Bennett v. Ellison

Gileillan, C. J. This is an action for taking and con [251] verting personal property. The plaintiff claims title to the property under an assignment to him hy James P. McClelland, for the benefit of the creditors of the latter. The defendant was sheriff, and had levied upon the property as the property of McClelland, upon executions against him. The issue was as to the validity of the assignment. It was in the usual form of such assignments, authorizing the conversion of the property into money, by sale, as soon as the assignee should be able, and, after paying debts and taxes due the United States and the state, and the expenses, etc., of executing the trust, to distribute and pay the remainder, pro rata, among the creditors of the assignor, and, if there should be any surplus after paying such creditors, to pay over such surplus to the assignor. The jury found a general verdict in favor of the defendant, and the court also submitted to them, for their special finding, this question : “ Did the assignor, McClelland, make this assignment with the intent and for the purpose of thereby effecting a compromise with his creditors?” To which the jury returned the answer, “Yes.” The proposed compromise which the evidence tended to prove, and to which the special verdict relates, was this : Prior to the assignment McClelland made an effort to compromise with all his creditors upon his paying 50 per cent, in full of their demands, except the firm of which the plaintiff was a member, who were to receive their demand in full. A majority of the creditors had agreed to accept the proposed compromise, but others had refused to do so. By the schedules attached to the assignment the debts of McClelland are stated at $19,982.40, and the value of his assets at $13,675. After the proofs closed, the plaintiff submitted to the court certain requests for instructions to the jury, mainly abstract propositions so far as regards the fact found by the special verdict, which fact must control the result of the controversy. So far as these propositions have any application to the fact as found, they are, in substance, these: [252] First, that the fact that the assignment was made with the intent and for the purpose of thereby effecting a compromise with McClelland’s creditors did not render the assignment fraudulent; second, that, to render the assignment void as to the assignee, by reason of fraudulent intent on the part of the assignor, the assignee, when he took the assignment, must have had notice of such intent. It is the intent with which conveyances of property are made, and not the terms in which they are expressed, that determines their validity as against the creditors of the assignor. If such intent be in any manner to hinder, delay, or defraud the creditors, they are void as against the creditors intended to be hindered, delayed, or defrauded, although they may be so expressed as, if carried out according to their terms, there would be no such effect. Assignments of all the debtor’s property for the payment of his debts are tolerated, although there is incidental to them the delay necessary to the conversion of the property into money, and its distribution among the creditors. In this respect they may he regarded as an exception to the rule. But no other delay than such as is reasonably necessary to the application of the property to the payment of the debts is permitted. On this ground a provision in an assignment, allowing the assignee to sell on credit, renders the assignment void. Greenleaf v. Edes, 2 Minn. 2134; Nicholson v. Leavitt, 6 N. Y. 510 ; Brigham v. Tillinghast, 13 N. Y. 215. Also, the sole purpose, of the assignment must be to immediately appropriate the debtor’s property to the payment of his debts. The reservation of any benefit or advantage to the debtor, before his debts shall be fully paid, will avoid the assignment. A discharge from his debts, without full payment, is such a benefit or advantage to the debtor as, if the assignment exact it as a condition of participating in the distribution, will avoid the assignment. Wakeman v. Grover, 4 Paige, 23 ; s. c., (Grover v. Wake [253] man,) 11 Wend. 187. That case goes so far as to hold that, if a release of the debt is exacted as a condition to the right to a preference provided in the assignment, it renders the assignment void. Mr. Justice Sutherland says, (11 Wend. 200:) “But where, instead of directly distributing his property among his creditors as far as it will go, he places it beyond their reach by an assignment, not merely for the purpose of saving it from one particular creditor, to be given to another or to be equally divided among all, but for the purpose of enabling him to extort from some or all of them an absolute discharge from their debts, as the condition of receiving a partial payment, he perverts the power to a purpose which it was never intended to cover, and which the principle on which the right to give preference is founded will not justify.” The assignment in this case was executed, as found by the jury, with the intent and for the purpose of thereby effecting a compromise with the assignor’s creditors. The purpose in executing it, then, was to place the property beyond the reach of creditors, in order to give the assignor time, and to place him in position, to be able to bring the creditors to compound their debts. To effect this, delay in appropriating the property to the payment of his debts would of course be necessary. The immediate application of the property to the demands of the creditors would be inconsistent with the purpose to effect a compromise by means of the assignment, and vice versa. ^The intent to effect a compromise by means of the assignment includes the intent to delay the execution of the trust expressed in it, at least so long as might be necessary for the assignor to ascertain if the creditors -would compromise. This was an intent to delay beyond the delay which might be necessarily incident to the execution of the trust to sell the property and pay the proceeds to the creditors, and was, therefore, fraudulent. The intent was also thereby to secure a benefit to the assignor, to wit, a discharge from his debts without [254] full payment, and without even the application of all his property upon those debts. For these reasons the assignment was, as between the assignor and his creditors, void. It has been decided by this court that an assignee, in an assignment for the benefit of creditors, is not regarded as a purchaser' for a valuable consideration, when the assignment is assailed for fraud upon the creditors, and that knowledge in the assignee of the assignor’s fraudulent intent is not necessary to enable the creditors to avoid the assignment. Gere v. Murray, 6 Minn. 305. That decision is in accordance with the weight of authority, and with principle. . Judgment affirmed.