Sabin v. Chrisman

154 P. 908, 79 Or. 191, 1916 Ore. LEXIS 179

Opinion

Mr. Justice McBride

delivered the opinion of the court.

1. The laws of this state concerning assignments for the benefit of creditors are suspended by the United States Bankruptcy Act: Pelton v. Sheridan, 74 Or. 176 (144 Pac. 410, 33 Am. Bank. Rep. 472). This being the case, the sufficiency‘of the assignment must be judged by those rules of law generally in force in this country prior to the enactment of our state statutes.

2. Does the deed of assignment sufficiently describe the property? It appears that there were two stores' operated by Perlman at The Dalles. The assignment, after reciting that the assignor is “engaged in merchandise business at The Dalles, Oregon, is unable to meet his obligations in full in the ordinary course of business, and desires to transfer his assets in trust for the benefit, fro rata, of his creditors,” does assign to E. L. Sabin as trustee, etc., “a stock of general merchandise located at The Dalles, Oregon, together with all fixtures used in and about said business; also, all accounts and bills receivable and owing or to become due and owing to the party of the first part.” We think this is a sufficient identification of the property when it appears, as it does here, from plaintiff’s testimony, that the agent of the assignee was in possession of both stores and protesting- against a levy by the sheriff. “General merchandise” is a comprehensive term, and includes whatever is usually bought and sold in trade or market by merchants. It includes all those things which they sell either at wholesale or retail, as drygoods, hardware, groceries, drugs, etc.: Words and Phrases, tit. “Merchandise.” So that whether Perlman’s goods were stoves or stockings, furniture or furs, they are all equally comprehended in the term “merchandise”; and whether the stock was kept in one building in The Dalles or in two makes no difference, if, in fact, the assignee took possession of what was intended to be conveyed.

3. In the case at bar, we think there was some evidence tending to show that the property in the possession of Poster, plaintiff’s agent, was the property intended to be conveyed by the assignment, and that therefore that matter was a question of fact for the jury; and, unless there is found some other reason why the court should have taken the case from them, it committed error in so doing.

4. In considering the questions raised upon this appeal, we must ignore our own statute concerning insolvency assignments, and treat them as though they never existed, because, as decided in Pelton v. Sheridan, 74 Or. 176 (144 Pac. 410, 33 Am. Bank. Rep. 472), such statutes are suspended and of no effect until the Congress of the United States shall have repealed the present bankruptcy law. Neither must we confuse an assignment of the character of that made in the instant case with those which stipulate for a final release when the proceeds of the assigned property shall have been exhausted, or with those in the nature of composition deeds which require the signatures of creditors before becoming effective. In the present suspended condition of our assignment law, we have no limitation upon the power of a debtor to assign his property for the purpose of paying his debts, or for the purpose of paying a particular debt where there are several beyond the general equitable requirement that the transaction must be fair, bona fide, and without fraud.

“It would seem,” says Chief Justice Marshall, in Sexton v. Wheaton, 8 Wheat. (U. S.) 229, 5 L. Ed. 603, “to be a consequence of that absolute power which a man possesses over his own property, that he may make any disposition of it which does not interfere with the existing rights of others, and such disposition, if it be fair and real, will be valid.”

The right to transfer property is an incident naturally flowing from the right to acquire and hold it; this right being subject to the further restriction that assignments by a debtor of the whole or a greater part of his property should not be employed as a means óf preserving it for his own use or benefit or of unduly protecting it from the remedies of his creditors: Bur- rill, Assignments, §§ 9, 13. The following excerpts from decisions upon this question are embodied in a note to the last section and give the general spirit of the decisions from which they are taken:

“ ‘Every debtor has a legal right to assign property for the security of the debts due him, and so far from such an act being reprehended by the law, it is justified and approved’: Story, J., in Brown v. Minturn, 2 Gall. 557, 559 [Fed. Cas. No. 2021]. General assignments are spoken of by the same judge as ‘encouraged by the common law’: Halsey v. Whitney, 4 Mason, 206, 210 [Fed. Cas. No. 5964]. See, also, Bascom v. Rainwater, 30 Mo. App. 483; Bryce v. Foot, 25 S. C. 467; Hauselt v. Vilmar, 76 N. Y. 630; Barton v. Brent, 87 Va. 385, 13 S. E. 29; Hyde v. Weitzner, 45 Minn. 35 [47 N. W. 311]. ‘A conveyance in trust to pay debts is a valid conveyance founded on a good consideration’: Kent, C., in Dey v. Dunham, 2 Johns. Ch. [N. Y.] 182, 189. ‘It is settled * * that an insolvent debtor may, at any time, before his property becomes bound by any lien, assign it over to trustees, for the benefit of all his creditors, by an act made bona fide. The assignment is to be referred to an act of duty, attached to his character of debtor, to make the fund available for the whole body of the creditors’: Kent, C., in Nicoll v. Mumford, 4 Johns. Ch. (N. Y.) 522, 529. ‘The right of an insolvent debtor to make an assignment for the benefit of his creditors, before the property is bound by any lien, does not admit of question, provided it be bona fide': 2 Tucker’s Com. (443) 432. ‘The right to make a general assignment of all a man’s property results from that absolute ownership which every man claims over that which is his own’: Marshall, C. J., in Brashear v. West, 7 Pet. [U. S.] 608, 614 [8 L. Ed. 801]. Garland, J., in United States v. Bank of United States, 8 Rob. (La.) 262, 404: ‘I think # * that where an assignment is for the benefit of all the creditors of the assignor, equally and ratably, it must command the sanction of every enlightened tribunal. * * It is a practical enforcement of the maxim that “equality is equity” ’: Buckner, C., in Robins v. Embry, Smedes & M. Ch. [Miss.] 207, 258. See Malcolm v. Hall, 9 Gill [Md.] 177 [52 Am. Dec. 688]. And see the opinion of Bennett, J., in Hall v. Denison, 17 Vt. 310; and Ewing, J., in Vernon v. Morton, 8 Dana [Ky.], 247, 251. Mr. Justice Field, in Mayer v. Hellman, 13 N. B. R. 440 [91 U. S. 496, 23 L. Ed. 377]: ‘Whenever such a disposition has been voluntarily made by the debtor, the courts in this country have uniformly expressed their approbation of the proceeding.’ Mr. Justice Buchanan, in State v. Bank of Maryland, 6 Gill & J. 217 [26 Am. Dec. 561]: ‘Equality is equity, and when a debtor makes a transfer of his property for the fair purpose of equal distribution among his creditors, he does an honest act, and discharges a moral duty’: See Kalkman v. McElderry, 16 Md. 60. Mr. Justice Bailey, in Hoffman v. Mackall, 5 Ohio St. 124 [64 Am. Dec. 637]; Forbes v. Scannell, 13 Cal. 242.”

Section 146, Freeman, Executions, is to the same effect. He says:

“It seems to be unanimously conceded that an assignment to a trustee for the benefit of creditors, whether genera! or partial, is, in the absence of statutory prohibition, valid. It operates to withdraw the property from the reach of all liens and processes taking effect subsequently to the execution of the transfer. In other words, although such a transfer necessarily tends to hinder and delay creditors, by depriving them of the right to take the debtor’s property in execution, and apply its proceeds to the payment of their debts, yet, as the creditor had the right to directly turn over his property to his creditors, in satisfaction of their demands, he is allowed to accomplish the same result through the intervention of a trustee. To deny the right to hinder creditors, in a certain sense, would be to deny the right to make an assignment for the benefit of creditors, for such assignment, if given any operation, must necessarily prevent some of the creditors from reaching under execution or attachment property which they could have reached but for such assignment. And the assignor may have f oreseen and intended this result. He may have desired to prevent the sacrifice of his assets, which must inevitably attend their immediate seizure and sale under execution. To this extent he has the right to hinder his creditors, and the assignment is not rendered void thereby, provided the hindrance is only such as results from turning over the property in good faith, to be applied to the satisfaction of his debts. If, however, the hindering of creditors was the object rather than the incident of the assignment ; if the assignment was resorted to as a mere device to gain time or to coerce the creditors, or some of them, into making some settlement of their claims, to which the assignor was not legally entitled — it is doubtless void. In the absence of any statutory inhibition, a debtor may prefer any one or more of his creditors, either by making payment of his liabilities to them or by turning over property to them to be held as security, or to be applied at once at an agreed value, or by means of a sale, to the. extinction of the debt. In many of the states, statutes have been enacted forbidding preferences in assignments for the benefit of creditors; but, in the absence of such statutes, the preferring of any creditor or class of creditors, if free from any fraudulent intent, does not render the assignment fraudulent nor void. The fact that some of the creditors are preferred to others will doubtless cause an assignment to be viewed with suspicion, and may, when combined with other suspicious circumstances, produce the conviction that it was intended to defraud the other creditors. Of course, if any actual design to defraud taints the assignment, it is void. There are several things which, when connected with an assignment, are well-established badges of fraud, and some of which render the assignment fraudulent per se. The most prominent of these will now be mentioned. An assignment will not be allowed to withdraw property from the reach of the creditors, that it may, to any extent, be secured for the benefit of the assignor. He must part with all interest in the prop erty, except Ms right to such surpMs as may remain after satisfying the demands of his creditors. Hence, ■ when it appears that the debtor has reserved some portion of the property, or some interest therein, for his own benefit; or that he stipulates for some benefit or advantage for himself or for his family, to be reserved out of the proceeds — it is evident that he thereby seeks to withdraw something of value from the reach of his creditors, and the assignment is fraudulent per se.”

Nor is there any need of assent on the part of creditors to render the assignment valid:

“To the creation of a trust by deed in favor of any person, it is not necessary that the cestui que trust should either be a party or assent to it. It is clear that trusts may lawfully be created where there can be no present assent, for they may be in favor of persons not in existence. It is sufficient in general that in such cases there is a competent grantor to convey and a competent grantee to take the property. As to trusts created for the benefit of creditors, and to which they are not, technically speaking, parties, if bona fide made, they are unquestionably valid, and pass a legal estate to the trustee. The sole question that can arise, indepéndent of the bankrupt law, is whether the conveyance is bona fide or fraudulent”: Bump, Fraudulent Conveyances, p. 324.

The same authority also observes:

“The creditors may reject the beneficiary interest given to them by the assignment, and, if they do, it falls to the ground, and becomes a resulting trust for the debtor. But if the trust is for their benefit, the law presumes their assent to it until the contrary is shown. "Whether the beneficiaries in the trust deed are apprised of the conveyance or not is not material. When it comes to their knowledge they are entitled to accept or reject its provisions. An express avowal of that assent is not necessary to the operation of the assignment, for the deed is complete when executed by the parties to it. If an assent is expressly given, it oper ates retroactively to confirm the conveyance ah initio. Even without such assent the assignment will prevail over a subsequent execution or attachment. If one cestui que trust renounces the trust, then it either inures solely to the benefit of the rest, or, if there are no others, it results to the debtor. But until the renunciation is made, or implied from circumstances, the trust continues.”

The assent of creditors will be presumed unless they, by some affirmative act, signify their dissent, and in such case it would seem that such dissent does not render the conveyance void as to those not dissenting or even to render the property conveyed liable to a subsequent execution by a dissenting creditor. Nor is such an assignment, if honestly made, void for the reason that it tends to hinder and delay creditors in the collection of their demands. The reason for this rule is thus stated:

“Although the intent to deprive all or particular creditors of their lawful suits, and hinder and delay them in the recovery of their just demands, is confessed or proved, still the assignment, if by its terms all the property which it embraces must be applied ratably or otherwise to the payment of debts, is upheld as valid and effectual. The mere intent to avoid an execution or other legal process does not in point of law make it void. It may even be made on the same day that a verdict is rendered against the assignor, or the claim of the creditor assailing it may be specially in the contemplation of the debtor. It will not in such case be void, even as against the persons who are in fact very materially hindered and delayed, and were meant to be so. It is valid even against the creditors whom it deprives, and is intended to deprive of that full satisfaction of their debts which by their superior diligence in prosecuting their suits they would otherwise have certainly obtained. The explanation is that, although in these cases the intent to hinder and delay the creditors is manifest, it is just as certain that there is no intent to cheat or defraud them, and the reasonable construction of the statute is that it is only such a hindrance or delay as is intended to operate, or, if permitted, could operate as a fraud upon the creditors, that was meant to be prohibited. All the law can reasonably demand of a debtor is the faithful application of his entire property to the satisfaction of his debts, and where, by the terms of the assignment, this is secured, the hindrance or delay which they create, how-' ever they may operate to the prejudice of particular creditors, are disregarded, since they are only the necessary means of accomplishing a justifiable and lawful end. They fall, it is true, within the words of the statute; but as they are free from the imputation of fraud, and produce no benefit to the debtor at the expense of the creditors, they are not embraced within its meaning, and are justly excluded from its operation. It makes no difference, therefore, that the debtor is in failing circumstances, that suits are threatened, that judgments exist against him, or that executions against him are momentarily expected. Under any or all of these contingencies he has the full and absolute right to dispose of his property for the payment of his debts. The fact therefore that the assignment is made for the purpose of avoiding the preference that might otherwise be obtained by legal process in a race of eager diligence by disappointed creditors does not make the assignment invalid. Such is generally the motive to the making of such an assignment. ’ ’

Although the English and some American decisions support a contrary view, it is believed that the better considered American authorities support the doctrine announced in the excerpt last above quoted: Hoffman v. Mackall, 5 Ohio St. 124 (64 Am. Dec. 637); Nicholson v. Leavitt, 6 N. Y. Super. Ct. 252 (6 N. Y. 510, 57 Am. Dec. 499); Malcolm v. Hall, 9 Gill (Md.), 177 (52 Am. Dec. 688); Mayer v. Hellman, 91 U. S. 496 (23 ); also, cases already cited from note to Burrill on Assignments, §§ 9, 13.

5. No fraud or bad faith is alleged in the answer, and where, as in this case, plaintiff sets out in the complaint the sources of his title and alleges possession under it, it is necessary, if defendants wish to show fraud in the transactions, that they allege that fact in the answer: 20 Cyc. 748, and cases cited in note; Seeleman v. Hoagland, 19 Colo. 231 (34 Pac. 995). This case was tried before the opinion in Pelton v. Sheridan, 74 Or. 176 (144 Pac. 410) was rendered, and we think that the learned and experienced judge erred in taking it away from the jury.

The judgment will be reversed,. and the cause remanded for further proceedings not inconsistent with this opinion. Reversed.

Mr. Chief Justice Moore, Mr. Justice Burnett and Mr. Justice Bean concur. Mr. Justice Benson took no part in the consideration of this case.