Silver & Goldstein v. Chapman

136 S.E. 914, 163 Ga. 604, 1927 Ga. LEXIS 34

• Court: Supreme Court of Georgia
• Decided: January 14, 1927
• Docket: No. 5444
• Status: Published

Opinion

Hines, J.

(After stating the foregoing facts.)

When this case was here before, this court held that it could not be held as a matter of law that the assignments by the bankrupts to Ridley-Yates Company, under the facts appearing in the record then before the court, were fraudulent per se, but that “The question as to whether or not the sale and assignment of the exemptions claimed was bona fide, or fraudulent was for the jury under the facts of the case.” Silver & Goldstein v. Chapman, 161 Ga. 203 (129 S. E. 842). Upon the trial of the case now under consideration the jury found the sale and assignment to be valid. The facts relied upon to show that they were fraudulent were substantially the same on both trials. These facts, as this court held when the case was here before, made a question for the jury, and we can not say that their finding is contrary either to the evidence or the law.

We do not think 'that the assignments of error set out in the first, second, and third grounds of the amendment to the motion for new trial are meritorious. They are based upon the theory that these transfers would be void if made in pursuance of a contemporaneous agreement by which the transferee and another company were to buy in the stock of goods of the transferors, and resell the same to them, and not solely for the purpose of preferring tbe transferee. When this ease was here before, this court held that these facts would not render these assignments fraudulent and void, but that the transaction was valid, if there was no intention to defraud, delay, or hinder other creditors of the assignors. This is now certainly the law of the case. Nor would the situation in this respect be changed if such contemporaneous agreement was entered into by the assignee and another creditor of the assignors. There is evidence to support the finding of the jury, and we can not say that the verdict is contrary either to the evidence or to the law.

By the act of December 19, 1818, assignments or transfers of property by an insolvent debtor, to one or more of his creditors, to the exclusion of other creditors, were declared to be null and void; but this act contained a proviso that nothing therein contained should prevent any person or persons in debt from bona fide and absolutely selling and disposing of any part or the whole of his property, if the same was free from any trust for the benefit of the seller, or any person or persons appointed by him. Cobb’s Digest, 168. This act came before this court, soon after its organization, for construction, in Eastman v. McAlpin, 1 Ga. 157, and this court held that “a debtor in insolvent circumstances may make an absolute and bona fide sale of his property to a creditor in payment of a bona fide pre-existing debt, or to any other’person, without such sale being obnoxious to the provisions of the act of 1818, so there is no trust reserved for the benefit of the seller,” or any other person appointed by him, and that a stipulation between the buyer and seller that certain debts of the seller to other creditors should be paid out of the purchase-money by the buyer was not such a trust as rendered the transaction obnoxious to the act of 1818. This court, speaking through Judge Warner, said: “We see nothing in this arrangement affording the least evidence of a trust, or calculated to impeach the fairness of the transaction.” In Davis v. Anderson, 1 Ga. 176, this court said, speaking of the decision in the case cited above, “We have already decided that the debtor can make an absolute sale of his property to a creditor, in payment of a bona fide pre-existing debt. If he can make an absolute sale, surely he can pledge it, or create a lien upon it, as a security for a pre-existing debt.”

The provisions of the act of 1818 were carried forward in the Code of 1861, § 1954, and in the Code of 1868, § 1942, except that for the language, “and without any trust or benefit reserved to the seller or any person appointed by him,” appearing in the first Code, there was inserted in the Code of 1868 the language, “where any trust or benefit is reserved to the assignor or any person for him.” This provision appears in the same language in the Codes of 1873 (§ 1952), 1882 (§ 1952), and 1895 (§ 2695). The Code of 1861, § 1955, contains this provision: “A debtor may prefer one creditor to another, and to this end he may bona fide give a lien by mortgage or other legal means, or he may sell in payment of the debt, or he may transfer negotiable papers as collateral security, the surplus in such case not being' reserved for his own benefit or that of any other favored creditor, to the exclusion of other creditors.” This provision reappeared in identical form in the Codes of 1868 (§ 1943), 1873 (§ 1953), and 1882 (§ 1953). It appeared in the Code of 1895, § 2697, with the substitution of the words “choses in action” in the place of “negotiable papers,” so that since the adoption of the Code of 1895 an insolvent debtor can transfer choses in action as collateral security. _

In Powell v. Kelly, 82 Ga. 1 (9 S. E. 278, 3 L. R. A. 139), this court held that the language, “or that of any other favored creditor, to the exclusion of other creditors,” which appeared in all the Codes up to 1895, was repealed by the act of February 23, 1866 (Acts 1866, p. 20). This court, speaking through Mr. Justice Simmons, said: “Prior to the act of 1866, the policy of this State, as shown by the act of 1818, was that a debtor should not prefer one creditor to another, but there was a proviso to that act that a debtor might extinguish his debt to a creditor by a bona fide sale of property for that purpose, not reserving any part thereof in trust for himself or any one else. Under this proviso this court made several decisions, notably in the case of Eastman v. McAlpin, 1 Kelly, 157, and some others on the same line, where a debtor was allowed to sell his property to a creditor and prefer other creditors as to the surplus. Other decisions were made somewhat in conflict with these. To the codifiers the former of these decisions doubtless seemed to be inconsistent with the act of 1818, because they allowed a preference of creditors in the disposal of the surplus. In order to harmonize these decisions and make the policy of tlie law consistent with tbe plain provisions of the act of 1818, we think the codifiers added the words above quoted, which made the whole scheme and policy of the act of 1818 consistent; so that while a debtor could still make a bona fide sale of his property to pay a debt, lie could .not, under these words, prefer one creditor to another by directing a surplus to be paid to the preferred creditor. The law thus stood from the time of the adoption of the Code to 1866, when the legislature thought proper to change the policy of the State in regard to the preference of creditors by a debtor, and they passed the act of that year, in which they allowed a debtor to prefer one creditor to another. That act, in our opinion, repealed by implication the latter part of section 1953, and those words should have been stricken from the section when the code was subsequently revised.” In the next revision of tlie Code these words were omitted by the codifiers. Code 1895, § 2697. Now, “A debtor may prefer one creditor to another, and to that end he may bona fide give a lien by mortgage or other legal means, or he may sell in payment of the debt, or he may transfer dioses in action as collateral security, the surplus in such cases not being reserved for his own benefit.” Civil Code (1910), § 3230. As our law now stands, a debtor may bona fide sell his property to his creditor in payment of a preexisting debt, not reserving the surplus, if anjr, to his own benefit, but can devote the same to the payment of preferred creditors. In Powell v. Kelly, supra, this court said: “The act does not prescribe any particular manner or form in which a debtor may prefer one creditor to another. In our opinion, he may do it by an assignment of all his property to one creditor, or a class of creditors, or he may do it by selling his property bona fide to one creditor in payment of his debt, and devoting the surplus to the payment of preferred creditors.”

An insolvent debtor may, by the laws of this State, give a preference in a great variety of ways to one creditor to the exclusion of others, provided it is done in good faith. McWhorter v. Wright, 5 Ga. 555. The giving of a mortgage with power of sale, which provided that, if the property brought at the sale more than the debt, the surplus was to be returned to the mortgagor, was not such a reservation of a trust or benefit to the mortgagor as made the mortgage and the power of sale fraudulent, even if the mortgagee knew that the mortgagor was of doubtful solvency. Calloway v. People’s Bank, 54 Ga. 441. A mortgage otherwise pure is not rendered fraudulent by a provision in the same, added to a power of sale conferred upon the mortgagee, to the effect that he is to hold the residue of the property in excess of the mortgage debt subject to the order of the mortgagor. Coulter v. Lumpkin, 88 Ga. 277 (14 S. E. 614). A voluntary bankrupt has an assignable interest in the property claimed by him in his petition as exempt under the constitution and homestead laws of this State. He may assign this interest in good faith to an existing creditor before the property is set aside by the trustee in bankruptcy, and before the exemption is confirmed by the bankrupt court. Strickland Hardware Co. v. Fletcher, 152 Ga. 445 (110 S. E. 229). An insolvent debtor may transfer choses in action to some of his creditors jointly to the exclusion of other creditors. Fulton v. Gibian, 98 Ga. 224 (25 S. E. 431); Allas Tack Co. v. Macon Hardware Co., 101 Ga. 391 (29 S. E. 27). So it is undoubtedly true that the bankrupts in this case could assign their homestead exemptions to one or more of their creditors in extinguishment of pre-existing debts, or to secure such debts, if done in good faith, to the exclusion of other creditors.

In the fourth and fifth grounds of the amendment to their motion for new trial the plaintiffs complain that the court erred / in not giving in charge to the jury an instruction upon the issue raised by them, that the instruments which we have been considering, when construed in the light of the evidence, were assignments for the benefit of creditors of the bankrupts, and were void because they did not comply with the requirements of Civil Code (1910) § 3232 et seq. The plaintiffs contend that under the transfers of these homestead exemptions to Bidley-Yates Company, and the parol evidence explanatory of their execution, a trust was created in favor of Dougherty-Little-Bedwine Company, another creditor of the bankrupts, and that by reason of this trust the transfers of these exemptions to Bidley-Yates Company amount to assignments for the benefit of creditors, and are void by reason of the fact that they did not comply with the requirements of the Law touclring such assignments. The exemptions were applied for to be set aside in money, and they were so set aside. Under the parol evidence introduced, tire banlcrupts desired to prefer Ridley-Yates Company and Dougherty-Little-Eedwine Company. To carry out this purpose they proposed to execute these transfers jointly to these two companies, but by oversight the transfers were executed to Ridley-Yates Company alone. Clearly, if the transfers had been executed to the two companies jointly, they would not have amounted to assignments. The rights of these bankrupts to the.homestead exemptions were choses in action. The right of insolvent debtors to prefer creditors with pre-existing debts, by the transfer of choses in action, is expressly given. Civil Code (1910), § 3230. Such debtors can secure some of their creditors jointly to the exclusion of others. Fulton v. Gibian, supra. But we shall treat these transfers as if they were intended to be made, and were actually made, to the Eidley-Yates Company alone. So treating them, and considering them in the light of the parol evidence, do the facts make an issue as to whether or not these writings create an absolute sale or an assignment, or do they raise an issue as to whether these transfers create a lawful preference or an assignment? The important distinction between a sale and an assignment arises out of the character of a trust which always inheres in an assignment. Another distinction between the two is this: A sale, on the delivery of the thing sold and the receipt of the price, absolutely and irrevocably passes all the seller’s interest in the subject-matter of the sale, without reversion or return to the seller under any circumstances; but in the case of an assignment, the title is vested in the assignee, subject to the uses and trust in favor of the creditors, and upon their satisfaction a trust results in favor of the assignor in the residue of the unappropriated property or its proceeds. A transfer of specific property to a creditor in discharge of pre-existing debts is in effect a sale. An assignment does not of itself satisfy the claims of the creditors to any extent, but provides a method of raising the means with which to pay them. Sales are often subject to agreements on the part of the buyer and seller from which assignments are free. Powell v. Kelly, supra. Under the instruments involved in this case, there was to be no reversion or return under any circumstances of any portion of these homestead exemptions to the insolvent debtors. But “the distinctive test between an assignment and a sale, where another creditor is to be paid off, is that in the former case such other creditor is to receive some of the property or its proceeds, and in the latter the creditor to whom title is passed takes for himself the whole property, stipulating to pay the other creditor out of his own means and not out of the property or its proceeds.” Coggins v. Stephens, 73 Ga. 414; Kiser v. Dannenberg Co., 88 Ga. 541 (15 S. E. 17); Johnson v. Adams, 92 Ga. 551 (17 S. E. 898).

It further appears in this case (a fact which the writer overlooked in the hrst opinion handed down) that Ridley-Yates Company, after receiving these transfers, proved their claim against the bankrupts in the bankruptcy court, and received a dividend thereon. In view of this fact, and of the distinction between an absolute conveyance and an assignment, the issue whether these transfers, under the evidence, were absolute sales or assignments, should have been submitted to the jury, if the proper solution of the case depended upon that issue. But we do not think that the right decision of this case depends upon that issue. Bankrupts can prefer their creditors by a transfer of their homestead exemptions, even before they are set aside, as we have shown above. They can prefer creditors by the transfer of choses in action. So the real and controlling question in this case is, whether these transfers, which were intended to prefer these two creditors of the bankrupts, amount, in the light of the evidence, to assignments. An assignment arises where a debtor, generally an insolvent, transfers to another his property, in trust to pay his debts or apply the property upon their payment. Johnson v. Brewer, 134 Ga. 828, 830 (68 S. E. 590, 31 L. R. A. (N. S.) 332). It is this element of trust which renders a sale or transfer of property an assignment. The bankrupts in making these transfers did not transfer these exemptions to the Ridley-Yates Company in trust to pay their debts, or to apply the property upon their payment. They were preferring it as a creditor. The transferee was to receive these exemptions in the form of money. . The transferee was to apply this money, when received, in payment of its debt in full. By the direction of the transferors, the transferee was to turn over the balance of the fund to Dougherty-Little-Redwine Company on its debt against the bankrupts. We have seen that an insolvent debtor can prefer his creditor by mortgage, and that a mortgage containing a power of sale, which provided that the mortgagee should hold the residue of the proceeds of the sale of the property under such power subject to the order of the mortgagor, was valid. Coulter v. Lumpkin, supra. If a debtor, in giving a mortgage with power of sale, can reserve the right to give a subsequent order as to the disposition of the residue of the fund arising from the sale of the mortgaged property under the power of sale in the mortgage, we see no valid reason why he can not give such order or direction at the time the mortgage is executed. This would be nothing more than devoting the surplus to another creditor in preference to other creditors, which we have seen is lawful. Powell v. Kelly, supra. If a debtor can lawfully, in the case of a mortgage, direct the mortgagee to hold a surplus arising from a sale of the mortgaged property under a power of sale, subject to his order, or can lawfully direct him to turn over such surplus to another creditor of the mortgagor, we see no good reason why he can not direct the transferee, to whom he transfers choses in action to secure a pre-existing debt, to turn over any balance of the fund arising from the collection of such choses in action, after satisfying his own debt, to another creditor of the transferor. Such a transaction does not create a trust in the sense in which a trust renders a conveyance or a transfer an assignment. In the case of a transfer of choses in action to secure debt, the surplus would go to the debtor any way, and he could receive and devote such surplus to the payment of the debt of another creditor to the exclusion of other creditors. Instead of doing this, we can see no good reason why he could not direct his assignee to deliver the surplus to the creditor whom he desired to have such surplus.

The jury in this case found that these transfers were bona fide. The facts of this ease -do not constitute these transfers assignments. This being so, the court did not err in not submitting to the jury the issue whether they were assignments or not.

Judgment affirmed.

All the Justices concur, except Hill, J., absent because of illness.