Smith v. Hunter

45 P. 911, 4 Kan. App. 377, 1896 Kan. App. LEXIS 214

• Court: Court of Appeals of Kansas
• Decided: July 15, 1896
• Docket: No. 110
• Status: Published

Opinion

The opinion of the court was delivered by

Cole, J.:

On August 14, 1893, Jewett & Lowen, of Fall River, made an assignment ■‘hr the benefit of creditors, naming C. M. Jones as assignee. On the two days' following certain creditors of Jewett & Lowen commenced actions against them, and caused attachments to be issued and levied upon the property in the possession of said assignee. The ground for the attachment was that said firm had disposed of their oroperty for the purpose of hindering and delaying and defrauding its creditors. Afterward the property was sold by the sheriff, and the proceeds of the sale were applied upon the judgments rendered in favor of attaching creditors by order of the court. The assignee designated bj?- Jewett & Lowen failed to comply with, the requirements of -the statute, and the district court appointed the defendant in error, A. M. Hunter, as assignee, who brought this -action against J. A. Smith, as sheriff, for the value of the goods sold under the orders of attachment. Upon the trial of the cause a verdict and judgment were had and entered for the assignee, and the sheriff brings the case here for review.

Two errors are alleged by counsel for the plaintiff in error, the first being the ruling of the court overruling the demurrer of the defendant to the evidence on the part of the plaintiff. .From the record in the case we can see no error in this ruling of the court, and counsel does not call our attention to any reason why the demurrer should have been sustained. The second error complained of is the ruling of the court in excluding certain testimony offered by the defendant to show a fraudulent appropriation by the assignors of a part of the property assigned, and to show a fraudulent intent on the part of Jewett & Lowen m making the assignment for the benefit of creditors." The defendant had shown by a witness named Wash-burn that he was in the employment of Jewett & Lowen up to the time they assigned; that for some time preceding the assignment he had been collecting accounts due said firm, and the witness was then asked- to state what he did with the proceeds of the collections. An objection was raised to the introduction of this evidence, upon the ground that this testimony was incompetent, irrelevant, and immaterial; that any, acts of Jewett & Lowen, or of their employees, were wholly incompetent as evidence for the purpose of defeating or disputing the deed of assignment in this case upon which the plaintiffs right of action is based. And the counsel for the assignee made the further objection

“I say in that connection I will make this objection to cover all acts of these parties preceding the execu■ion of this deed of assignment, also the acts of them mnployees. I mean by that all acts-and facts which might be offered m evidence for the purpose of showing any fraudulent disposition of the property, or fraudulent diversion or reservation of the property of these parties.”

The objection made was sustained by the court, and afterward the plaintiff in error offered to prove by other witnesses further acts upon the part of the assignees tending 'to show a.fraudulent diversion or reservation of the property assigned, as well as statements made by one of the assignors tending to show a fraudulent intent in the making of such assignment, all of which acts and statements were performed and made prior to the execution of the deed of assignment. A similar objection to that stated above was sustained to all of this evidence.

Several questions are presented by this record, all pertaining to a construction of the statutes of this state governing assignments for the benefit of creditors Upon the part of the defendant in error, it is contended that where a statutory assignment is made for the benefit of creditors, no act of the assignor prior to the making of the assignment, however fraudulent such act may be, will defeat the deed of assignment, but that the property passes to the assignee, to be distributed under the order of the court to all the creditors pro rata, and that no creditor has a right to attach any of the goods assigned m the hands of the assignee, on account of the fraudulent acts pf the assignor. Counsel for defendant in error concedes that the earlier cases decided by our supreme court are opposed to this theory, but claims that the later decisions and the amendments to the act of 1868, as made by the legislature of 1876, have changed the rights of parties in this state where a voluntary assignment has been made for the benefit of creditors. It must also be conceded that the general rule, outside of statutory provisions, is, that any fraudulent act upon the part of the assignor will defeat the deed of assignment. In the case of Ruble v. McDonald, 18 Iowa, 493, the supreme court says:

‘ In the first place it is contended that they [certain instructions asked] are all erroneous, in that they do not recognize a principle or rule which it is claimed pervades the law of assignments, namely, that in order to render void such instruments on the ground that they were made to defraud creditors the grantee or assignee -must have knowledge of and participate in the fraud. The rule suggested and contended for, as applicable to grantees or purchasers under bills of sale or deeds of conveyance, is perhaps a sound one, for the very plain reason that an innocent purchaser who has paid his money in good faith ought not to suffer on account of the grantor’s fraudulent purpose, of which he had no knowledge; and it is to this class' of cases that the authorities cited by appellant all refer. The principle has no application to assignment's. The assignee is but the agent of the assignor and ■beneficiaries of the trust. He has no such personal or individual' interest in the transaction as that a guilty knowledge of the fraud must be brought home to him before assignment can be impeached for the cause mentioned.”

In the case of Lampson v. Arnold, 19 Iowa, 479, the same court affirmed the rule laid down in, Ruble v McDonald, supra, and cites the sections of their statutes governing assignments for the benefit of creditors, which appear to be similar to the statutes of our own state.

In the case of Lesher v. Getman, 28 Minn. 93 ( 9 N. ), the supreme court of Minnesota lays down the following rule :

“It has long been well settled, both in this state and elsewhere, that the intent of the assignor in making such an assignment is the material consideration in determining its validity, and that a fraudulent intent on the part Of the assignor will vitiate an assignment, whether such intent appear from the face of the instrument or from extrinsic evidence. It has also been decided in this court, in accordance with the great weight of authority elsewhere, that the assignee under such an assignment does not stand, in the position of an innocent purchaser for a valuable consideration; and therefore the fact that he had no knowledge of the fraudulent intent of his assignor will not cure the fraud.”

So far as our statute is concerned with regard to assignments, it may be said that it in no way forms the basis of the making of a voluntary assignment for. the benefit of creditors. Such a right existed independent of the statute, and the statutory provisions are for the purpose of regulating the mode of executing them and to define the duties of assignees, thereby giving creditors more effectual control over the acts and proceedings of both assignor and assignee, but the question of the validity of the assignment (aside from its following the statutory form) is left to be determined by the existing rules of law.

In the case of Kayser v. Heavenrich, 5 Kan. 824, our supreme court says:

“Again, it is contended that the fraud, to affect the assignment, must have been known to and participated in by the assignee or creditors. Such a doctrine would, in most cases, entirely preclude the creditors from setting up fraud in an assignment. The conveyance is usually made without consultation with the creditors, and the assignee would hardly be consulted about or advised of any illegal or fraudulent practices on the part of the failing debtor. Neither the assignee nor the creditors are purchasers for a valuable consideration, and it is not necessary that notice of the fraud should be brought home to them to render the conveyance void. (12 Mich. 61; Burrill, Assignm. 438,439.) The property had been converted into money; it was in the hands of the plaintiff in error; the conveyance by which he held it was fraudulent and void; so that the funds were in his possession, and subject to the proceedings instituted by the defendants in error to make them available for the payment of their claims.”

And the doctrine therein announced is also laid down in Grocery Co. v. Records, 40 Kan. 119. It is contended by counsel for the defendant in error that the doctrine as announced in Kay ser v. Heavenrich, supra, does not control under our present statutes, and that upon a rehearing of the case of Grocery Co. v. Records, supra, the court seems to repudiate that portion of the syllabus which we here refer to. We have carefully examined our statutes as amended, and also the opinion of the court in Grocery Co. v. Records upon the rehearing (40 Kan. 215), and can find no good reason for believing either that the rule has been changed or that the supreme court has set aside the doctrine announced in that case.

The question which now arises is, Can the fraudulent intent and acts of the assignor be shown in an action of this character? The assignee brings this action claiming to be the owner of the property in question under the deed of assignment, and it is clear that he must show a good title in order to recover. In the case of Harris v. Capell, 28 Kan. 117, Valentine, J., in delivering the opinion of the court, uses .the following language :

“ It must be remembered that the material question in this case is simply whether the attachment is valid, mid that all questions with reference to the assignment arise only incidentally. This case is wholly unlike a case where an execution, with regard to the regularity and validity of which there is no question, or a case where- an order of attachment, with regard to the regularity and validity of which there is no question, is levied upon property which is claimed by some person other than the defendant in the execution or the attachment proceedings, and claimed by him by virtue of an assignment made to him by such defendant of the property in question, in trust for the benefit of creditors. In such a case the validity of the assignment arises fairly and squarely.”

In the later case of McPike v. Atwell, 34 Kan. 142, Johnston, J., quotes at length from the opinion in Harris v. Capell, supra, affirming the doctrine therein announced, and also using the following language :

“It should be remembered, however, that the validity of the assignment was not the question before the court, but it was rather whether such assignment was executed in bad faith. To sustain the charge made and uphold the attachment there must have been an actual personal intent to defraud, hinder or delay the creditors of the assignor. The assignment may be informal, and may contain provisions which are not in compliance with the statute, and which would render it invalid, but if it was made in good faith, and without any actual intent to defraud, hinder or delay creditors, it is not alone sufficient to sustain the attachment.”

In this case ■ the sheriff stands in the place of the attaching creditors, and can made any defense which they could make, and unless the later decisions of our supreme court have given a different construction to the statute governing assignments, and have abrogated the rule laid down in the cases above cited, it would follow that a fraudulent disposition of the property on the part of the assignor might be shown to defeat the assignment, and might be shown in an action of this character. The first case relied upon by counsel which it is claimed adopts a different rule in this state is Cooper v. Clark, 44 Kan. 358. In that case the court holds that a deed of assignment so defectively executed as to render it void, but executed in good faith and without any wrongful intent, will not justify an attachment against property of the assignor. This, in our opinion, tends to fortify rather than to detract from the rule laid down in former cases, for a plain distinction is drawn between a deed of assignment void because of defective execution and one where a wrongful intent entered into the deed. The next case relied upon is Brigham v. Jones, 48 Kan. 162. This case holds that an instrument in the general form and nature of a deed ,of assignment should be so regarded, and a provision therein directing the trustees to distribute the property in a manner inconsistent with the statute relating to general assignment should be treated as a nullity, will not avoid the conveyance, and the estate should be distributed by the assignee as the statute prescribes. The next case relied upon is Chapin v. Jenkins, 50 Kan. 385, which holds that the assignee is a representative of all the creditors, and may for their benefit contest the valid ity of a mortgage given by the assignor. The last case relied upon is Walton v. Eby, 53 Kan. 257, which holds that the assignee may institute proceedings in behalf of the creditors to set aside fraudulent conveyances made by the assignor, to the end that he margain dominion over the property and make an equitable distribution of the same to all the creditors of oh estate.

We fail to perceive how any of these cases eith change or abrogate the rule laid down in the earlier ca,ses. They simply declare that the provisions of the statute as amended, governing assignments, give enlarged powers to the assignee. We take it that the evidence 'sought to be introduced in this case was such as ought to have been permitted under all the decisions of the supreme court of this state. It is true ■that the evidence tended to prove a fraudulent disposition of property upon the part of the assignor just prior to the execution of the deed of assignment, and it is also true that under the cases last cited the assignee would have had the power to pursue the property so fraudulently reserved for the benefit of all the creditors, but that does not change the rule upon a question of this kind. The evidence sought to be introduced was also offered.for the purpose of showing a fraudulent intent upon the part of the assignors which inhered in the deed of assignment itself, and if the evidence had been permitted it might have shown that the whole proceeding was simply for the purpose of hindering and delaying the creditors of the assignor. This, in our opinion, plaintiff in error had the right to show. (Reese v. Platt [not yet reported], 44 Pac. Rep. 31.)

Defendant in error contends that the record is not “ preserved in such condition as properly to submit the points raised. But we cannot agree with counsel in this proposition.

The judgment of the district court is reversed, and the cause remanded for a new trial.

All the Judges concurring.