Claflin & Co. v. Iseman

The opinion of the court was delivered by Mr. Justice McG-owan. Manuel Iseman, merchant, of Marion, S. C., became embarrassed, and on January 29, 1884, executed an assignment of all his property, real and personal, to Junius H. Evans, Esq., for the benefit of his creditors, upon the following trusts: First, to pay all the expenses necessarily incident to the execution of the trusts therein imposed; second, to pay all his creditors in equal proportions, that is, pro rata, if the amount in his hands should not he sufficient to pay those in full who should come in and signify thoir acceptance under the deed of assignment, within four months from the date, provided said creditors so accepting should execute a full release and acquittance of their respective debts, and receive their respective proportions from the assignee in full payment thereof; third, “lie shall, after the payment of all the creditors who accept, pay over the balance to me, if any balance should remain in his hands,” &c. Junius H. Evans accepted the trusts declared by the deed, and several of the'creditors, in person or by agent, met and appointed Duncan Murchison, Esq., their agent in the management of the assigned estate. H. B. Claflin & Co., of New York, held a large demand against Iseman, contracted in 1883. They did not accept under the assignment, but sued on their claim, and on April 23, 1884, obtained a judgment for $7,890.48.- Execution entered on the judgment was returned unsatisfied, and they then instituted these proceedings against Iseman, his assignee, and the agent of creditors, “to set aside the deed of assignment,” and alleged “that the deed is fraudulent and void upon its face, in that it reserves to the assignor the benefit of any surplus which shall remain after the payment in full of the creditors who shall accept under the provisions of the said deed, to the exclusion of all other creditors,” and that it was made and executed by the said defendant “to hinder, delay, and defraud his creditors,” &c. Judge Hudson granted an order staying proceedings under the assignment until further order, and the cause coming on for hearing before Judge Wallace, he ordered and adjudged, “That the deed of assignment be set aside and vacated as null and void, and that the said Junius H. Evans do pay to H. B. Claflin & Co., — 423 — out of the funds in his hands as assignee of Manuel Iseman, the sum of $7,890.40, with interest thereon from the date of the judgment for that sum obtained by H. B. Claflin & Co. against Manuel Iseman, together with the costs of the action in which the judgment was obtained, as well as the costs of this action,” &c. From this decree the defendants appeal to this court, upon the following grounds: “I. Because his honor erred in holding that the assignment of M. Iseman to Junius II. Evans for the benefit of his creditors is void, from the fact that it is provided in the same that after. the payment of all the creditors who accept, the assignee do pay over the balance to the assignor, if any balance should remain, as fraudulent, though there was no fraudulent intent. “II. Because his honor erred in holding that the assignment of M. Iseman, made to Junius H. Evans for the benefit of his creditors, was null and void from the fact that he inserted in the same a third clause, as before stated. “III. Because his honor erred in holding that the assignment is null and void, in consequence of the third clause being obnoxious to the statute of February 9, 1882, though it is admitted by the plaintiffs and decided by the court that M. Iseman had really no fraudulent intent when he executed the assignment. “IV. Because his honor erred in holding that the assignment is null and void, from the fact that it is fraudulent on its face, and obnoxious to section 2014 of the General Statutes. “V. Because his honor erred in ordering the assignee to pay over the funds in his hands to II. B. Claflin & Co., instead of ordering him to distribute the sum equally among creditors as equitable assets.” The order granting the injunction and the decree of the Circuit Judge are both so clear and full that it 'is difficult to add anything to them. All that we can do is to put in form the con-' elusion already announced. Until the recent statute (1882) in regard to assignments for the benefit of creditors, the law allowed a debtor in failing circumstances to assign his estate for the benefit of his creditors, and in doing so to prescribe the order in which they should be paid, or to make preferences among them. Hill v. Rogers, Rice Ch., 7; — 424 — 2 John. Ch., 578. It was also, after some discussion as to the morality and policy of such allowance, finally settled that the debtor might attach the condition that the accepting creditors should execute a release in full. Niolon v. Douglas et al., 2 Hill Ch., 446. As it seems to us, these great privileges were allowed to the debtor always upon the fundamental condition .that the assignment should bona fide include his whole estate (LePrince v. Guillemot, 1 Rich. Eq., 187), and without reserving to himself, diréctly or indirectly, any part of it, until all the debts are paid. This view is expressly sustained by the case of Jacot v. Corbett, Chev. Eq., 76. In this last named case, the assignee was directed to pay certain claims in full, and then, “out of the surplus, to all the other creditors, who would accept the same in satisfaction of their demands, and execute a release thereof to the said James Corbett, by the first January next ensuing the date thereof, forty cents in every dollar of the amount of their claims, if the same was adequate thereto; and if not, to distribute such surplus rat-ably and in proportion among such creditors. And after payment of the said forty cents in every dollar, then if any surplus should remain, &c., to pay over the same to the said James Corbett, his executors, administrators, or assigns,” &c. After mature consideration, it was held that, as against the plaintiff, the assignment was void and of none effect. ' It is true that there was in the case the other matter — limiting the payment to general creditors to forty cents in the dollar (which was not reached) — ■ but a careful perusal of the judgment, we think, will show that the vice which proved fatal was the reservation of the surplus, if any. Chancellor Dunkin, in his Circuit decree, which was affirmed in the Appeal Court, says: “But a debtor has no right to place his property beyond the reach of his creditors under the ordinary process of the law, prescribe the terms in which they participate in his effects, and secure to himself, in case of neglect or refusal, a control over such funds, and thereby the power to make other terms. Such deed is a direct violation as well of the terms as the policy of the statute (13 and 27 Eliz.). The purpose is to hinder and delay creditors, by transferring a colorable title to a — 425 — third person, while the real ownership is still in the assignor, unless the terms prescribed are assented to. No case, I'think, can be found sanctioning an assignment which sustains such control in the debtor,” citing Hislop v. Clark, 14 Johns., 462; Austin v. Bell, 20 Johns., 448; and Mackie v. Cairns, 5 Cow., 585; and explaining Lynah v. Lynah (Mss.), and Murray v. Riggs, 15 Johns., 571. As we understand it, this case of Jacot v. Corbett has never been overruled, but, on the contrary, has been cited and approved. See Stewart v. Kerrison, 3 S. O., 266. But it is strongly urged upon the court that in this case Mr. Iseman, the debtor (ryho, we are pleased to state, has the reputation of an honest man), did not, in signing the deed prepared for him, intend to do anything wrong; that the reservation was merely theoretical, in fact “hypothetical” and “supposititious,” and that the actual fact is that the assigned estate amounts to very little over $12,000, and creditors representing $29,000 of claims have already accepted the terms of the assignment, showing conclusively that there will be no “balance” going back to the debtor under the reservation, and that therefore it will be an anomaly to declare an assignment fraudulent and void in law which was executed without fraudulent intent, and does not operate as a fraud upon any one. This view at first strongly impressed some members of the court, but upon careful consideration of the principles' involved and our decided eases, we feel constrained to concur in the conclusion reached by the-Circuit Judge. Precisely the same view was urged in the case of Jacot v. Corbett, supra, in which it was solemnly held that the argument was not sound. Although it does seem to be a hard case, the better opinion seems to be that “the character of the transaction must be determined by the interest of the parties at the time, and not by subsequent events.” At the time the assignment was executed, it was certainly thought that there might be “a balance,” or, as we suppose, the reservation would not have been made. We have not been able to examine all the cases cited by the appellants, but from those to which we have had access it seems to us that proper consideration was not always given to the dis — 426 — tinction between a trust resulting from the circumstances and an express reservation in the deed of assignment itself. We have examined the case of Beck v. Burdett (1 Paige, 305), which seemed to be the case principally relied on by the appellants. We do not consider that case as at all analogous to this. That did not pretend to be a general assignment of the debtor’s property for the benefit of all his creditors, with a condition requiring them to release any balance that might be unpaid; but, on the contrary, it was, in the exercise of the right which he had at that time to prefer one creditor', a partial assignment to pay certain debts in full and to return the balance if any. It was, in effect, the payment in the manner provided of these particular creditors, and, of course, if too much was paid, it should be returned. At all events, the cases cited were not South Carolina cases, and we regard our own cases as controlling upon us, and in so doing we cannot avoid the conclusion that they are decisive of this case even under the old law. But in 1882 the legislature passed an act upon the subject of assignments for the benefit of creditors, which will be found in the General Statutes, from sections 2005 to 2016, inclusive. It will be observed that section 2014 expressly takes away from the insolvent debtor the right to make preferences, which, as we have seen, existed before the act, “save only as to debts due the public, and as to such creditors as may accept under the assignment and release.” The act does not in express terms directly touch the subject of a reservation to the debtor or its effect. But it is manifest that the intent Avas to restrict .the rights of debtors in making assignments, and Ave cannot doubt that its operation must be to strengthen the decisions that a reservation to‘ the debtor Avas unlaAvful. The act specially denounces preferences, and the obvious effect of a reservation is either to withdraw so much of the debtor’s property from his creditors, or at least to afford him the opportunity to make neAV terms. For instance, under this law such a partial assignment as was dealt with in the NeAV York case of Beck v. Burdett, supra, would be impossible. As stated by the Circuit Judge, this section denounces as absolutely null and void any assignment “in Avhich any provision or disposition of the property so assigned is made or directed other than that — 427 — the same be distributed among all creditors of the said insolvent debtor equally,” &c. A provision, therefore, which directs that, upon certain contingencies, a surplus, if any, shall revert to the assignor, is obnoxious to the denunciation of this statute. What, then, must be the practical effect of the assignment being declared void as to the plaintiffs ? Other creditors have accepted the assignment and thereby undertaken to release the remainder of their debts, upon receiving their pro rata, estimated with reference to the whole assets. Shall the plaintiffs be paid in full, thereby reducing to that extent the assets for distribution ? This seems hard, but as the assignment has been declared void quoad the plaintiffs, it is as to them the same as if it had never been made; and as before the assignment Iseman had property sufficient to satisfy their judgment and execution, we do not see how that result can be avoided. The judgment of this court is that the judgment of the Circuit Court be affirmed. In this case a petition for rehearing was filed, upon which the court, on November 27, 1885, endorsed the following order: We have carefully considered this petition, and as it does not bring to our attention any material fact or important principle which was overlooked in the decision of the case, the petition must be dismissed.