Mussey v. Noyes

The opinion of the court was delivered by Red field, Ch. J. This was a case involving the validity of a general trust assignment for the benefit of creditors. The property assigned amounted to more than $80,000. The facts necessary to the understanding of the case will appear in the course of the opinion. I. It is objected that'the assignment is void, by reason of the assignees having-power to sell on credit. Their powers are thus specified in the deed of assignment: “ Shall forthwith take possession of the same, and shall faithfully, and as soon as practicable, and in the -most beneficial manner, dispose of, and convert into money, the said real and personal estate, and collect the said choses in action, and apply the money therefrom arising, (after paying expenses) in payment and discharge of the debts due the assignees, and for which they are holden as sureties, and pay the surplus to Low, (the assignor,) or to such persons as he shall appoint.” This is the effective part of the deed in the first part. The second part names certain sureties of the assignor to be next indemnified; then dhree schedules of creditors who were to take the surplus, or a ratable portion, as the case may be, in succession ; and if any surplus still remains, it is appointed to go to all the assignor’s creditors ratably. Now, the words used in this instrument, “ to convert into money, as soon as practicable, and in the most beneficial manner,” — 469 — would more naturally exclude the power of selling on credit, and especially where such a power was regarded as illegal. We must, to be reasonable, conclude the parties, by these general terms, intended a disposition of .the property in good faith, and according to law; and for the faithful execution of such a trust the assignee is always liable to be called into a court of equity, at the instance of the cestui que trust; so that it cannot be argued with success, that these general terms confer .upon the assignees an unlimited and irresponsible discretion to sell on credit, or not, and so virtually include such a power. We think such a power is. neither expressly nor impliedly given; and the fact that such a course was pursued by the assignees, on their own responsibility, and by what they regarded as the consent of those interested, certainly cannot be taken for the practical construction of the contract, by the parties; for the very means the assignees adopted, in assembling the creditors to obtain their assent to the course, shows that they, and all concerned, understood they were departing from the terms and legal force of the assignment. Meacham v. Stearns, 9 Paige 398, is an express decision in favor of the above view; and if the New York courts, as is said, have recently adopted the opposite view, we can only say that, to us, the former determination seems the only sound and rational one.* 2. It is claimed that the deed of assignment contained a power to compound with the creditors, and so was void, upon that ground. But we find no such powers in the deed, unless it is to be inferred from the provision that the several creditors named in the schedules, should receive so much of the indebtedness of the assignor to them, as should appear to be due, “ upon examination and settlement thereof.” But this, it seems to us, can fairly import nothing more than the amount of their several debts. If any claim was at all of an unliquidated character, it could scarcely be described in more definite terms. We might content ourselves here; but as considerable discussion has been had at'the bar upon the effect of such powers being contained in' such a deed of as — 470 — signment, it may be proper to add, that, in our opinion, if the power to sell on credit is to he understood as conveying with it the power to keep the business of the assignor for any time, and to any extent, on foot for his benefit, and measurably under his control, so that the effect of the assignment would be to create the assignee, the agent and trustee of the assignor, it would be altogether inadmissible, as was held by this court in Dana v. Lull, 17 Vt. 390, and in Britnell v. Warren & Trustee, Windsor Co. March, 1851. It is quite likely an express power to sell on credit should be held, in all cases to invalidate such an assignment, as an attempt to define and extend the power of the assignee, in particulars which should be referred to the exigency of circumstances, and the general equitable responsibility of such trustees. I should certainly, without more examination, incline to that opinion. This is undoubtedly the law of the state of New York, and I should not be inclined, at present, to question its soundness as to express power to sell on credit. In regard to the power of agreeing with the creditors upon the amount due them, which is all that is here given the assignee, I do not myself, at present, perceive any possible objection to it, since it must be exercised in good faith, and with prudence and discretion, and the manner of the exercise approved by a court of equity. But if we are to understand, by compounding with the creditors, the conferring upon the assignee the power to buy up the debts which are confessedly due, for the benefit of the assignor, and upon the most favorable terms, it would certainly be as objectionable as any conceivable power or discretion to be reposed in the trustee, and would make him effectually the mere agent of the debtor. Such an arrangement would prove a most successful device to lock up one’s property from creditors, and effectually put them at defiance, while the debtor held the beneficial use of the property. 3. We have found no difficulty with this case, as involving any violation of the general statute, against fraudulent conveyances ; and this, we think, must be the result equally, whether we treat the instrument as only conveying to the assignees a reasonable amount of the debtor’s property, to secure them what he owed them, and what they were holden ultimately to pay; or whether we regard it as a general trust assignment for certain preferred cred — 471 — itors, by classes, and ultimately for all the creditors, with an express stipulation to pay the balance to the assignor. Yiewed in either light it is but the common case of allowing a debtor, in failing circumstances, to make preferences among his creditors ; and this right, notwithstanding this statute, is too well settled to be now called in question. The assignment of a reasonable amount of one’s property directly to one’s creditors, as security, is not essentially different from any other mortgage or pledge of personal property, which does always put .the property beyond the reach of attachment in the ordinary mode. Smith v. Niles, 20 Vt. 315. But the right to make such an assignment is most unquestionable. (Tompkins v. Wheeler, 16 Peters 106; Adams v. Blodgett, 2 Wood & Minott 233; Leitel v. Hollister, 4 Comstock 211.) Assignments made directly to the creditors, so as to require them to name the trustee, and thus make him their man, in-' stead of his being, as is too often the case, the mere creature of the assignor, are certainly entitled to the most favorable consideration of the courts. We think, after careful examination of the papers executed in this case, and diligent comparison with the reported cases, that all the papers executed on the same day, and to effect the same general design, must be regarded as one transaction, one contract. The two principal deeds refer to each other, both antecedently and subsequently, and are obviously connected, and each but the complement of the other, as obviously as the two parts of scissors, or any other mechanical instrument, and each, without the other, is as manifestly imperfect, if not useless. , ■ The important inquiry then arises, whether this assignment is void, under the statute of 1843. The statute is in these terms: “ All general assignments hereafter made by debtors, for the benefit of creditors, shall be null and void, as against the debtors of such creditors.” We think this undoubtedly refers to trust assignments, and not to an assignment directly to the creditors; for the expression, “ for the benefit of creditors,” seems to imply this; and, at first, I was half inclined to believe that one portion of this assignment — that which was for the security of the assignees themselves — under the peculiar circumstances of this case, might be saved from the operation of the statute, on that ground alone, as it undeniably might, if it stood alone. But further examination — 472 — and reflection satisfies me that, to be consistent with general principles, we must hold the entire contract good or bad, in the gross — ■ at least so far as a statutory prohibition is concerned. This is. certainly the general rule in regard to all illegality in a contract; and the decided cases upon this very point seem to me too explicit to admit of much question. Riggs v. Murray, (2 Johns. Ch. R., 565,) a case involving a very large amount of property, and, consequently, having received the fullest consideration, seems altogether in point, upon the question, whether that portion of the assignment giving the assignees security first, for their own debts and those for which they are liable, can stand, if the whole contract should be regarded as coming within the prohibition of the statute. It is the very case almost, nomine mutato. So, also, is the case of Hyslop v. Clarke, (14 Johns. 458.) Any number of cases, involving the same general principle, may be readily found. We shall here only refer to Wakeman v. Grover, 4 Paige 24; Ames v. Blunt, 5 Paige 13; Pratt v. Adams, 7 Paige 615, which are upon the subject of assignments in trust for creditors, and directly in point, to show that such contracts, where in some points they contravene the express provisions of a statute, must be regarded as wholly void. We come, then, directly to the question howfar this assignment is to be regarded as within the prohibition of the statute of 1843. We have before intimated that this assignment, taken as a whole, must be considered as in trust, for the benefit of creditors, within the terms of the statute. The only remaining question, then, will be whether this is a “ general assignment.” As was said by Bennett, J., in Dana v. Lull, 17 Vt. 390, an assignment of all one’s property, for the benefit of all one’s creditors; is clearly a general assignment. How much less will amount to that, seems not well settled. The term general, as applied to assignments, does not have reference, probably, so much to the proportion of creditors as to the proportion of property. A late work upon this subject, of some accuracy and thoroughness, (Burrill on Assignments,) lays down the rule, as to the number of creditors, thus : “ A general assignment is understood to import a provision for a considerable number of creditors, or, at least for several, or more than one,” and refers to Bourchand v. Dias, where a trust assignment, for the benefit of one creditor, was held not to come within the act — 473 — of Congress which we shall refer to hereafter. We may conclude then, that if a majority of the creditors are provided for, and all the property is assigned, the assignment is still general. The great difficulty is, to know what proportion of property, less than the whole, shall still denominate the assignment general. The case of The United States v. Hooe, 3 Cranch 73, has been referred to upon this point; and it must be admitted, it is, in some respects, analogous. But the differences in the two statutes are considerable. In the act of Congress it is provided, that the United States’ priority of' lien, or right, shall attach where a debtor, “ not having sufficient property to pay all his debts, shall have made a voluntary assignment thereof, for the benefit of his creditors.” This, in terms, seems to confine the assignment to all the property. “ Thereof,” must refer to all the property which the debtor had, ■“ not having sufficient to pay all his debts.” And so the U. S. Supreme Court held. Chief Justice Marshall, however, says, even in such a ease, “ If a trivial portion of an estate should be left out, for the purpose of evading the statute, it would be considered a fraud upon the law, and the parties would not be enabled to avail themselves of suoh a contrivance.” But -in the case then before the court, the assignment was, most obviously, but a partial one, the debtor retaining enough property to proceed with his business, and actually continuing it for nearly a year, and until his death. But when the great bulk of one’s estate is assigned, and his entire business is closed up, at once, by the assignment, it becomes a difficult question to determine how much and what property shall be excepted out of the assignment, to render it not general, but partial. And if the law has fixed no definite rule upon this subject— and I can find none — it will have to be submitted ultimately, in some form, to a jury, as matter of fact, under proper instructions, as all such questions are which depend upon variation in the facts and circumstances, until the law, shall be able to fix some definite criterion, which is not probable in this case, although it is well known that such is now the ease upon many subjects which were formerly matters of fact for the jury; for instance, the time of giving notice of the dishonor of a bill or note. A case like United States v. Hooe, is clearly a partial assignment; and one which includes all one’s attachable property, and which is intended to close up one’s business, and does so, at once, is clearly a general — 474 — assignment. The difficulty is in the intermediate cases. The cases in the United States courts, many of which are referred to in a note to United States v. Fisher, 1 Peter’s Cond. 430, seem to require that an assignment to come within the act of Congress, must include all the debtor’s property; and many of the cases in the Circuit court upon this subject, as United States v. Clark, 1 Paine 629, seem to regard this as the proper definition of a general assignment; and in one sense it is undoubtedly. A general assignment must include, substantially, all a man’s property; and a partial assignment must omit some substantial portion of the property, and cannot be made to rest upon a mere colorable omission. But, to begin with the subject at the beginning, an assignment which, like .the present, on its face, purports to be but a pardal assignment, is so to be regarded and treated until the contrary be shown. (United States v. Howland, 4 Wheaton 108; U. S. v. Longton, 5 Mason 280; Wilkes v. Ferris, 5 Johns. 335; Rundlett v. Dole, 10 New Hamp. 458, 471; Driscoll v. Fish, 21 Pick. 503.) We do not perceive why this rule is not as applicable to the case before us as to assignments under which the United States attempt to assert their priority, under the acts of Congress of 1797 — 1799. In both cases it may be said the assignors have a motive not to bring the assignment within the statute, and so will be likely to adopt terms of exclusion; but that is equally true of many other legal requisites, and of almost all prohibitions in regard to contracts ; and still it has always been held as one cardinal rule of construing contracts, even in regard to statutory requisites — positive or negative — so to expound them that they may be upheld, when that can fairly be done. Applying this rule to the present case, it resolves itself into a question of an attempt to evade the statute; for the deed, in terms, recites that this is the purpose of its execution, to devote a portion of the debtor’s property to the payment and security of “ certain specified debts, and the other debts due from him.” If this purpose is bona fide carried out in the instrument, then the transaction is what it purports to be, a partial assignment of the debtor’s property, and not a general assignment. As no question of this kind was raised in the court below, it could not have been expected the court would charge with reference to it. Such a course, where — 475 — no testimony was offered upon tlie point, would itself have been error. ¥e might, therefore, content ourselves, and affirm the judgment at this point, since the charge, upon the face of the instrument — there being no attempt to impeach its bona Jide character — was undoubtedly correct. But it is no doubt competent for such creditors as choose not to come in under the assignment, always, to raise the question whether an assignment claiming to be partial is not, in fact, general, and to give evidence to show such fact, which, under proper instructions, is to be submitted to the jury; and it may be proper to state here, the elements which must determine such issue. 1. It would not be enough to impeach the assignment as a partial one, that it was made Such to evade the statute against general assignments, and that but for that statute, none of the- property would have probably been omitted; for it was to have been expected, and was commendable in the parties, to conform to the existing law, although aiming to go to the utmost verge of its indulgence, and evidently disposed to go further, in that direction, but for the law. 2. The question is, did the debtor, in fact, make a general assignment, although denominating it a partial one? For this purpose it is not needful the assignment should include absolutely all the debtor’s property, but it should be substantially all; so that, for the purpose of continuing his business, or paying his debts, or future* subsistance, he might just about as well have included the part omitted. 3. The question will have to be determined by the jury, then, in the exercise of a wise discretion with reference to the relative amount of the property omitted, to the debtor’s whole property, and the character of that omitted. 4. If the property omitted was insignificant in amount, with reference to the whole, or if it was mainly beyond the reach of process, or exempt from process, or of such a character as not readily to be made available, either to the creditors or to the debtor, and the great mass of the debtor’s available property which constituted the basis of his business operations, and wMch could alone form any reliance to himself for support, or tó his creditors for payment, was included in the deed, the deed should undoubtedly be regarded as a general assignment, within the mischief intended to — 476 — be remedied by tbe statute. Short of this, the assignment, being in terms partial, should not be regarded as made in bad faith toward the statute. No question of this kind was raised, or probably could have been, with much propriety, when so large a sum as fifteen or twenty thousand dollars was omitted. The judgment is affirmed. Note. — In the course of the examination of that part of the assignment which is made directly to certain creditors, for their own security, we entertained no doubt that such assignments are not within the mischief of the statute; certainly not, unless the bulk of the creditors are included, and substantially all the property; and we should have been prepared to uphold that part of the assignment, upon that ground alone, had not the other portion of the assignment converted the whole into a trust assignment, for the benefit of other creditors, and ultimately of all the creditors. Footnotes [*] Note. — The New York courts have finally, since the decision of this case, receded from their former, ground, and now hold that an implied power to sell on credit, does not avoid the assignment, and have really assumed the same ground we do here. Kellogg v. Slauson, N. Y. Court of Appeals, Nov. 1854.