Charles Maloney & Co. v. Gonhue

Hooker, J. The public schools in Escanaba were indebted to Leonard Gonhue, who in turn was a debtor of the plaintiff and several other persons, among whom was a firm known as Norton Brothers. He gave to Norton Brothers a written order in the following words: “Escanaba, Mich., Nov. 4, 1905. “Board op Education, “City: “Please pay to Norton Brothers, or order, the sum of Five Hundred and Forty-two Dollars, and charge the same to my account, and oblige. “Leonard Gonhue.” The money was due upon a contract for building. The plaintiff attempted to reach this money by garnishment proceedings, and, being permitted to recover, the defendants have appealed. The case turned in the circuit court and must here upon the question whether this order was void under the provisions of 3 Comp. Laws, § 9539, as a common-law assignment for the benefit of creditors, by reason of preference, and failure to include all of Gonhue’s property. It is manifest that, upon the face of the instrument, there is nothing to indicate that it was an assignment for the benefit of creditors, but the oral testimony shows that — 327 — the order was given to Norton Brothers with the agreement that they should collect the money due, pay first their own claim and pay the remainder to other creditors who had furnished labor and material on the building (a list of whom was to be furnished later, and which was furnished within a few days), the aggregate of which claims was $576.18, while the order was for $542. Gonhue had'other debts amounting to about $700 and other property worth from $200 to $300. The manifest intention of Gonhue was to secure the payment of said fund to designated creditors, and it is as certain that he had no intention of making á general assignment of his property in trust for the benefit of creditors. The case would not have been essentially different had he handed the Nortons $542 in money with like instructions. If this order is to be held void for the reasons stated, it can only be done by holding an instrument or a transaction resting in parol to be a common-law assignment for the benefit of creditors, which has no semblance of such, and which was never intended to be or operate as such. Assuming, as counsel for both parties do, that the arrangement between the debtor and, the Nortons was the assignment and acceptance of the title to this fund in trust for the benefit of creditors, the right of plaintiff to recover depends upon the question whether this transaction can be held to be an assignment for the benefit of creditors, within the contemplation of the legislature in its enactment of chapter 260 of the Compiled Laws. The contention of the plaintiff’s counsel is substantially that section 9539 includes all conveyances of money or property to another to be applied by him in the payment of any or all debts of the assignor. To the suggestion that a “common-law assignment for the benefit of creditors” has a well-defined meaning in the law and that this statute refers to no other, it is said that the statute enlarges the ineaning, if it could otherwise be held not to include all conveyances of money or property to another to be applied by him in the payment of any or — 328 — all debts. In short, the argument is that inasmuch as it makes void common-law assignments for the benefit . of creditors which are not without preferences, as between such creditors, and which do not include all of the assign- or’s property subject to execution, — ergo—any assignment of property to another, to be used by him to pay one or more of the assignor’s creditors, is a common-law assignment for the benefit of creditors within the meaning of the statute. The act, as its title indicates, and its several sections show, was one designed to. provide for the enforcement of assignments for the benefit of creditors, and not with the primary object of preventing preferences. It provides (in a negative manner at least) what is necessary to an enforceable assignment, and points out the practice in enforcing such assignments. It must be an assignment “commonly called a common-law assignment for the benefit of creditors,” and not any assignment which happens to be made for the benefit of creditors. In other words, the statute does not include all assignments which would be assignments at common law, if, perchance, they are made for the benefit of a creditor, but it limits the assignments included to a class of assignments well known in the law and referred to and described as commonly called common-law “assignments for the benefit of creditors.” The mere fact that a general assignment is made void for preferences does not take it out of the class of common-law assignments to which it belonged. It is still what is known as a common-law assignment, though now made void. It is one of that class of assignments, and no other, then, which must be shown before the statute applies to it at all, unless the argument suggested is to be taken as conclusive of the intent of the legislature to the exclusion of all other considerations. That it should not be so conclusive seems obvious, for the reason that such construction requires the exclusion of words in the statute which, under the best known of the general rules of construction, — 329 — is forbidden, if a construction which avoids such result is possible. It is possible, for the argument made could as well be applied and limited to “ commonly known common-law assignments for the benefit of creditors,” as to the broader class, viz., all assignments having for their object the benefit of creditors. Again, if the latter was intended, why so mucn care to describe them as common-law assignments, still further, as such as are “commonly called (i. e., commonly understood to be) common-law assignments for the benefit of creditors.” Section 50, subd. 1, 1 Comp. Laws, is applicable here: “ (50) Sec. 3. In the construction of the statutes of this State, the following rules shall be observed, unless such construction would be inconsistent with the manifest intent of the legislature, that is to say: “1. All words and phrases shall be construed and understood according to the common and approved usage of the language; but technical words and phrases, and such as may have acquired a peculiar and appropriate meaning in the law, shall be construed and understood according to such peculiar and appropriate meaning.” If a common-law assignment, etc., has a technical meaning, the words must be held to have been so used, while section 9539, by its terms, enforces the application of the first command of subd. 1 of section 50. An assignment for the benefit of creditors, ‘ ‘ commonly known and- called ” such, has ' consisted of a writing amounting to a conveyance of the title to all, or substantially all, of a debtor’s property to another, in trust, for the purpose of closing out his business, converting his property into money, and distributing it among his creditors, to the extent of payment if possible, and, if not, proportionately, or with prescribed preferences. That would be a general assignment for the benefit of creditors, and is the “commonly called common-law assignment for the benefit of creditors.” In Burrill on Assignments (6th Ed.), § 86, it is said: — 330 — “But the most common form of general transfer, and one the best known in the mercantile community, is a conveyance of the debtor’s whole property to one or more trustees or assignees, whether creditors or strangers, for the benefit of the creditors provided for. This is the description of conveyance which the term voluntary assignment has been held to import.” The author shows that assignments for the benefit of creditors may be made directly to the respective creditors. See Burrill on Assignments (6th Ed.), § 3, and cases cited. The only reason that such are not within the letter of the statute is the limitation to be found in the words “commonly called common-law assignments,” etc., and if this limitation is effective thus far, why not farther. Wineman v. Manufacturing Co., 118 Mich. 636; Longley, Low & Alexander v. Hosiery Co., 128 Mich. 194. Burrill says (section 3), in effect, that assignments for creditors that do not create a trust are not within the class of instruments known as assignments for creditors, thus indicating his understanding that the term has a restricted meaning. See, also, Dias v. Bouchaud, 10 Paige (N. Y.), 445, 461, where the words “voluntary assignment ” are held to mean an assignment of all of the debtor’s property in trust to pay debts, — thus giving a restricted meaning to the term. See, also, U. S. v. Clark, 1 Paine (U. S.), 629, 640. “We have seen that the term assignment, in its application to real estate, implies of itself, and without any words of qualification or description, a transfer of the assignor’s whole interest in the subject of assignment. See ante, p. 1. In mercantile language the term is daily used in the same broad sense. When it is said of a merchant that he has ‘made an assignment,’ it is understood, not that he has made a transfer of some specific article, or portion of property, to this or that particular creditor in payment or as security, but that he has made a general disposition of his property, and suspended his whole business inconsequence. In the case of United States v. Mott, 1 Paine (U. S.), 188, 195, the term ‘voluntary assignment ’ was considered to mean an assignment of all the — 331 — debtor’s property. In the Vermont case of Mussey v. Noyes, 26 Vt. 462, 473, it' was remarked by the chief justice that an assignment 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 assignment. See, also, Bishop v. Hart's Trustees, 28 Vt. 71. An assignment intended by its maker to be general — as shown by its language and mode of execution — by which a firm transfers its assets, consisting of personalty alone, to an assignee to secure all its creditors pro rata, will be treated as a general assignment in a litigation involving its validity, when all the parties have so treated it, in their pleadings, although it does not on its face delcare itself and does not in terms purport to convey all the assignor’s property. Lookout Bank v. Noe, 86 Tenn. 21. The material and essential characteristic of a general assignment is the presence of a trust and the assignee taking the title as trustee. Brown v. Guthrie, 110 N. Y. 435. Whether an instrument is a general assignment depends on its character, and not on the name which the parties see fit to give it.” Burrill on Assignments (6th Ed.), § 87, note 1. And Burrill says: The character of the instrument (i. e., one purporting to be a general assignment, etc.) is not changed by the omission of a trifling amount of the debt- or’s property. Burrill on Assignments (6th Ed.), § 87. But it does not follow that every assignment of property for the benefit of creditors, whether partial, special, or even general, in form, would necessarily be considered as within the class, ‘ ‘ commonly known as ‘ common-law assignments ’ for the benefit of creditors.” The following authors are in point as to what constitutes a general assignment for the benefit of creditors: ‘ ‘A general assignment is not the conduct or management of the corporate business, but its termination and destruction. It is not that disposition of the corporate property which must be made from time to time in order to carry on the corporate business, but the termination and destruction of the power to make such disposition. It is not the payment of the corporate debts, but ordinarily it is an assertion that they cannot be paid,” and hence does not hold within the implied powers of the board of — 332 — directors. In re Bates Machine Co., 91 Fed. 625, 628. “The term ‘general assignment,’in its ordinary legal significance, means an assignment by a debtor transferring all of his property in general terms to an assignee in trust for all his creditors. Royer Wheel Co. v. Fielding, 101 N. Y. 504; Tiemeyer v. Turnquist, 85 N. Y. 516, 522; Brown v. Guthrie, 110 N. Y. 435; Knapp v. McGowan, 96 N. Y. 75, 87.” People v. Guarantee Co., 55 App. Div. (N. Y.) 594. The term “general assignment ” means a transfer to an assignee of all the property, or substantially all the property, of a failing or insolvent debtor for the benefit of - his creditors at large, making no discrimination or preference among them. Halsey v. Connell, Green & Co., 111 Ala. 221. A general assignment is one by which the grantor conveys substantially all his property which is subject to legal process from the courts of the State in which he resides. Longmire v. Goode, 38 Ala. 577, 578. A general assignment, as known to the common law, is defined by Burrill as an assignment by which all, or substantially all, the debtor’s property is appropriated for the benefit of either one or more preferred creditors, or of the creditors at large, made by a debtor in declining or insolvent circumstances. Anniston Loan & Trust Co. v. Ward & Co., 108 Ala. 85; Bank of Opelika v. Kiser, Moore, Draper & Co., 119 Ala. 194. It is of the very nature and essence of a general assignment for the benefit of creditors, that it should pass all property and rights of property capable of assignment or transfer, whether the title or interest of the assignor be legal or equitable. If the assignor has property or rights which are legal assets (assets which may be reached by legal process and subject to the payment of debts), and he applies them to pay or to secure particular creditors, having and retaining assets of considerable value, which are equitable, in which he has a beneficial interest, the legal title outstanding in another, in trust for him, the assignment or transfer of the legal assets is but a partial and not a general assignment. Bank of Opelika v. Kiser, Moore, Draper & Co., 119 Ala. 194. A general assignment, within the meaning of Pamph. Acts 1896-97, pp. 1089, 1090, entitled “ An act to further define general assignments and to prevent the fraudulent disposition of property ” is a voluntary transfer by a debtor — 333 — of all, or substantially all, of his property subject to the payment of debts, for the security of one or more creditors in preference to others. Builders’ & Painters’ Supply Co. v. Lucas, 119 Ala. 202. A conveyance by a debtor to a trustee for distribution of the proceeds among specified creditors, reciting in the conveyance that such goods are only a part of his property, is not a general assignment for the benefit of creditors, within a credit insurance policy insuring against any loss sustained by reason of the insolvency of debtors of the insured, and defining such losses as those arising on sales by the insured persons who have made a general assignment for the benefit of their creditors; and the words “general assignment” will not be held to mean any such disposition by a debtor of his property as induces insolvency, in the ordinary meaning of the term. Goodman v. Guarantee Co., 17 App. Div. (N. Y.) 474. An assignment purporting to transfer all the assignor’s debts and book accounts for collection, the proceeds to go first toward paying two small debts named, and the balance if any, to the assignor’s wife, is not, in substance, a general assignment since it does not profess to transfer all the assignor’s property nor to provide for all his debts. Tiemeyer v. Turnquist, 85 N. Y. 516, 522. We find nothing in Kendall v. Bishop, 76 Mich. 634, or Pettibone v. Byrne, 97 Mich. 85, necessarily inconsistent with our views herein expressed, while in Hill v. Mallory, 112 Mich. 387, if open to such suggestion, did not turn upon that question, which was not decided, but was reversed for the reason that the jury were not correctly instructed on the effect of an intent to hinder, delay, or defraud creditors, which claim rested upon a different statute. This subject has been considered in Michigan cases arising under this particular statute. Thus, in Palmer v. Mason, 42 Mich. 146, it was said that an assignment for the benefit of creditors will be presumed honest and lawful if possible, and that the instrument in question was not a general assignment. It included only a portion of the debtor’s property, and named as beneficiaries only a portion of his creditors, thereby implying that general assignments only are included. — 334 — 'In Rollins v. Van Baalen, 56 Mich. 610, Mr. Justice Campbell authoritatively stated the rule to be that this statute “applies only to common-law assignments, and not to any proceedings of a different form that are claimed to be frauds as to creditors. Honest transfers and securities are not void if not in the shape of general assignments.” In Warner v. Littlefield, 89 Mich. 329, Champlin, C. J., stated that a chattel mortgage in trust is not changed by this statute from a mortgage to an assignment for the benefit of creditors, unless the conveyance is absolute and places the title of the property in the trustee, and he shows that the case of Kendall v. Bishop, 76 Mich. 634, states no such doctrine. It was also said: “A general assignment is an assignment of all one’s assets to an assignee for the benefit of creditors. It is the completeness of the transfer that gives it character.” Warner v. Littlefield, 89 Mich. 329. In that case it is indicated that a conveyance without a ' clear expression of the' intention that it be considered a common-law assignment cannot be considered such unless the conveyance is absolute and places the title in the trustee, and that while a chattel mortgage necessarily creates a trust, it is not such an assignment. The foregoing statement is short of saying the converse, viz., that all conveyances of an absolute title to some property to a trustee for the benefit of some creditors are such assignments, for they must still be general, and include the other elements above suggested before they can be so held. ' Even Kendall v. Bishop, 76 Mich. 634, the leading authority relied upon as establishing the rule contended for by plaintiff’s counsel, after holding that the instrument there in question was an assignment, says: “An assignment of all one’s assets to an assignee for the benefit of creditors is within all the definitions of a — 335 — general assignment. It is the completeness of the transfer that gives it character.” In this connection see the following later Michigan case: National Bank of Oshkosh v. First Nat. Bank of Ironwood, 100 Mich. 485. It was there said: “Our statute prohibiting preferences in cases of assignment is in derogation of the' common law. Like all statutes in derogation of the common law, this statute is to be strictly construed. It only applies when the instrument can fairly and legitimately be said to possess all of the essential elements of an assignment; and courts should not permit such essentials' to be dispensed with, or substitute real or supposed equities for them, or unduly construe instruments intended for securities to be assignments. In such cases there is usually a contest for the property, which, at most,-becomes a question of whether the debtor’s preference can be overturned for that of some creditor, who hopes to make his claim good under an attachment, through a flaw in the instrument made to effectuate the preference of the debtor. Perhaps the equities are quite as likely to be with the creditor preferred by the debtor. At all events, there can be no legal presumption to the contrary.” See, also, Austin v. First Nat. Bank, 100 Mich. 613. This question has been considered in two Federal cases arising in Michigan. See Brown v. Furniture Co., 7 C. C. A. 225, and Ontario Bank v. Hurst, 43 C. C. A. 193. This subject was exhaustively considered by Mr. Justice Day in the latter case, in a case closely resembling the present case, in which the circuit court of appeals discussed and attempted to apply the rules laid down by this court in relation to this statute. Contrary to the suggestion that “every assignment of any property in trust for the payment of preferred creditors is necessarily a common-law assignment,” etc., under this statute, it was held: “The words ‘common-law assignment,’as construed by the Supreme Court of Michigan, include such general assignments as were known at the common law,” and — 336 — '“that the principle to be adduced is that this statute is one which operates to make void a general assignment for the benefit of creditors.” We do not quote from this case, for it is lengthy and can as well be read. It throws much light upon the subject. In our opinion, this was a lawful if not commendable appropriation of certain property (not all that the debtor had) to the payment of certain claims justly favored by the law, in lien and other statutes, and this case is in line with many others where a strenuous attempt is made to set aside a lawful preference by the debtor in favor of one which may be far less equitable, under a strained construction of a statute in derogation of the common law. See National Bank of Oshkosh v. First Nat. Bank of Ironwood, supra. In Warner v. Littlefield, 89 Mich. 350, Chief Justice Champlin commented on this statute as follows: “ It is not either a bankrupt or insolvent law. It is of no practical use, and its only mission seems to be to beget litigation, and afford an opportunity for a creditor to obtain a preference over other creditors by asserting and occupying the inconsistent position that the chattel mortgage given to secure a bona fide debt is a common-law assignment, and therefore ought to be construed as such, and void as to creditors, while he attaches or levies execution, and thus obtains securities and preferences fully as unlawful and against the policy of the law.” See, also, Austin v. First Nat. Bank, 100 Mich. 613. We should add that the decision of Mr. Justice Day, in which all of these and other Michigan cases were considered, was approved and followed in an opinion by Mr. Justice Grant in a case between the same parties. See Geer v. Traders’ Bank, 132 Mich. 215. The primary object of' the statute has been stated. It is not to invalidate preferences between creditors, except in a particular class of instruments, but it apparently was intended to encourage common-law assignments by failing debtors, when they provided for no discrimination, and included all property. There is nothing to indicate the — 337 — design to enlarge the scope of the term common-law assignment, so as to include any instrument or transaction which but for the statute would never have been thought to be such. Had that beén the design, it could have been clearly expressed in fewer words than those used. It is easy to see the inducement to a creditor not preferred to extend this class that he might profit by substituting his own preference for that of the debtor, and the cases heretofore presented in this court show the strenuous efforts to accomplish this, and the extent of their success and failure. Some confusion has perhaps arisen from the fact that the character of a common-law assignment has been given, though the instrument was not intended to have such effect when made, because its clear legal effect has been to convey a title to the trustee to the exclusion of the right of creditors to reach it. Prominence has properly been given to that point, which may in proper cases justify such holding, but not where other elements of the common-law assignment are lacking. There may be other instruments besides common-law assignments for creditors which effectually cut off creditors, and this the law permits unless made with the design to hinder, delay, or defraud creditors, in which case other statutes furnish adequate relief. Kendall v. Bishop and Pettibone v. Byrne, supra, are not, in our opinion, inconsistent with this rule, while Hill v. Mallory is practically an application of it, if it does not state it. See, also, Webber v. Hayes, 117 Mich. 260; McMorran v. Moore, 113 Mich. 101. In Geer v. Traders’ Bank, 132 Mich. 215, Mr. Justice Gbant, the writer of the opinion in Hill v. Mallory, said,, with the concurrence of his associates: “We will not attempt a review of the many cases involving conveyances made to secure creditors. If there he any apparent conflict between the decisions on this important question, it is because of the difficulty in lay — 338 — ing down and applying a conclusive test to each case. The rule is not in doubt. The difficulty lies in applying it. We reach the same conclusion as that reached by the Federal court, and for the reasons therein stated. Whatever the decisions of other courts may be, it is the settled rule of this court that it is not a sufficient reason to set these conveyances aside that their effect is to hinder and delay other creditors, or even that the parties contemplated that other creditors might thereby be delayed in enforcing their debts. McMorran v. Moore, 113 Mich. 101; Webber v. Webber, 109 Mich. 147. The presumption is in favor of the validity, of such instruments, and courts will ascribe to the parties thereto an honest, rather than an unlawful, purpose.” For the reason given, we are of the opinion that this order was not a common-law assignment for the benefit of creditors, within the statute. The judgment is reversed, and a new trial ordered. Grant, C. J., and Blair, Ostrander, Moore, Carpenter, and McAlvay, JJ., concurred with Hooker, J.