United States v. McLellan

26 F. Cas. 1127, 3 Sumn. 345

• Court: U.S. Circuit Court for the District of Maine
• Decided: October 15, 1838
• Status: Published

Opinion

STORY, Circuit Justice.

Taking the case to be, as the parties at the argument have assumed it to be, that the conveyances made to McLellan and Moody respectively were, what they purport to be, bona fide conveyances, for a valuable consideration, without any knowledge or belief of the existence of any debts due to the United States, or any intention to defeat the priority of the United States; and that they embraced all the property of Gooding, except what is exempted by law from attachment and execution, the question arises, whether the priority given to the United States by the act of 1797, c. 74, § 5, or (what in legal effect on this point is the same) by the act of 1799, c. 128, § 65, attaches to the property so conveyed to them. If it does, then the present bill is maintained; if it does not, then the bill must be dismissed. It is unnecessary, after the various decisions, which have been made by the supreme court of the United States upon this subject, to enter at large upon the construction of these sections. By the act of 1799, c. 125, § 65, it is provided, that, “in all cases of insolvency, or where any estate in the hand of the executors, administrators, or assignees, shall' be insufficient to pay all the debts due from the deceased, the debt or debts due to the United States on any such bond or bonds (for duties), shall be first satisfied.” If the clause had stopped here, it would have been open to consideration, whether the insolvency here mentioned was not a mere inability of the debtor to pay all his debts, without any open, notorious act, pointed out by law, to establish such insolvency. But the section goes on to declare—“And the eases of insolvency, mentioned in this section, shall be deemed to extend, as well to eases, in which a debtor not having sufficient property to pay all his or her debts, shall have made a voluntary assignment thereof for the benefit of his or her creditors; or in which the estate or effects of an absconding, concealed, or absent debtor shall have been attached by process of law, as to cases, in which an act of legal bankruptcy shall have been committed.” Now, upon the original interpretation of this act, it might well have been a question, whether the three cases thus put were any thing more than mere illustrations of the general insolvency spoken of in the preceding clauses of the act. But that question has long since been put at rest by the supreme court of the United States in a variety of cases, and especially in Prince v. Bartlett, 8 Cranch [12 U. S.] 431; Thelluson v. Smith, 2 Pet. [27 U. S.] 396; Conard v. Atlantic Ins. Co., 1 Pet. [29 U. S.] 387; Conard v. Nicholl, 4 Pet. [29 U. S.] 291; and Beaston v. Farmers’ Bank of Delaware, 12 Pet. [37 U. S.] 102,—in which it has been held, that mere inability of the debtor to pay is not an insolvency within the statute; but that it must be such as is manifested in one of the three modes pointed out in this last explanatory clause. The only mode, applicable to the circumstances of the present case, is, that of “a voluntary assignment thereof for the benefit of his or her creditors.” And the question is, whether such an assignment exists in this case. It appears to me, that, consistently with the construction, which has been always put upon this part of the clause, it is not. In the first place, the voluntary assignment, here spoken of. must be, not of a part, but of the whole property of the debtor; unless, indeed, a part is accidentally and unintentionally omitted, by mistake, or is purposely omitted with a fraudulent design. A debtor may. notwithstanding this clause, bonk fide convey to a creditor a part of his estate for payment of the debts due to him, or as security for his liabilities; and it will be good and valid against the priority of the United States. This was expressly held by the supreme court of the United States in U. S. v. Hooe, 3 Cranch [7 U. S.] 73; U. S. v. Howland, 4 Wheat. [17 U. S.] 108; and Conard v. Atlantic Ins. Co., 1 Pet. [26 U. S.] 386. Now, it is to be considered, that, in the present case, each of these conveyances was made to a single creditor for his own debts or liabilities; and each took, distinctly and severally, for himself alone, the property conveyed to him. Nor is it stated in the bill, or shown in the case, that McLellan and Moody acted in concert together at the time, or that both conveyances were made with a mutual understanding between the parties, that both should be given, or neither; or that the debt- or should divest himself of all his property in their favor, or of none. For aught that appears in the case, although the transactions took place on the same day, they may have been perfectly independent and separate transactions, and neither of the creditors may have had any knowledge of the acts of the other. Each of the conveyances embraces a part only of the property of the debtor; and of course, if they are to be treated as separate and distinct transactions, not produced in concert, or uno flatu, with both creditors, for a common purpose, they are clearly good within the authority of U. S. v. Hooe, 3 Cranch [7 U. S.] 73. Mr. Chief Justice Marshall, in delivering the opinion of the court, on that occasion, said: “If a debt- or of the United States, who makes a bonk fide conveyance of part of his property for the security of a creditor, is within the act, which gives a preference to the government, then would that preference be in the nature of a lien from the instant he became indebted, the inconvenience of which, where the debtor continued to transact business with the world, would certainly be great. The words of the act extend the meaning of the word ‘insolvency’ to eases, where a debtor, not having sufficient property to pay all his debts, shall have made a voluntary assignment thereof for the benefit of his or her creditors. The word ‘property’ is unquestionably all the • property, which the debtor possesses; and the word ‘thereof,’ refers to the word ‘property,’ as used, and can only be satisfied by an assignment of all the property of the debtor. Had the legislature contemplated a partial assignment, the words ‘or a part thereof,’ or others of a similar import, would have been used. If a trivial portion of an estate should be left out, for the purpose of evading the act. it would be considered as a fraud, upon the law; and the parties would not be enabled to avail themselves of such a contrivance. But, where a boná fide conveyance of a part is made, not to avoid the law, but to secure a fair creditor, the ease is not within the letter or the intention of the act.’’ Now, this language is directly in point to the present case, if we arc to take these conveyances as independent transactions; for each embraces a part only of the property of the debtor, and neither of them contains any general assignment. If, therefore, they were not contemporaneous aots, but one was posterior in point of time, and execution to the other, without any intentional connection, the first would at all events be valid, if made bonfi fide, even if the other were invalid, as against the United States, because it conveyed the whole remaining property of the debtor. If they were contemporaneous, concerted acts, then the same question would arise, as if the whole property were conveyed to a siugle creditor in discharge of his debts and liabilities for the debtor. The bill and answers do not seem framed precisely with a view to this aspect of the case, and therefore there are scarcely facts enough before the court to present it fully.

But let us take the case as if so presented; and the question then comes to this; whether the assignment contemplated by the act is an assignment to one creditor for the payment of his own debts, or as a security or discharge of his own liabilities, or whether it must be an assignment for creditors in general. It appears to me, that the latter is "the true and natural, if not the neeessary, purport of the words of the act. The assignment is to be a voluntary assignment of all his property “for the benefit of his or her creditors.” Now it seems to me that the word “creditors” here is used in contradistinction to a single creditor. If it does not mean all his or her creditors, it at least means a conveyance for more persons than the creditor or creditors, who are the immediate assignees, for their own debts. The language seems to indicate an assignment made to some person or persons as trustees for the benefit of the creditors of the assignor, and not for the sole benefit of the assignees It would be unusual language to speak of an assignment made for the -benefit of the grantees only, as an assignment “for the benefit of creditors.” If the conveyance were absolute to them, they would take, not as creditors, but as purchasers- not for the benefit of creditors, but for the benefit of themselves, as grantees. It would be still more unusual language to speak of an assignment to the assignees, as a security for the liabilities for the debtor, to be an assignment “for the benefit of creditors.” It would be rather an indemnity against the claims of the creditors, and in opposition to them. Indeed, if one were disposed to refine upon the present case, the conveyance's were not assignments “for the benefit of creditors,” strictly so called; but. to a large extent, they must be deemed to be purchases by indorsers, and securities, upon a collateral contract by them, to pay the debts, for which they were under liability to the creditors out of their own funds. In Thelluson v. Smith, 2 Wheat. [15 U. S.] 426, the supreme court said: “If,therefore, before the right of preference has accrued to the United States, the debtor has made a bonfi fide conveyance of his estate to a third person, or has mortgaged the same to secure a debt, or if his property has be.en seized under a fieri facias, the property is divested out of the debtor, and cannot be made liable to the United States.” Now, it is observable, that this language was used in a case, where there was a prior lien by judgment upon all the debtor’s property. And in that case, as well as in Conard v. Atlantic Ins. Co., 1 Pet. [26 U. S.] 386, 441, the supreme court held, that the priority of the United States would not, even where there had been a general assignment for the benefit of creditors, divest an antecedent mortgage or lien for a debt; and that the priority was not itself in the nature of a lien on the debtor’s property. He might still convey it bonfi fide to any creditor or purchaser for a valuable consideration, although he should happen at the time to be, in the general sense of the term, insolvent. In this view of the construction of the language and intent of the section of 1799, now in question, I confess myself to be of opinion, that the conveyances in the present case are not voluntary assignments for the benefit of creditors in the sense of that section.

The only doubt, which has occurred to my mind, has arisen from the language used by my brother, Mr. Justice Washington, in bis charge to the jury, in the case of Conard v. Nicholl, 4 Pet. [29 U. S.] 291, which was brought under the review of the supreme court, and so far as it was necessary to be considered by that court, that is. so far as it was or might be prejudicial to the plaintiff in error, was affirmed by the court. So far as it laid down the law favorably to the rights of the United States, it was not strictly within the cognizance of the supreme court, and could be reexamined only upon a writ of error brought by the other party. In the course of his charge Mr. Justice Washington puf these questions to the jury, (1.) “Was Edward Thompson (the debtor) insolvent, and unable to pay all his debts at the time when these securities were given to the plaintiff? (2.) Did they divest him of all his property, or, if .not, was the part reserved trivial, with the intent to defeat the rights of preference of the United States? If these facts are proved to your satisfaction, then the transfers are to be considered as constructively divesting Edward Thompson of all his property, so as to let in the priority of the United States against the plaintiff.” Now, it is observable, that here the learned judge does not put the case upon the mere fact, that the debtor was insolvent at the time of the transfer of the property, and that they covered all the debt- or’s estate; but he adds the fact, that the transfers -were /‘with intent to defeat the right of preference of the United States.” This latter ingredient is not pretended to exist in the present case; for the debts of the United States were, at the time of these conveyances, unknown and unsuspected by the grantees. So that it is by no means clear, that the learned judge would have deemed an absolute conveyance of all the debtor’s property to one or more creditors for the payment of their existing debts and liabilities, to have been, per se, a voluntary- assignment within the act, without this ingredient, if the conveyance was not for the benefit of other creditors also. It is also to be observed, that this part of the charge was highly favorable to the United States, and there is no evidence, that it was complained of on the appeal. I have not the slightest doubt, that this part of the charge of the learned judge, as given, was perfectly correct. And if it were shown, or admitted, in the present case, that these conveyances were made with intent to defeat •the priority of the United States, I should not hesitate to say, that, as to the United States, they were subject to that priority. But, as has been already remarked, no such intent is set forth in the bill, or established in the evidence. And in the consideration of the case it is not unimportant, that there is a large class of other creditors unprovided for, as well as the United States'.

UNITED STATES (MeLELLAN v.). See Case No. 8,895.

I take the naked question, then, • stripped of all unimportant circumstances, to be, whether a conveyance by a debtor, known to be insolvent, of all his property, to one or more creditors, in. discharge of their own debts and liabilities, not exceeding the amount due to and payable by them, and not for the benefit of the creditors at large, or of any other creditors than the immediate grantees, is such a voluntary assignment, as is within the purview of the section of the act of 1799? That it is a case within the same mischief, as that against which the act meant to provide, I admit. That if the case had been wholly untouched by authority, there might have been strong ground to contend, that the three cases put in the act were rather illustrations of the meaning of the word insolvency, as used in the act, than exclusive limitations of its meaning, I also admit. But, looking to the decisions which have been made, I do not feel warranted in saying that such conveyances as the present are voluntary assignments for the benefit of creditors within the meaning of the act, unless, indeed, it could be shown that they wére made with the intent to evade the priority given by the act. I have not thought it necessary to rely on the act of the state of Maine, of April. 1836, respecting general assignments; because, after all, the construction of the act of 1799. c. 128, cannot depend upon the provisions of any particular statute of a state, which does not fall within its very terms. But this state act does in its provisions point to classes of cases, which seem to me to be the very cases, which the act of 1799, principally, if not exclusively, contemplated in the clause which has been under our consideration. Upon the whole, my opinion is that the bill ought to be dismissed.