Kansas City Packing Co. v. Hoover

Mr. Justice Shepard delivered the opinion of the Court: x. The statutes of Elizabeth for the prevention of fraudulent conveyances, are in full force in the District of Columbia, and have stood without a single amendment (until the act of Congress of February 24, 1893, regulating assignments for the benefit of creditors, Supp. R. S., Vol. 2, p. 90, which has no bearing on the present case), and its courts, so far as we can ascertain, have always given them application in the spirit of Lord Mansfield, who said of them: “ They cannot receive too liberal a construction, or be too much extended in the suppression of fraud.” Cadogan v. Kennett, 4 Cowp., 432. Under these statutes, it has generally been held that a failing debtor may make an assignment of his property, in whole or in part, for the benefit of a part only of his creditors, notwithstanding the necessary effect — 273 — thereof is, to a certain extent, to hinder and delay other creditors in the collection of their debts; provided always that the sole purpose of the conveyance appears to be the discharge of honest debts, without any special intent whatever to hinder, delay or defraud, creditors, and without any reservation, or attempted reservation, in the interest of the assignor. Special provisions liable to give a benefit to the assignor, or to produce unnecessary or unreasonable delay, or to subject the property to probable waste, have generally been held to create an indisputable presumption of fraudulent intent, though some highly respectable courts have treated many such provisions as badges of fraud only, which require satisfactory explanation through extrinsic evidence. We think the sounder doctrine is asserted by those cases which hold that the instrument must speak for itself, and that where the apparent effect of its provisions is to hinder or delay creditors, beyond that necessaiy delay incident to all valid assignments, it should be construed to be void against all such creditors, without stopping to inquire into what may, notwithstanding, have been the actual intention of the grantor. Tested by this rule, we are of the opinion that the assignment under which it is claimed the property of defendant passed to George E. Parker, as trustee, is void as to the creditor plaintiff, and was properly so declared in the court below. ; The provisions of the instrument relied upon, as showing forth the unlawful intention of the assignor, will be briefly considered in the order in which they have been recited in the preliminary statement. Reservations of the surplus, in the interest of the assignor, have quite generally been held sufficient to avoid the assignment. Chafee v. Blatchford, 6 Mackey, 439; Pierson v. Manning, 2 Mich., 445 ; Dana v. Lull, 17 Vt., 390; Truitt v. Caldwell, 3 Minn., 257; Green v. Trieber, 3 Md., 11. And this, too, no matter if it may be clearly shown there would be none. Barney v. Griffin, 2 N. Y., 365. See, also, Wait on Fraudulent Conveyances, Sec. 327. — 274 — The proposition, however, that the mere reservation of the surplus for the benefit of the assignor or grantor, will vitiate the instrument under all circumstances, is rather too broad for our acceptance, for this is the condition that in equity-attaches to all conveyances of this kind, and where the instrument is apparently in the nature of a mortgage to secure certain debts, or such an assignment as provides for the payment of all indebtedness, without restriction, before the reservation can become operative, and there are no other objectionable features, we do not see how it can reasonably be held void. 2 Bigelow on Fraud, 276 ei seq. But we think that the rule should apply with full force to an instrument like the one under consideration, when the reservation clause is taken in connection with its general tenor. In this assignment no creditors are named. The time for consent, so as to participate in the distribution, is limited to thirty days. No provision whatever is made for giving notice to creditors so that this option may be availed of. The instrument conveys all of tire assets of the assignor. Under its terms, a few creditors may, by accident or favor, learn of the assignment in time to avail themselves of it, and the trustee might convert the estate into money, pay off these few, and turn over the surplus before some of the creditors might even learn that such an instrument had been made. It is this opportunity for the perpetration of fraud, which may or may not have been actually intended, that, in our opinion, makes the reservation clause of this particular instrument illegal. The provision which permits the trustee, at his discretion, to carry on the business of the assignor is particularly objectionable. We do not see how it can be well regarded as anything but a special contrivance through which creditors may be hindered, delayed and defrauded. Grant that, in particular cases, such a power, if honestly and efficiently exercised, might enure to the advantage of creditors and benefit all interests, still its general effect can hardly be other than vicious, as furnishing a ready means, not only for advancing the interests of the assignor, but also for defrauding the — 275 — creditors and forcing them to accept conditions that may be imposed by the debtor, acting in concert with a pliant trustee of his own creation. Where it is to the interest of creditors that a business should be carried on for a time, they may be safely and wisely left to the exercise of their own discretion in the matter through general agreement; or the power of a court of equity may be relied upon when applied to tor relief in the proper manner. In some States, including Massachusetts, where this instrument was made, provisions similar to this one have been upheld; but the weight of authority, as well as reason, is decidedly against them. Chafee v. Blatchford, 6 Mackey, 459; DeWolf v. Sprague Mfg. Co., 49 Conn., 282; Jones v. Syer, 52 Md., 211; Dunham v. Waterman, 17 N. Y., 1; Gardner v. Com. Nat. Bank, 95 Ill., 298; Peters v. Light, 76 Pa. St., 289; Means v. Dowd, 128 U. S., 273; 2 Bigelow on Fraud, 308; Wait on Fraudulent Conveyances, Secs. 330, 331. The clause empowering the trustee to sell the assigned estate on credit, has also received the condemnation of many of the courts of the States, as well as of the then appellate court of this jurisdiction. Hayes v. Johnson, 6 D. C., 174; Nicholson v. Leavitt, 6 N. Y., 510; Bowen v. Parkhurst, 24 Ill., 258 ; Barney v. Griffin, 2 N. Y., 365 ; Sutton v. Hanford, 11 Mich., 513 ; Gardner v. Com. Nat. Bank, 95 Ill., 298 ; Hutchinson v. Lord, 1 Wis., 249; Keep v. Sanderson, 2 Wis., 31; Whipple v. Pope, 33 Ill., 334; 2 Bigelow on Fraud, 306-7. And it seems also to have met the approval of the Supreme Court. Means v. Dowd, 128 U. S., 282. The stipulation relieving 'the trustee from all responsibility for “ the default or misdoings of any agent or employé, except the same shall arise by or through his own wilful default or neglect,” is highly objectionable in that it changes, to the disadvantage of the beneficiaries, the measure of diligence which the policy of the law requires of all trustees. A provision substantially like this has been held by the General Term of the Supreme Court of the District sufficient of itself to avoid an assignment for the benefit of creditors. Hayes — 276 — v. Johnson, 6 D. C., 174. And this conclusion has the support of quite a number of well considered cases. Hutchinson v. Lord, 1 Wis., 249; Litchfield v. White, 7 N. Y., 438 ; McIntire v. Benson, 20 Ill., 500; True v. Congdon, 44 N. H., 48; Olmstead v. Herrick, 1 E. D. Smith, 310; 2 Bigelow on Fraud, 323. When we consider this exemption from liability in connection with the stipulation which limits the benefits of the trusts to creditors who in writing “accept and accede to these presents,” and also with that which permits the trustee to continue the business of the assignor, it is hard to escape the conclusion that it was specially devised and inserted in the instrument as part of a scheme to hinder, delay, and defraud creditors. 2. It is contended, however, on behalf of appellant, with much earnestness, that this assignment, notwithstanding our opinion of it, must be given effect because it is a contract for the conveyance of personal property made in Massachusetts, and valid under the law of that Commonwealth. We have been cited to no statute, and it is not clear to us, by any means, that this assignment would be sustained in the courts of Massachusetts, as regards all of its provisions. It seems, also, that it might be held inoperative there, on the technical ground that it does not appear to have been actually signed by the proposed beneficiaries, or any of them, as contemplated by its terms. May v. Wannemacher, 111 Mass., 202 ; Faulkner v. Hyman, 142 Mass., 53 J Hewlett v. Cutler, 137 Mass., 285. Let it be granted, however, that this is a perfectly valid instrument under the law of Massachusetts, and would be given full force and operation there, still it does not follow that we must necessarily enforce it here, against a resident of this District, attempting to subject property therein situated, to his just debt, when its provisions are unmistakably against the public policy of this jurisdiction. We have less hesitation in refusing to give effect to such an instrument made in Massachusetts, because no court in — 277 — the Union has been more zealous or constant than the Supreme Judicial Court of that Commonwealth in maintaining the doctrine that, “ comity does not require that an assignment for the benefit of creditors should be executed, when it would be against the public policy of the State where the remedy is sought, or would be injurious to the best interests of its citizens.” Faulkner v. Hyman, 142 Mass., 53 ; May v. Wannemacher, 111 Mass., 202 ; Ingraham v. Geyer, 13 Mass., 146; Frank v. Bobbitt, 155 Mass., 112. But we do not find that this is a Massachusetts contract, in the sense that it must be considered as intended to be governed by her laws. The mere fact that it was drawn and executed in that State is not sufficient. There is nothing on the face of the instrument, or in the answers of the garnishees, which lead to the conclusion that it was intended to have any operation in Massachusetts at all. It is not made to appear that the assignor had its domicile, or a place of business even, or any property whatever, in that State. On the other hand, the presumption would seem to lie, that it was actually intended for operation in the District of Columbia, chiefly if not exclusively, in so far as the administration of the trust is concerned, for the recital is that the assigning corporation has “ an office and place of business in Washington, D. C.,” and the only property of which the record shows the existence is also situated therein. In the light of these facts, it may properly be held that it was the intention of all parties that the interpretation and operation of the assignment should be governed by the laws of the District of Columbia. Fowler v. Eq. Trust Co., 141 U. S., 384; Hall v. Cordell, 142 U. S., 116; Coghlan v. S. C. R. R. Co., 142 U. S., 101. Moreover, if a resident of this District — as this assignor apparently was — should go into another jurisdiction expressly to make an assignment of his property situated here, which would be valid there but invalid here, by reason of its being opposed to public policy as it is declared by the courts of the District, that fact alone would be sufficient warrant for — 278 — us to set it aside, on the application of injured creditors, no matter where they might reside, in a proper case. It follows from what has been said that the several judgments of condemnation, appealed from must be in all things affirmed, with costs to the appellee. Affirmed.