Cribb v. Hibbard, Spencer, Bartlett & Co.

46 N.W. 168, 77 Wis. 199, 1890 Wisc. LEXIS 206

Opinion

Cassoday, J.

There is no statute in this state preventing any failing or insolvent debtor from paying or securing one or more of his creditors in preference to others, except as provided in ch. 349, Laws of 1883, and ch. 451, Laws of 1887, being sec. 1693$, S. & B. Ann. Stats. Those acts avoid certain securities and liens obtained in the ordinary way only when the debtor makes an assignment for the benefit of his creditors within sixty days after giving the securities or liens. To preserve such preferences, it is only necessary for the debtor to refrain from making such assignment during the sixty days mentioned, and this he will always do when he really desires to continue such preference. Since such is ordinarily his desire, the provisions for avoiding such securities and liens are very seldom available, .and hence are of very little practical value. It is true that except for the wages of laborers, servants, and employees, the act of 1883 avoids “ any and all assignments ” thereafter “ made for the benefit of creditors,” which “ contain or give any preference to one creditor over another creditor; ” but that is only operative when such preference is contained or given in the assignment itself, and then its effect is to wholly avoid such assignment. "While the debtor is thus precluded from giving any such preference in or by any such assignment, yet by refraining from making any suck assignment be is otherwise left as free to give such preferences as at common law. This may work serious mischief in certain cases, but courts are not at liberty to make or alter statutes, but are bound so far as possible to enforce them.

The statutes also provide that “ all voluntw'y assignments or transfers whatever of any real estate, chattels real, goods or chattels, rights, credits, moneys, or effects, for the benefit of or in trust for ore&itors, shall be void as against the creditors of the person making the same, unless the assignee shall be a resident of this state,” and the assignment is executed as therein required. Sec. 1694, E. S. It is only such “ voluntary assignments or transfers ” as are made to a nonresident assignee, or as are not thus executed, or as contain or give such preference, which thus come under the condemnation of the statute; but all such voluntary assignments or transfers are thereby expressly prohibited. Thus, in Winner v. Hoyt, 66 Wis. 227, the debtors transferred all their firm and individual property not exempt, by means of six chattel mortgages and five assignments, running to five different creditors, and all given at substantially the same time, in pursuance of the same agreement, for the same common purpose, and in relation to the same subject-matter, with the understanding and intent that one of such creditors, for himself and as agent or trustee for the others, should take immediate possession, which he did, and then convert the same into money and divide the same jpro rata among such favored creditors, and with the expectation and intent on the part of the debtors that in case of any surplus the same would go to the unsecured creditors; and it was held that, under the circumstances mentioned, such eleven written instruments should be construed together as constituting but one instrument in law, and that when so construed they were in legal effect a voluntary assignment or transfer within the meaning of the statute cited.

The principles of that decision have since been expressly sanctioned by other courts of high authority. White v. Cotzhausen, 129 U. S. 341; Richmond v. Mississippi Mills, 52 Ark. 30; Putney v. Freisleben, 11 S. E. Rep. (S. C.), 337; Straw v. Jenks, 43 N. W. Rep. (Dak.), 944; Bonns v. Carter, 20 Neb. 566; S. C. 22 Neb. 495-517; Hanford Oil Co. v. First Mat. Bank, 126 Ill. 591. Some of these cases were under statutes which avoided the preference, merely leaving the transaction to stand as a valid assignment for the benefit of all creditors. Such statute may be preferable to ours, which under certain circumstances requires the courts to avoid a preference deshed and made by a debtor in order to enforce a preference against the will of such debtor. The facts in some of these cases were much less favorable to holding the transaction to be in effect a voluntary assignment for the benefit of creditors, than in Winner v. Hoyt, supra.

The facts in that case were peculiar, as already indicated, and such as inevitably led to the conclusion there reached. That conclusion was so reached on the theory that a court of equity was bound to regard the substance, object, and effect of the whole transaction when taken together, rather than the mere form of the details resorted to in order to evade the condemnation of the statutes. Attempts have since been made- to apply the principles of that case to some of such details when standing alone. Thus in Hoey v. Pierron, 67 Wis. 262, a failing debtor executed four chattel mortgages upon his stock of goods to his wife and two other persons respectively, who thereupon took possession and proceeded to sell the goods under the mortgages in the ordinary way, but it did not appear that the mortgages covered all of the debtor’s property, and there was no assignment of any accounts, assets, or things in action, nor intent to defraud, nor any trust relation; and, distinguishing Winner v. Hoyt, it was held in effect that the transac-lion did not constitute a voluntary assignment within the meaning of the statute cited, and was therefore valid as against attaching creditors. In Chicago Coffin Co. v. Maxwell, 70 Wis. 282, an attorney at law having in his hands for collection several claims against insolvent debtors, and in consideration of an extension of the time of the payment thereof, obtained from them a note for the amount of such claims, secured by a chattel mortgage upon most of their property, both running to himself, for the benefit of such creditors, but without his knowing that such debtors were then insolvent or owed other debts; and, following Carter v. Rewey, 62 Wis. 552, and distinguishing Winner v. Hoyt, it was held that the transaction did not amount to an assignment for the benefit of creditors within the meaning of the statute cited, and hence was valid. In re Menzesheimer v. Kenney, 75 Wis. 411, each of two creditors, knowing his debtor to be insolvent, obtained a chattel mortgage on substantially all the debtor’s property not exempt to secure such debt, and in the absence of any evidence of fraud it was held that the transaction did not constitute a voluntary assigmnent within the meaning of the statute cited, and was therefore valid. To the same effect is Stevens v. Breen, 75 Wis. 595. Similar rulings have been made in other courts: Gage v. Parry, 69 Iowa, 605; Fecheimer v. Robertson, 13 S. W. Rep. (Ark.), 423.

In the absence of fraud the statute expressly authorizes security by way of chattel mortgages. Sec. 2314, R. S. The mere fact that a debtor is insolvent does not prevent his creditor from obtaining from him such security in good faith. Such chattel mortgage is little more than a mere pledge of the property mortgaged for the security of the debt. Whatever remains of such property after the payment of such debt reverts to the debtor, and becomes subject to the payment of other debts. The transaction is wholly between the parties to the mortgage, and is in no sense for the benefit of and in trust for other creditors. A ■voluntary assignment for the benefit of or in trust for creditors is for a different purpose, and creates different relations. Since the right to give and obtain such chattel mortgages by way of security is expressly given by statute, the other provisions of the statutes cited, which avoid “ all voluntary assignments or transfers . . . for the benefit of or in trust for creditors,” when not made as therein prescribed, cannot fairly be construed as including such chattel mortgages. The mortgage in question did not cover the property of the individual members of the firm; nor does it appear that it covered all the firm property. Such being the law, there would seem to bp no question upon the undisputed facts in the record but what Hibbard, Spencer, Bartlett da Oo. had the legal right to obtain the mortgage in question in the manner stated, to secure their indebtedness against the firm. That mortgage was taken subject to the one to the Citizens’ Bank, which firm was in possession of the mortgaged property at the time. There was no collusion between that bank and Hibbard, Spencer, Bartlett d> Oo., each of which, in the matter of taking such securities, acted independently and for itself. The insurance policies were manifestly assigned to such mortgagees to keep them in force. The account due Cribben, Sexton & Co. had been sold, assigned, and transferred to Hibbard, Spencer, Bartlett c& Oo. five days before, and to all appearances thereupon became the sole property of the latter. There seems to be no valid objection to that mortgage when considered by itself.

It only remains to be considered whether, after having obtained and filed the chattel mortgage, the taking of an assignment of the ledger accounts, as further security for the same indebtedness, rendered the whole transaction, or even such assignment of the ledger accounts, a voluntary assignment or transfer for the benefit of or in trust for creditors, within the meaning of the statutes cited. Such, assignment of that account for such a purpose was very much in principle like the delivery of a chattel or a pledge to secure a debt, and certainly was not within the statute of frauds. Bank of River Folls v. German Am. Ins. Co. 12 Wis. 538. Whether such assignment and the mortgage are considered together, or the assignment of the account is considered separately, there are manifestly absent from the transaction several elements which were present in Winner v. Hoyt. Some of these have been considered by this and other courts. Thus in Landauer v. Victor, 69 Wis. 441, the attachment suit was advised and instigated by the insolvent debtors, but it was said by Mr. Justice LyoN, in behalf of the court: “ In the present case the debtors did not dispose of all their property by consenting to the attachment suits. Neither was it all seized by virtue of such attachments, or sold upon the executions issued upon the judgments thereafter obtained. The record in the action for a dissolution of the partnership shows that there still remained a large amount of outstanding obligations due the debtors, not disposed of by them, and not interfered with by the attaching creditors, but which remained subject to be applied by the court as required by law. Neither was any trustee for the parties provided for or appointed. In these material particulars the case differs from that of Winner v. Hoyt, and they take it out of the rule of that case.”

In Ingram v. Osborn, 70 Wis. 195, the insolvent debtor sold and assigned to one of his creditors a partly executed contract, being all the property he had, and, distinguishing Winner v. Hoyt, it was held that the transaction was not a voluntary assignment for the benefit of creditors within the meaning of the statutes. By way of quotations from standard text-writers, it was there, in effect, said: “ Yolun-tary assignments for the benefit of creditors are transfers, without compulsion of law, by debtors, of some or all of their property to an assignee or assignees, in trust, to apply the same, or the proceeds thereof, to the- payment of some or all of their debts, and to return the surplus, if any, to the debtor. . . . There must be a trust, a trustee, creditors, and cesbui que trust, who can compel an enforcement of the trust, in order to constitute an assignment for the benefit of or in trust for creditors.”

To a similar effect are Greene & Button Co. v. Remington, 72 Wis. 648, 654; Peninsular Stove Co. v. Sacket, 74 Wis. 526; Farwell v. Nilsson, 24 N. E. Rep. (Ill.), 74. Mr. Burrill says: “A voluntary assignment for the benefit of creditors implies a trust,.and contemplates the intervention, of a trustee. Assignments directly to creditors, and not upon trust, are not voluntary assignments for the benefit of creditors. . . . Unless a trust is thereby created by the assignor i/n favor of creditors, such conveyances are not within the class of instruments known as assignments for creditors. It is not essential, however, that a trustee should be named as such in the instrument.” Burrill, Assignm. § 3. In Fecheimer v. Robertson, 13 S. W. Rep. (Ark.), 423, Winner v. Hoyt is expressly distinguished, and it was said: “In this cause there was no agreement or arrangement, express or implied, for a trustee. The first two creditors were present by their attorney, and a delivery to him was a delivery to them. They were not accountable to any other creditor, under the terms of the deed or agreement of the parties, for any part of the money received from sales of property. When they received enough to satisfy their claims, they delivered all remaining property to the creditors named in the third deed, and they in turn represented all the indebtedness of Johnson & Bolick, and are not answerable to any one for the proceeds of sales, except to the mortgagors.” In Gage v. Parry, 69 Iowa, 605, it was held, in effect, that where an insolvent firm executed three several chattel mortgages to three creditors, respectively, and also assigned certain book accounts to a fourth creditor, all with a bona fide intention of securing such particular creditors, respectively, the transaction did not operate as an assignment for the benefit of creditors, and the mortgages were therefore valid.

"We must hold, upon principle as well as authority, that neither the assignment of the ledger account in question, when taken by itself, nor in connection with the chattel mortgage, brings the case within the principle of Winner v. Hoyt, or renders the transaction a voluntary assignment or transfer for the benefit of or in trust for creditors within the meaning of the statute.

By the Oourt.— The judgment of the circuit court is reversed, and the cause is remanded for. further proceedings according to this opinion.