but in trust to payout of its proceeds Borne of their creditors, and return to them the surplus, if any. It is not stated in this paragraph that the Parkers were indebted to Kent, and the only consideration for 'the transfer of the property was his agreement to pay some of their creditors to the exclusion of others, and return to them, after remunerating himself 'for his trouble, the surplus. Upon the facts stated, he cannot be regarded as a purchaser in his own right. Equity wOJIld regard him, under the as trustee, holding for the benefit of the creditors named in the agreement as the parties to be paid. But the purpose being to prefer by this voluntary assignment. a portion of the assignors' creditors to the exciusioll 'of others, the transactIOn, under the act of 1859, must be held fraudulent and void."
, It was sq1.larely heldin this case that a conveyance by an insolvent for the benefit of only pa,rt of his creditors, debtor. of property, was within .the statute, aru;J. in vJolation of its provisions; and, although the case was criticised .in Grubbs v. Morris, supra, it was not expressly overruled. Desaar v· ,99 ,548, iareliedon as authority-that the instrument incontJ:oversy i.'l a s,ale, or a sale in the nature of a mortgage. It .was held in that case: that an insolvent debtor may prefer a creditor, by selling to him aU hisp,roperty; and in other cases saine courf has held that if a seCures a.lienby a mortgage,. a judgment, or by execution, on real or, personal property before an assignment is made, such lien ,In Grubbs Morris, supra, the court say: will be "When a debtor in falling circumstances makes anassigl1ment for the benefit of all big creditors, he canno.t prefer oneor more creditQrs, but must place all of them onan equality. '" '" * The statute is undoubtedly intended to distribution of the debtor's property among lill his creditors."
$ome ofthecases cited by counsel for the defendants grew out of transactions ()r assignments prior statute of 1859, and therefore have no :bearing upon''the present controversy. In Henderson v. Pierce, 9 N. E. Rep. 449, a debtor in ,embarrassed and failing circumBtances made,a,n assignment ofall his property to a trustee for the benefit of all his creditors, with directions, however, that part of his creditbrs be first paidin full. After construing this instrument as an assignment within .themeaning of the statute the court say: ""Whenitisapparent from the whole scope and tenor of a. deed of assign'ment that a Mbtor in embarraSsed and failing circumstances, in good faith, intends to resort to the, assignment law, and. has, in pursuance of such purpose, made an assignment of /loll for the benefit his creditors, but in purpose into the deep. rl3lluirements which, while not iIi (}ohflict with soqie express provisions of law,' and do not reqUire thlit.such prdvisiori of the 4isregarded, are nevertheless constructively inva.lid, such"assignment, ifnotootuallyfraudulent, will stand, while the invalid requirements or stipulations will be nullified, and controlled byoperation of the statute governing voluntary assignments."
Under a statute in MjssQuri,substantiaUy IntEl the statute, the suprernecourt of the fonnentate, in the cases already cited, held that if an embarrassed or failing debtor conveyed or assigned his property in trust for the benefit of only part of his creditors, the instrument should be construed, under the statute, to be an assignment of his entire estatefor the equal benefit of all his creditors; and decisions of the circuit court of the United States in the Sixth circuit are in harmony with this ruling. Martin v. Hausman, 14 Fed. Rep. 160; Dahlman v. Jacobs, 16 Fed. 614; KeUog v. Richardson, 19 Fed. Rep. 70; Clapp v. Dittman, 21 Fed. Rep. 15; Perry v.Corby, ld. 737; Kerbs v.Ewing, 22 Fed. Rep. 693. These federal decisions, and the decisions of the Missouri court, are referred to in Hender80n v. Pierce, supra, and commended, if not expressly approved. Preferences b' insolvent debtors in favor of one or more creditors, to the ex.clusion of all others, are not regarded with favor by courts of equity, and, in view of the latest utterances of the supreme court of Indiana, [Gilbert v. Mc Corkle, 11. N. E. Rep. 296,] I feel free to hold that the assignment by Falley & Hoes to J. B. Falley, although not so intended, was in legal effect, a voluntary assignment of all their property for the equal benefit of aU their creditors, and that the deed of assignment can and should be enforced as such.
NOTE. PREFERENeJll! IN ASSIGNMENTB li'OR THE BENEFIT Oli'· CREDITORS. An assignment containing legal llreferences will not be held void as a fraudulent conveyance, and an intent to defraud creditors will not be presumed from such al'lassi/!;nment, Bates v. SimmOIlS, (Wis.) 22 N. W. Rep. 335; and. a declaraHon. at the tip.le of the assignment, of an intention-to file subsequently a list of preferred creditors, will be presumed to mean an intention to file within the statntory time a list of creditorll to whom preference is permitted by law to be given; and, where sl1chpreferences are permitted, Conlee Lumber Co, v. Ripon Lumber Co., (Wis.) 29 N. W. Rep. 285, the fact that a chattel mortgage gh;E'n to prefer certain creditors operates incidentally to hinder and delay other creditors in their debts do.es not affect t4e-secUritr, Hills v. Stockwell, etc.. Co., 23 Fed. Rep. 432. The same is tme where the lltatute· does I)ot forbid preferences, but causes them to operate as generals811igllIllents on proper proceedings being taken. J. M. Athel'tonCo. v. Ives, 20 Fed Rep. 894. In the absence oflegisJation forbidding it, a debtor, if guiltless of an y fraudulent intent, may convey his property so as to give one creditor a preference, by way of either payment or security, over another; Carter v. Rewey, (Wis.) 22 N. W. Rep. 129, even if he is in faHin/!; circumstances, Scott v. McDaniel; (Tex.) 8 S. W. Rep. 291. In the absence of statutes forbidding preferences in assij!;Ilments for the benefit of creditors, such preferences are valid. but they have been forbidden by statute in Cbl'fomia, Wood'v. Franks, 7 Pac. Rep. 50; Colorado, Dog/!;ett, B. & H. Co. v. Herman. 16 Fed. Rep. 812; Campbell v. ColoradO C. & 1. Co., 10 Pac. Rep. 248; Rlinou.Schroder v. Walsh,l1 N. E. Rep. 70; May v. First Nat. Bank. 10 N. E. Rep.'202; Indiana, Gilbert v. McCorkle, 11 N. E. Rep. 296; Henderson v. Pierce, 9 N. E. Rep. 449; Redpath v. Tutewiler. Id. 911; Grubbs v. Morris, 2 N. E. Rep. 579; IoWa, Aulman v. Aulman, 32 N. W. Rep. 240; Van Patten v. Burr,3 N. W. Rep. 524; Gage v. Parry, 29 N. W. Rep. 822; Farwell v. Jones, 19 N. W. Rep. 241; Missouri,Martin v. Hausman, 14 Fed. Rep. ,160; Nebraska, Nelson v. Gary, 19 N. W. Rep. 630; Grimes v. Farrinll"ton, 26 N. W. Rep. 618; Pen'll8!flvania, Galla/!;her's Appeal, 7 At!. Rep. 237; Lake Shore Banking Co. v. Fuller, 1 At!. Rep. 731; Texas, Waterman v. Silberberg, 2 S. W. Rep. 578; Fant v. Elsbury, Id,866; Wuconsin; Bradley v. Kroft, 19 Fed. Rep. 295; and by implication in Kamal!; 'rootle v. Coldwell, 1 Pac. Rep. 329. Thesestlitutes do not invalidate a transfer made in good faith in liquidation of a debt, or as a securitr therefor, by the debtor's not contemplating an assignment for the benefit of hiscrllditors, even if he is insolvent, Bailey v. Johnson, (Colo.) 12 Pac. Rep. 209; 1'ootle v; Coldwell, (Kan.) 1 Pac. Rep. 329; Gilbert v. McCorkle, (Ind.lll N. Eo Rep. 296; Schroder v, Walsh, (Ill.) Id. 70; Gage v. Parry, (Iowa,) 29 N. W. Rep. 822; In
re Gllzett, (Minn.), Id. 847; Rollins v;.;J,Tan Baalen, (Mich.) 28 N. W. Rep. 332; Carter v. tq'. W. Rep. 129; Berry O'Connor, (Minn.) 21 N. W. Rep. 840; MarRewey, (Wis.) tin v. Hausman. 14 Fed. Rep. 160; Moline Wagon Co·.v. Rummell; !d. 155; Smith v. c:;raft, 12 Fed. Rep. 856; Scott v. McDaniel, (Te;x.) 3 S. W. Rep. 291 i 'Waterman v. Silberber,g, (Tex.) 2S.W. Rep. 578; Essex Co. v. Lindsley, (N.J.) 3Atl. Rep. 391; and even if the creditor was aware that the prefetencewould defeat the collection of other debts, Ross v. Sedgwick, (Cal.) 10·Pac. Rep. 400. Such transfers are valid if they are partial assignments, Campbellv. Colorado C. & 1. Go" (Colo.) 10 Pac. Rep. 248; or if they do not include all the debtor's property, Carson v. Byers, (Iowa,) 25' N. W. Rep. 826; Cadwell's Bank v. Crittenden, (Iowa,) 23 N; W. Rep·.646. Even if such a transfer includes all the debtor's it is not necessarily ,a general assignment. Aulman v. Aulman, (Iowa.) 32 N.W. Rep. ;141; WaterriJ.an V. Silberberg, (Tex.) 2 S. W. Rep. 578; Weil v. Polack. post, 813.' The debt may not be due, Smith v. Craft, 12 Fed. Rep. 856; aud the preference may be by a judf(ment·, ROllins v. Van Baalen, .(Mich.)· 23 N. W. Rep. 332; Holberg v. (Miss.) 2 SOUul. Rep. 168; a mortgage, Aulman v. Aulman, (Iowa,) 32 N. W. iCadwell's Bank v. Oritteilden, (Iowa,) 23 N. W. Rep. 646; Carson v. Byers, (Iowa,) 25 N. W.Rep. 826; Waterman v. f;liIberberg. (Tex.) 2 S. W. Rep. 578; Tootle v. Coldwell, (Kan.) 1 PIlC. Rep. 329; Gage v. Parry, (Iowa.) 29 N. W. Rep. 822; Carter v. Rewey. (Wis.) 22 N. W. Rep. 129; Berry v. O'Connor, (Minn.) 21 N. W. Rep. 840jMartill v. Hnusman, 14 Fed. Rep. 160; a deed, Scott v, McDaMel, (Tex.) 3 S. W. Rep. 291 ia tr/l.usfer of or, c!;J,oses in action, Gage v. Parry, (Iowa,) 29 N. W. Rep. 822; the sale of personal 'property, Essex Co. v. Lindsley', J.) 3 At!. Rep. 391; ::Ir the payment of nlOuey. It may' be ,made 'by a husband to a wife. Hoes v. Boyer, (Iud.) .N. E()Eep. 427; Leonarqv. Green; (Minn.) N. W. Rep. The creditor may take pay III, money or property·. Fliper Electrical Co. v. LeWIS, (N. Y.) 5 N. E. Rep. 437. 'But ill ca.lie'6fsale the valuation llI\iSt be fair. Edwards v. Dickson, (Tex.) 2 S. W. Rep. 27 Verner v. McGhee. (13. C.) 2 S. E. Rep.
Even if the debtOr IS contemplatini' snch' assignment; such a transfer, if unconnected in time and circumstances of, from the assignment, i.s not invalid. Farrall v. Farnan, (Md.) 5 Atl. Rep. 622; Gilbert v. McCorkle. (Ind.) 11 N. E. Rep. 296; Fisher v. Syfers, (Ind.) 10 N. E. Rep. 306; Bierbower v. Polk, (Neb.) 22 N. W. Rep. 698. Th epreferred creditor may be the assignee of the assignment subsequently made. Nels9n v. Gary, (Neb.) 19 N. W. Rep. 630.· The interval of time separating the transactions m,ay be "a few days," Sweetser v·.Camp, (Mich.) 2!J N. W. Rep.506; or five days, Stix v. Sadler, (Inc;1,J 9 N. E. Rep. 905. The assignment lllay be made on the day followinf( the preferential.transfer, In re Guyer. (Iowa,) ·29 N. W. Rep. 826; Gilbert v.McCorkle, (Iud.) 11 N. E. Rep. 296; Bailey v. Kansas Manuf'g Co., (Kan.) 8 Pac. Rep. 756; Lake Shore Banking 90. v. Fuller, (Pa.) l .Atl. Rep. 731; or on the same day, v. Jones, (Iowa,) 19.N. W. Rep. 241; Nelson v. Gary, (Neb.) Id. 630; even within an hour,. Gage v. Parry, (Iowa.) 29 N. W. Rep. 822,The fact that the debtor. intended, by separating the tran,sacti9ns, .toevade the statute forbidding preferences, will not render the preference a pa1't 9f the assignment, the. preferred creditor being ignorant of the debtBanking Co. v.Fuller, (Pa.) 1 .Atl. Rep. 731; Appeal of Lake or's purpose,Lake Shore Banking. Co., Id. 735; nQr will. the fa.ct the preference was made in execution of an. agreement th.III_, in ,case the debtor became embarrassed, he should secure the preferred . Creditor, In re G\lyer, (Iowa,l 29 N. W. Rep. 826. But such .preferential transfers,even in cases wher.e there fire no as.qignments as such, will be held to assignments for the benefi,t of creditors when such is the intention of the Pftrties, either actual or presumed, from the character of the iI;lstrument, Bonns v. CArter, (N-eb.) 81 N. W. Rep. 381; Martin v. Hausman, 14 Fed. Rep. 160 ; or the circumstances of the transaction, Winn.er v. Hoyt, (Wis.) 28 N. W. Rep. 380; and will b.e void against creditol'S if the statutory provisions for assignments for the benefit of creditors are not complied with, Bonns v. Cartel'. (Neb.l.31 N. W. Rep. 381. In the same way, such transfel'S made,in connection with an assignment for the benefit of creditors will be construed as a part orthe assignmpnt wben the transactions are siJnult-aneous,',91'!l0 nearly so as to be parts of the same transaction, Doggett, B. & Il. Co. v. Herluan.. 16 Fed. Rep. 812 i PrestlJn v. Spalding, (IlL) 10 N. E. Rep. 903; and the purpose is to eva$llil the. statute, Campbell v. Colorado C. & I. Co., (Colo.) 10 Pac. Rep. 248 i and, whefllsuch preferences hI assignments are forbidden, such transfers will be void. Preston v. Spalding, (Ill.) ION. E. Rep. W3. . Where are permitted, they. will be set aside in. cases Qf actual or presumed fraud, as where a.l;I, insolvent its directors or managing agent, Lippincott v. Shaw Carriage Co., 25 Fed. Rep. 577; or where the preference was in execut,ion ofa secret.agrllelllent that the debtor shOUld secure the preferred creditors to the exclusion of all others if he became insolvent, Smith v. Craft, 12 Fed. Rep. 856. Snch transfers, valid under the state law, but void under the bankrupt act, are voidable only in favor ofproceedingB in ba;lIkruptcy. Smith v. Deidrick, (Minn.) 14 N. W. Rep. 262.
WlllIL" ·· POLA.C1t.
POLACK and others.
(Oi'I'ouit Court, E. D. Mis8ouri, E. D. May 5,1887.)
ASSIGNMENT FOR BENEFIT OF CREDITORS-PREFERENCES BY CONFESSION OF JUDGMENT.
Undel' Rev. St. Mo. 1879, !9 3696, authorizing a judgment by confession, a confession by an insolvent debtor of judgments to the amount of 50 per cent. of hlll indebtedness, not fO,llowed by a voluntary assignment, nor made in contEimplation of one, is valid although it operates as a preference, and all the debtor's available property is seized to satisfy the judgments. l
COUllTB.....JURISDIOTION-.TUDGMENTS OF STATE COURT-INJUNOTION.
Where an insolvent debtor confessed eight judgments in favor of certa.in of his creditors in a state court, and all his property was levied upon to satisfy such j'udgments, and a bill was filed in the federal courts on behalf of his other creditors, asking that !luch confessions of judgment be declared a gen· eral within the meaning of Rev. St. Mo. 1879, 304, for benefit of all the debtor's creditors, and that the sheriff who haa possession of the property under executions from the state court should be decreed to be 8. general s,ssignee or trustee,a!I1-enable to the orders of the court, held,)hljotthe .r,elief Il:sked could not be granted, and that the bill Dlust be dismisseu.
In Equity. On demurrer to bill. . . The R:evised Statutes of Missouri of 1879 provide (section 3M) "Every voluntary assignmel1t of, lands, tenements. goods" chattels, effects, person in trust for his, creditors, shall be and credits, made by a debtor to for the benefit of all the creditors of the assignor, in proportion to tbeir respective claims, and every such assignment shall be proved or ack110wledged and certified and. recorded ill the same manner as is prescribed by law' in cases wherein real estate is conveyed." The principal provision as. to confessions of referred to in the opinion of the court, is as follows: "Sec. 3696. A judgment by confession may be entered without action, either for money due or to become due, or to secure any person against contingent liability on behalf of the defendant, or both, in the manner herein . prescribed. ..
Rublxor Co. v. FaHey, ante,
preferences in assignments fortbe benefit of creditors, see Wocl.socket