B. Baer & Co. v. John V. Farwell Co.

Mr. Justice Scofield delivered the opinion of the Court. B. Baer & Co., merchants, finding themselves largely indebted, mortgaged certain tracts of real estate to certain of their creditors, and conveyed their stock of merchandise and their accounts and account books, together with the fixtures in their store, to eight of their creditors, to have and to hold the same upon the express condition that they would take possession of the goods and sell the same, and collect the accounts, and pay out of the proceeds the expenses incurred in so doing and the amounts due to the grantees, and then pay to the grantors the balance, if any, remaining in their hands. The other creditors of B. Baer & Co. filed a petition in the County Court to have these instruments declared to be an assignment for the benefit of creditors under the voluntary assignment act, and the court made an order in conformity with the prayer of the petition, and proceeded to administer the estate in accordance with the provisions of the statute. B. Baer & Co. and the grantees in said instruments have brought the case to this court by a writ of error, and now ask for a reversal of the order of the County Court. It is admitted by counsel for defendants in error that a conveyance made in good faith to certain creditors to pay the amounts due them, is not a voluntary assignment, under the statute. Burrill on Assignments, Sections 2 and 3; Weber v. Mick, 131 Ill. 520; Walker v. Ross, 150 Id. 50; Price v. Laing, 152 Id. 380. In an assignment for the benefit of creditors there must be a trustee, and therefore the conveyance must be to a third party, or, if it be to a creditor, it must provide for the payment of the claim of other creditors besides the grantee. This being the law, the said instruments do not constitute an assignment for the benefit of creditors. The conveyance is to the grantees for their own exclusive benefit, and the grantees can not be trustees for themselves. But it is said that four of the grantees in the conveyance of the personal property are not Iona fide creditors of B. Baer & Co., and that in such case they are really third parties, and should be declared to hold the property in trust for the benefit of creditors generally. Thus, by operation or construction of law, a fraudulent deed to a fraudulent grantee is to be transmuted into the pure metal of a voluntary assignment for the benefit of creditors. There can be no doubt that such a fraudulent conveyance would be ground for an attachment, or for a bill in equity to set aside the conveyance and to hold the fraudulent grantee accountable for the property as a trustee. But that a constructive trust of this nature should be called a voluntary assignment, when the grantor has not sought to make such an assignment, and has made no declaration of trust, is a proposition which can not be maintained by reason or authority. The object of the voluntary assignment law is to give a failing debtor an opportunity to put his property into the hands of a trustee for equal distribution among his creditors. But the debtor’s creditors can not compel him to make an assignment. The assignment must be voluntary ;—that is, the debtor must will to assign. Instead of willing to assign, the debtor may decide to prefer certain creditors, or to permit his creditors to help themselves through the instrumentality of executions and attachments. If he does not will to assign but undertakes to defraud his creditors, or some of them, equity may treat the fraudulent grantee as a trustee, or the creditors may attach the property, but there is no power in the County Court to declare the transaction an assignment for the benefit of creditors. All of the decisions to the Supreme Court are reconcilable with the views of the law above expressed. In Weber v. Mick, 131 Ill. 520, it is said: Said act was passed in 1877, under the following title : “An act concerning voluntary assignments and conferring jurisdiction therein on County Courts.” The subject-matter of the act was thus limited to “ voluntary assignments,” and even if it had contained express provisions attempting to deal with or regulate “ involuntary assignments,” or any subject other than the one embraced' in the title, such provisions would have been void under section 13, article 4, of the constitution. For the same reason it must be held that every attempt to apply the act, or any of its • provisions, by construction, .to any subject other than “voluntary assignments, must be wholly unavailing.” “ Such assignments have always been understood to be instruments voluntarily executed by a failing debtor by which he assigns to some third person, as assignee or trustee, the whole, or sometimes the bulk, of his property, to be by such trustee distributed among the assignor’s creditors in satisfaction of their demands.” In this case the Supreme Court quote approvingly from Burrill on Assignments, as follows : “A voluntary assignment for the benefit of creditors implies a trust and contemplates the intervention of a trustee. Assignments directly to creditors, and not upon trust, are not voluntary-assignments for the benefit of creditors. Assignments may be made either to the whole body of the creditors or to particular creditors, or they may be of all or a part of the debtor’s property; but unless a trust is thereby created by the assignor in favor of creditors, such conveyances are not within the class of instruments known as assignments for the benefit of creditors.” In Walker v. Ross, 150 Ill. 50, it is said: “The mere form of the instrument is, no doubt, immaterial, provided the operation of it is to create a trust in the property conveyed, for the benefit of the creditors. It must be an actual trust, created by operation of the instrument itself. This court has repeatedly said that the statute contemplates no such a thing as a constructive trust.” “Appellant Boss did not intend to make an assignment for the benefit of creditors, and never did make it, for the reason that he did intend to make preferences, and he knew he could no„t do so by such an instrument;” that is, by an assignment under the statute for the benefit of creditors. The same thought is forcibly expressed in Price v. Laing, 152 Ill. 380, in the following language: “The declaration of trust is as much an essential part' of an assignment for the benefit of creditors as is the conveyance or transfer of the property. It, of course, needs no citation of authorities to show that the title to personal property, goods and chattels, may be transferred by parol and without any writing, and may be proved by oral testimony. The claim and the logic of appellants would -lead to this result: that a writing is not essential to establish either the transfer of title or the declaration of trust, and that therefore neither is a prerequisite to a valid assignment for the benefit of creditors, and such an assignment may rest wholly in parol. A result such as this is not in consonance with the common understanding and practice in the mercantile and business community, with the doctrine laid down in the boohs, with the adjudged cases, or with the evident intent of the legislature, as indicated by the provisions of the act.” But counsel for defendants in error seek to avoid the force of this language by seizing upon the expression “ constructive assignment,” used afterward in the opinion, and by making a delicate distinction between a constructive assignment and a constructive trust. The court, indeed, holds that there can be no constructive assignment, say counsel; therefore the property must be conveyed by a written instrument, whether it be real estate or personalty. But the court does not hold that the trust must be expressed; therefore the trust may be proved by parol, and may even be made to arise out of a fraudulent conveyance, by construction of law, when no assignment for the benefit of creditors was contemplated by the parties. This argument is overthrown by a careful perusal of the opinion of the court. There was, in fact, a written transfer of the title to the property, which was personalty, and the argument of the court was intended to show that the trust could not be shown by parol, but must appear upon the face of the instrument. It makes no difference whether the thing is called tweedledee or tweedledum. In any event the meaning of the opinion is plain, that is to say, that the court can not “ construct for the parties an assignment ” which the parties have not made for themselves. What is it, then, that the parties must make for themselves ? An assignment simply? No; but an assignment for the benefit of creditors. The trust must appear in the instrument itself. A very recent statement of the law on this question is as follows: “Under the cases cited it is plain that in order to create an assignment, within the meaning of the statute, the property must be conveyed to a trustee or assignee, who is to sell it absolutely, and not on a contingency, and distribute the proceeds among the creditors. The conveyance or assignment must pass the legal and equitable title, with no right of redemption in the debtor. The assignment must be in writing, and the writing create the trust, and cut off all equity of redemption.” Lumber Co. v. Union National Bank, 159 Ill. 458. It is said, however, that the case of Farwell v. Cohen, 138 Ill. 216, is an authority against the proposition that an express declaration of trust must appear in the instrument. We deem it unnecessary to enter into an elaborate examination of the Cohen case. It is sufficient to say that the learned justice who wrote the opinion in the Cohen case, afterward wrote the opinion in Price v. Laing, and in the latter, case referred to the former as follows: “ In Farwell v. Cohen, 138 Ill. 216, a very informal written instrument was held to be a voluntary assignment for the benefit of creditors. It, however, transferred property and declared a trust.'” Hence, in the opinion of the Supreme Court, there was no conflict between the two cases. Nor do we imagine for a moment that the Supreme Court have ever intended to intimate, by the use of the expressions good faith and bona fids indebtedness, in some of the cases above cited, that a conveyance made for the purpose of defrauding creditors is a voluntary conveyance for the benefit of creditors. The order of the County Court is reversed, with directions to that court to dismiss the petition at the cost of the petitioners.