Ingram v. Osborn

Cassoday, J. The plaintiff’s indebtedness against Smith, upon which this action was brought, was incurred more than six months before the making of the contract with the railroad company. At the time of making that contract, Smith had no available means and was insolvent, and with no ability to pay his numerous debts. He seems to have had, however, sufficient force of character to secure a contract with the railway company for putting in an ore-dock amounting to nearly $200,000, notwithstanding the fact that he had not the means for carrying it into execution, and was badly in debt. Through his acquaintance with Osborn, the latter was induced to furnish the requisite bond and sureties, and agreed to put $5,000 into the business under the parol agreement that he should have one half of the net profits and devote only one week in each month to the business. After having put $4,800 into the business, and after about one month’s experience, and before there were any profits in the concern, and when the total estimates had only reached about $9,000, Osborn discovered that it would be necessary for him to devote his whole time to the business, and to put $3,000 more into it during the next month, or to subject himself and the sureties on the bond which he had furnished to a forfeiture of the contract and consequent liability for damages upon the contract and bond. Smith was not only powerless to aid in the matter, but his embarrassments, in consequence of his insolvency and prior existing individual indebtedness, subjected the business to additional annoyances by way of — 191 — garnishments which might prevent estimates and the payment of men employed, and thus jeopardize the execution of the contract and the liability of the bondsmen without any benefit to any one. All the parties were, under the stringent conditions of the contract.in case of any default in its performance, wholly in the hands of the company, which might thereupon terminate the contract and hold the sureties for damages. Smith, realizing the situation, expressed the necessity of his getting rid of the contract, or he would, in the manner indicated, be deprived of anything to live on, as in case of garnishment there would necessarily be a stoppage of payment. In view of the whole situation, it was agreed, with the consent of the company and the sureties, that Smith should sell and assign all his right, title, and interest in the contract, tools, and materials on hand to Osborn, who agreed to assume and pay all debts of the concern, carry out and execute the contract in the name of 0. 0. Smith & Co., employ Smith to superintend the same at $200 per month, and in case the net profits of the job reached the figures named, or less, then he was to pay on Smith’s prior indebtedness to the bank one of the sums named. All this was done and the papers executed, December 29, 1884. The case must turn upon the validity" of that transaction. There is no pretense that the plaintiff’s debt was among those assumed by Osborn, or in any way7 connected with the business. There is no evidence that the tools and materials on hand at the time of the sale and assignment to Osborn exceeded in value the indebtedness then assumed by him. There is no evidence that Smith’s services were not worth all that he was to receive per month. In the absence of such evidence, we must assume that the skill and ability essential to superintend such a job was worth as much per month as he was to receive. Considerable more money or good financial credit was requisite in order to secure any7 — 192 — thing from the contract, and confessedly Smith had neither. In what way, then, were Smith’s individual creditors, including the plaintiff, to be injured by the transfer? The whole thing was a venture. There was, indeed, a possibility, and we maj'' assume a probability, of securing prospective profits from it. But such profits could only be secured by putting in more money and performing the contract. Smith could not put in any money, and did nothing in performing the contract, except as an employee. Osborn assumed the whole responsibility, did put in more money, and did perform the contract, and thereby secured the net profits. Of course, had the assignment been made with the intent to hinder, delay, or defraud creditors, it would have been void as to creditors. But we find no evidence of such intent. It appears, even, from one of the cases cited by the learned counsel for plaintiff, that the mere fact that Osborn purchased with knowledge of Smith’s insolvency was not evidence that such transfer was made with the intent to defraud creditors. Darland v. Rosencrans, 56 Iowa, 122. It is much stronger in favor of the garnishee than it would have been had Smith retained the contract himself and then sold and assigned the future profits under it. And yet it has been held that such a sale and assignment is operative and valid in equity when fairly made, and not opposed to any rule of law or public policy. Field v. Mayor, 6 N. Y. 179, 57 Am. Dec. 435, and note; Mulhall v. Quinn, 1 Gray, 105, 61 Am. Dec. 414. And in a recent case it has been held that such an assignment of wages to be subsequently earned is good even as against the creditors of such assignor. Lewis v. Lougee, 63 N. H. 287. Where an interest in prospective profits is reserved by the debtor, it may be subject to garnishment after it has actually accrued and become payable to him, but not before. Foster v. Singer, 69 Wis. 392. But here the debtor absolutely disposed of all his — 193 — right, title, and interest in and to the whole contract. He retained nothing but mere employment at fair wages, which he made no attempt to dispose of. There is nothing to indicate that any portion of such profits were to be secured or held by Osborn for the benefit of Smith. The transfer was intended by both Osborn and Smith to be complete and absolute. True, in consideration of the sale and assignment, Osborn was to make a payment to the bank' — ■ a creditor of Smith’s,— the amount of which was to depend upon whether the net profits should be above or below a certain figure named. But that was not for the benefit of Smith, but for the benefit of one of his creditors. True, it was a cancellation of one of Smith’s debts to the amount, of such payment, but it would be a solecism to say that it operated, or could operate, as a fraud upon any of Smith’s creditors. The agreement to make such a payment was obligatory upon Osborn from the moment it was entered into, and was enforceable by the bank as soon as such profits accrued. Wynn v. Carrier, 20 Wis. 107; Putney v. Parnham, 27 Wis. 187; Johannes v. Phenix Ins. Co. 66 Wis. 57. The only remaining question is whether the transaction ivas void as securing a preference to one of Smith’s creditors over others? At the time of that transaction, preferences were only forbidden when given by an “ assignment ” “ made for the benefit of creditors,” or in transfers by the debtor made within sixty days prior to the making of such an “assignment” by him. Oh. 349, Laws of 1883. Here there was no assignment “for the benefit of creditors,” unless the sale and transfer of the contract with the railway company is to be regarded as such an assignment. If that is to be regarded as a voluntary assignment “ for the benefit of creditors,” then it was also void for the further reason that it ivas not accompanied by the bond and other conditions required in the making of such assignments. Secs. 1694-1696, E. S. The statute expressly declares that “all — 194 — voluntary assignments or transfers whatever . . . for the benefit of or in trust for creditors shall be void as against the creditors of the person making the same, unless ” such bond is given-and 'such other conditions complied with. Sec. 1694. There can be no question but what the “ assignments” mentioned in oh. 349, Laws of 1883, refers to the same class of “assignments or transfers” thus mentioned in the statutes. The whole question, therefore, resolves itself into this: Was the transaction in question a voluntary assignment or transfer “ for the benefit of or in trust for creditors,” within the meaning of the statute? . It is claimed that this is such an assignment, within the decision of Winner v. Hoyt, 66 Wis. 227. In that case, the debtors transferred all their property not exempt by means of six chattel mortgages and five assignments running to five different creditors, and all given at substantially the same time, in pursuance of the same agreement, for the •same common purpose, and in relation to the same subject matter, with the understanding and intent that one of such creditors, for himself and as agent and trustee for tibe others, should take immediate possession, -which he did, and then convert the same into money and divide the same gyro rata among such favored creditors. The court simply held that such eleven written instruments, given under such circumstances and for such a purpose and with such an understanding and intent, would be construed together as one instrument in law, and that when so construed they were in legal effect a voluntary assignment or transfer of all- the property of the debtors not exempt “ for the benefit of or in trust for creditors,” within the meaning of the statute. Certainly they transferred all the property of the debtors. Certainly all of such propertjT was taken by one of such creditors, for himself and as agent and trustee for the others, with the intent of all the parties that he should con-:ver.t such property into money and then divide the same — 195 — pro rata among such favored creditors. The mere fact that he was a creditor as well as such agent and trustee did not deprive the transaction of its trust feature thus imposed for the benefit of such other creditors. If that was not an assignment for the benefit of or in trust for creditors within the meaning of the statute, then there can be no such assignment or transfer unless made in the precise manner prescribed by the statute. But that would be the complete subversion of this statute, which clearly contemplates other ways of making “voluntary assignments or transfers . . . for the benefit of or in trust for creditors,” than thus prescribed, and then declares that if one is made in any such other way it “shall be void as against the creditors of the person making the same.” This distinction was maintained in Landauer v. Victor, 69 Wis. 434. Thus, also, in Lucas v. Sunbury & E. R. Co. 32 Pa. St. 464, it was said by the court: “We have here property, a trustee, a trust, and creditors of an insolvent company, who are to take under it; and the simple question is whether, by an ambiguous inversion of language, the real meaning of this instrument can be so covered as to defeat the operation of a most salutary law,” and then the court held the instrument to be a voluntary assignment in trust for some of the creditors of the assignors. See Lookout Bank v. Noe, 5 S. W. Rep. (Tenn.), 433. According to Barrill, “ voluntary assignments for the benefit of creditors are transfers, without compulsion of law, by debtors, of some or all of their property to an assignee or assignees, in trust, to apply the same or the proceeds thereof to the payment of some or all of their debts, and to return the surplus, if any, to the debtor.” Burrill, Assignm. § 2; Wiener v. Davis, 18 Pa. St. 333. Where the assignment is by way of security only, such trust is implied from the nature of the security as to any surplus that may remain. Barrill, Assignm. § 3. There must be a trust, a trustee, creditor^ and cestui gue trust, who can compel an — 196 — enforcement of the trust, in order to constitute an assignment for the benefit of or in trust for creditors. Bisb. Insol v. § 130. Dickson v. Rawson, 5 Ohio St. 222. “Where the assignment is to a single creditor, or to a few selected creditors, and is made absolutely and by way of full payment or satisfaction, it is, of course, wholly divested of the character of a trust, and is in the nature of an ordinary conveyance or sale for a valuable consideration." Burrill, Assignm. § 3. Here, in our judgment, the sale and transfer to Osborn was absolute and unconditional in consideration of the full or partial payment and satisfaction of a debt actually due to the bank from Smith, unaccompanied by any trust in favor of Smith or any of his creditors. It follows that the transaction in question was not an assignment or transfer for the benefit of creditors, within the meaning of the statute. At the time the garnishee papers were served upon Osborn, he had paid Smith about $100 more than was due him for wages. By the Court.— The judgment of the circuit court is affirmed.