Calihan v. Powers

Gantt, P. J. This is a bill in equity by Calihan and Cooper, Woodman and Howes, Eddy and Webster, Eancher & Company, and the Gardiner and Estes Company against Powers & Hervey and certain creditors of said firm, to set aside and avoid certain chattel mortgages and assignments of accounts executed by said firm of Powers & Hervey, preferring the mortgagees in said chattel mortgages and the assignees of said accounts, and to decree the chattels so mortgaged and said assigned accounts to be a part and parcel of the assigned estate of said Powers & Hervey, and sub — 487 — ject to a pro rata distribution among all the creditors of said firm. The suit was returnable to the October term, 1893, of the St. Louis circuit court. The petition, after stating the indebtedness of Powers & Hervey to each of the plaintiffs, proceeds to aver “that on the second day of August, 1893, and prior thereto, said defendants, Powers '& Hervey, had become financially embarrassed and unable to meet their obligations as they matured from time to time, and were then and there utterly insolvent. That being so insolvent said defendants, Powers & Hervey, then and there finding ifimpossiblefor them to further continue their business and meet their obligations as they matured, determined to wind up and discontinue their business, and to make a general assignment of their property and assets for the benefit of their creditors in such a way as to give preference to certain confidential creditors, so that their assets and estate should not be equally divided among their creditors pro rata. “That in pursuance of said determination and scheme on their part, to evade the provisions of the statute concerning the equal distribution of their assets pro rata amongst their creditors, they caused instruments of writing to be made and executed of the following tenor and effect, to wit: “A chattel mortgage to appellant, Joseph Wichert, dated and acknowledged August 2, 1893, which conveyed to him all of the boots and shoes, slippers and footwear situated in the storeroom of the mortgagors at Broadway and St. Charles streets, in the city of St. Louis; a chattel mortgage to appellant, the St. Louis National Bank, dated and acknowledged the same day, August 2, 1893, which conveyed to said bank the aforesaid stock of goods, subject to the mortgage to Wichert, and also the fixtures contained in the store. — 488 — “That on the said day, to wit, on the second day of August, 1893, defendants Powers Ss Hervey, for the purpose of evading the provisions of the statute concerning the equal distribution of their assets among their creditors, assigned, by an instrument in writing, which plaintiffs can not definitely describe, to the defendants, Sonnenfeld Millinery Company and Adolph Rosenthal, president of said company, almost the entire amount of their then outstanding accounts, being about the sum of $7,000; that said accounts included the good and choice and collectible accounts, and that there were left over and above the accounts so assigned the nominal amount of $625.75, which plaintiffs charge to be doubtful and of little value; that the assignment of said accounts to said Sonnenfeld Millinery Company and Adolph Rosenthal, its president, was with full knowledge on the part of said company and said Rosenthal of the intent of said Powers & Hervey to dispose of all their assets in fraud of the laws of the state of Missouri relating to general assignments; that it was agreed and determined between all of the defendants, before any of said conveyances, that the scheme should include and call for a deed of assignment to Joseph W. Meyer” (also a defendant), “who is an employee and stockholder in the Sonnenfeld Millinery Company, but that these unlawful preferences should include all of the available assets of said Powers & Hervey.” The petition alleges further that Powers & Hervey made a deed of assignment to Meyer for the benefit of their creditors, August 2, 1893, and conveyed the stock of goods and fixtures, subject to the mortgages of Wichert and the bank, and book accounts amounting to $625.76; that the mortgages and the deed of assignment were recorded as follows: To Wichert at 8:40 a. m., to the bank at 8:41 a. m., to — 489 — Meyer at 8:43 a. m. ; that “said Wichert and the St. Louis National Bank, named as beneficiaries in the above mortgages, and Sonnenfeld Millinery Company and Adolph Rosenthal, assignees of said accounts, at and prior to the date of receiving the same and securing the preferences therein given out of the estate of defendants Powers & Hervey, contemplated making such a deed of assignment so made and executed by them, and that the plain purpose and scheme of said defendants Powers & Hervey was to give preferences to the beneficiaries and grantees named in said mortgages and to the assignees of said accounts over their other creditors, and to avoid and evade the effect of the statutes of the state of Missouri, concerning voluntary assignments by making said mortgages and assignments of accounts to and for the benefit of the persons securing preferences thereby, and that the execution of said mortgages, assignment of accounts, and deed of assignment was a part and parcel of the scheme hereinbefore set forth, concocted and set forth on the part of defendants Powers & Hervey by. and with the concurrence and connivance. of the other defendants herein for the purpose of giving to said defendants, so secured by said mortgages and the assignment of accounts, an unjust and undue preference over the remaining creditors of the defendants, Powers & Hervey, and of appropriating the bulk of their assets to the payment of said preferred creditor, and of defrauding the other creditors of said defendants Powers & Hervey of their rights in said assets, and of preventing the said assets from going into the hands of said Meyer, as assignee for the body of the creditors of Powers & Hervey, under the deed of assignment, which they then and there contemplated should be made after said preference had been given, and that said preferred creditors actively and knowingly assisted — 490 — in the accomplishment of said purpose and intent of giving said preferences as above set forth and stated.’’ The petition prays to have the mortgages and assignments of accounts set aside, and the property sought to be thereby conveyed to be carried into the general estate under the deed of assignment for the benefit of all of the creditors. The answer of the Sonnenfield Millinery Company and of Adolph Rosenthal is a general denial. The bank answered that it sought and took its mortgage to secure a valid and bona fide debt and for no other purpose, and Wiehert’s answer is to the same effect. At the trial the respondents read in evidence an assignment of accounts to the appellant, the Sonnenfield Millinery Company, to satisfy a claim due from Powers & Hervey in the sum of $2,981.33. The evidence was that the face value of the accounts thus transferred was $3,000. The transfer was made on the first day of August, 1893. The respondents also read in evidence an assignment of accounts to the appellant Adolph Rosenthal, to satisfy a claim due from Powers & Hervey in the sum of $500. The face value of these accounts was proven to be $517.68. This transfer was made August 1, 1893. By the deposition of William S. Hervey, read as an admission, the respondents proved that the firm of Powers & Hervey owed Wichert about $6,000. Wichert asked the firm to make him a mortgage several days before August 2, the date of the assignment. It was agreed on August 1 that the firm was to make a mortgage to Wichert to cover his claim, and one to the St. Louis National Bank to cover its debt. By the deposition of Adolph Rosenthal, read as an admission, the respondents proved that he did not know that Powers & Hervey intended to give mortgages to Wichert and to the St. Louis National Bank. — 491 — The assignment of accounts to Rosenthal and to the Sonnenfeld Millinery Company took place on the first day of August. By the evidence of Adolph Rosenthal, called as a witness by respondents, it was proven that the accounts of Powers & Hervey were kept on the books of the Sonnenfeld Millinery Company, were rendered to customers in the name of the millinery company, and were collected by the last named company. The millinery company had advanced moneys from time to time to Powers & Hervey, the latter stating as moneys were advanced, “you are secured by our accounts.” It was proven that the St. Louis National Bank was not aware of the execution of the mortgage in its behalf until after the deed had been executed and recorded on August 2, 1893. It was given to secure an indebtedness of $2,159 and was so given subject to the mortgage given to Wichert. It was proven that neither Wichert nor the bank was informed prior to August 2, 1893, of the purpose of Powers & Hervey to make a deed of general assignment. There was no previous understanding shown between the parties that such a deed would be made. The mortgage to Wichert was executed August 2, and was recorded on the same day at 8:40 a. m. ; the mortgage to the bank was executed on the same day and recorded at 8:41 a. m. ; the deed of assignment was executed on the same day and recorded at 8:43 a. m. The parties to these instruments gave no instructions as to the order in which they were to be recorded. It was in evidence that the firm had been pressed for money for a week. Wichert was their principal creditor. He had come out from Brooklyn and had offered them a loan of $10,000 on two hundred shares of bank stock. The firm promised him his mortgage the day before it was finally executed. It was ready — 492 — for execution on August 1 but Mr. Hervey could not be found that afternoon. Wichert testified that the firm were apparently doing a good business and he offered to loan them $10,000. Hervey offered him two hundred shares of St. Louis National Bank stock as security and he agreed to take it but Hervey did not produce the stock. This negotiation fell through about 1 or 2 o’clock of August 1. Thereupon Powers said “ We will secure you,” and thereupon he employed Mr. Abbott to draw up the papers and they were prepared that night, but Hervey not being present their execution was deferred till the next morning. During his negotiations he said he heard nothing about an assignment. He was present next morning and saw the papers executed to the other creditors but says he was not aware that any but his own were to be executed up to that time, and so stated to Powers at the time. Mr. Abbott took his mortgage when executed and had it recorded. No instructions were given as to the order of recording, in his hearing. Mr. Abbott fully corroborated Mr. Wichert as to the absence of all previous appointments with Mr. Jonas, or Meyer, as to the execution of- the other instruments. He knew of no other paper to be executed that morning but the Wichert mortgage. He and Wichert immediately took charge of the store, and then went alone to the recorder’s office. Left Mr. Jonas at the store. Took acknowledgments of all three instruments but was finishing up the acknowledgment to his own, when Jonas asked him to take the acknowledgment to the bank’s mortgage, and the assignment. Powers testifies he did not tell Wichert he was going to give the bank a mortgage or make an assignment and the bank had no intimation in advance that he intended an assignment. Mr. Nelson, president of the bank, testified that he had not the slightest knowledge of the — 493 — intention of Powers & Hervey to make an assignment. The list of accounts assigned to Rosenthal and Sonnenfeld Millinery Company was made and completed the night before. The claims of the preferred creditors were conditionally alloived by the assignee. There is no question of the tona fides of a dollar of the preferred debts. The accounts assigned to Sonnenfeld Company and Rosenthal were just sufficient if entirely solvent to secure the firm’s indebtedness to them. The stock of goods was sold by the assignee and mortgagees jointly and realized $17,000, some $8,500 over and above the mortgage debts. There were also $650 of accounts unassigned, out of which the assignee had realized about $400 at the time of the trial. Upon this state of facts the circuit court set aside the mortgages and assignments of the accounts, and decreed that the assignee should take all of said mortgaged goods, or their proceeds, and said assigned accounts, and account for them as a part of said assigned estate. From this decree, Joseph Wichert, Sonnenfeld Millinery Company, Adolph Rosenthal, and the St. Louis National Bank have each appealed. I. The circuit court held that the assignment of the accounts to Rosenthal and the Sonnenfeld Millinery Company .on August 1, 1893, and the chattel mortgage to Wichert and the St. Louis National Bank executed on the morning of August 2, were contemporaneous with, and constituted but a part of, the general assignment which followed on the morning of August 2, and that the preferences attempted in favor of said mortgagees and assignees were void because in contravention of our statute governing voluntary assignments. As that law is again here for construction it is well enough to keep before us pending this discus — 494 — sion. Section 424, Revised Statutes, 1889, provides: "Every voluntary assignment of lands, tenements, goods, chattels, effects, and credits, made by a debtor to any person in trust for his creditors, shall be for the benefit of all the creditors of the assignor in proportion to their respective claims; and every provision in any assignment providing for the payment of one debt or liability in preference to another shall be void, and all debts and liabilities (including judgments entered by confession thirty days previous to such assignment) shall be paid pro rata from the assets thereof; and every such assignment shall be proved or acknowledged, and certified and recorded in the same manner as is prescribed by law in eases wherein real estate is conveyed." Prior to the enactment of any statute on the subject of voluntary assignments for the benefit of creditors it was the settled law of this state that it was neither illegal nor immoral for a debtor in failing circumstances to prefer one of his creditors to another. This was the doctrine not only in the courts of law but in chancery as well. Bell v. Thompson, 3 Mo. 84; Sibly v. Hood, 3 Mo. 290; Murray v. Cason, 15 Mo. 379; Richards v. Levin, 16 Mo. 596. The first enactment by the legislature on this subject was passed February 15, 1841. Sess. Acts, 1840-1841, sec. 1, p. 13. This act simply provided that in all cases in which any person should make a voluntary assignment of his lands, tenements, goods and chattels, effects and credits, or any part thereof in trust for his creditors or any of them, it should be the duty of the assignee to file an inventory within thirty days after the execution of the deed in the office of the circuit clerk of the county in which the assignor resided. Preferences were not only not prohibited by this act but by its terms expressly sanctioned. — 495 — Thus the right of preference remained as at common law until the act of December 7,1855 (R. S. 1855, p. 210, sec. 39), which provided that, “every provision in any assignment, hereafter made in this state, providing for the payment of one debt or liability in preference to another, shall be. void; and all debts and liabilities, within the provisions of the assignment, shall be paid pro rata from the assets thereof.” At the January term, 1858, this section 39 came before this court for construction in Shapleigh v. Baird, 26 Mo. 322, and it was held that inasmuch as it stood in the same chapter with section 1 of the act of 1841, above quoted, and as that act ex vi termini permitted partial assignments, the two sections must be reconciled and consequently it was ruled that this new section only prohibited preferences among those who were preferred by the assignment but did not prevent a debtor from making an assignment in favor of certain creditors to the exclusion of all others. Woods v. Timmerman’s Assignee, 27 Mo. 107; State to use v. Benoist, 37 Mo. 501. With this construction the statute law remained until the revision of 1865, when we find this provision: “Every voluntary assignment of lands, tenements, goods, chattels, effects, and credits, made by a debtor to any person, in trust for his creditors, shall be for . the benefit of all the creditors of the assignor, in proportion to their respective claims; and every such assignment shall be proved or acknowledged, and certified and recorded in the same manner as is prescribed by law in cases wherein real estate is conveyed.” Gr. S. 1865, page 452, sec. 1. This statute as thus amended in due time was brought up for construction in the case of Crow v. Beardsley, 68 Mo. 437. In that case Crow sued Beardsley for goods sold and delivered to him and obtained — 496 — an attachment in aid thereof. Under the attachment Beardsley’s stock of dry goods was levied upon, whereupon Kennan interpleaded and claimed the goods under a deed of trust executed by Beardsley to him in consideration of $1 paid and • the debt and trust therein mentioned. The deed of trust named a number of beneficiaries and the debts due them, none of which were due, and provided that if the said debts were paid at their maturity the deed should be void, otherwise in full force. The only peculiarity about the deed was that it placed the goods in the possession of a third party until default in payment. Crow was not secured by the deed of trust. The plaintiff assumed and argued that the deed of trust amounted to an assignment and as it preferred the creditors named in it to the exclusion of those not named, it was Void as to plaintiff, but this court held that there was nothing in the assignment law of 1865 just quoted which rendered an assignment preferring certain creditors void, but that the only effect of such an assignment would be that it would inure to the benefit of all creditors — as well those not named as those secured in the deed; and the court went further and held that by the word "assignment” in the statute was meant an absolute appropriation of property to the payment of a debt or obligation, not a mere security therefor, like a mortgage, or deed of trust, subject to a condition of defeasance, and pointed out that there was an obvious distinction between the character of an assignment, and a deed of trust, or mortgage, and that there was nothing in the assignment law which prohibited a debtor from preferring his creditor by a deed of trust, or other device short of an assignment, provided, always, the conveyance was not made with the intent to hinder, delay, or defraud the other creditors and the secured creditor did not actually participate in such fraud but.took the — 497 — same for the sole purpose of saving or securing a bona fide debt. Shelley v. Boothe, 73 Mo. 74; Albert v. Besel, 88 Mo. 150; Sexton v, Anderson, 95 Mo. 373; State to use v. Mason, 112 Mo. 374; Holmes v. Braidwood, 82 Mo. 610; Sampson v. Shaw, 19 Mo. App. 274. The distinction drawn in Crow v. Beardsley, 68 Mo. 437, between an assignment and a mortgage or deed of trust given to secure a debt upon.a defeasance has never been overruled but has been uniformly accepted by the courts and profession in this state, and preferences in various ways have been effectuated in the light of that adjudication. In Hargadine v. Henderson, 97 Mo. 375, the ruling therein made was confirmed, and it was again reasserted in Jaffrey v. Mathews, 120 Mo. 317, in both of which it was held that an insolvent debtor can mortgage or pledge all or any part of his property for the benefit of one or more of his creditors, and his privilege in this respect is not abridged by section 198, Revised Statutes, 1889, relating to voluntary assignments. Western Mfg. Co. v. Woodson, 130 Mo. 119. In Bank v. Bank, 136 U. S. 223, it was said by the supreme court of the United States that “the decision in Crow v. Beardsley has always been treated in all the courts of the state as settling the law of Missouri upon the subject;” that this decision and those following it established a rule of property and are controlling authority in the federal courts within the state of Missouri. In Bank v. Bank, supra, the supreme court of the United States disapproved the doctrine announced by Judge Krekel in Martin v. Hausman, 14 Fed. Rep. 160, and a long line of cases which followed it, to the effect that a debtor in Missouri in failing circumstances might prefer one or more of his creditors by securing: — 498 — them but he could not do it by conveying the whole of his property to pay one or more creditors; that such an instrument whatever its form would be held an assignment. See, also, May v. Tenney, 148 U. S. 60. So that there is no longer one rule of decision in the federal courts of Missouri and another in her state courts. And that this right of preference applies as well to a corporation as to an individual is abundantly established by many recent cases in this court, in which it has been ruled that a corporation in failing circumstances may prefer one creditor to another in discharging its obligations if such preference is made in good faith while the property of the corporation remains in its possession unaffected by liens or any process of law; that mere insolvency of a corporation does not of itself transform its assets into a trust fund for the equal benefit of all its creditors. Alberger v. Bank, 123 Mo. 313, 27 S. W. Rep. 657; Slavens v. Cook Drug Co., 128 Mo. 341; Waggoner-Gates Milling Co. v. Ziegler-Zaiss Commission Co., 128 Mo. 473; Schufeldt v. Smith, 131 Mo. 281; St. Louis v. Alexander, 23 Mo. 524; Foster v. Planing Mill Co., 92 Mo. 87; La Grange, etc., Co. v. Bank, 122 Mo. 154. Counsel for respondent rely upon Larrabee v. Bank, 114 Mo. 592, to sustain the proposition that the mortgages to the bank, and Wichert, and the assignments of the accounts, constitute' one and the same transaction and a fraudulent evasion of the assignment law. Judge Bubgess, who wrote the Larrabee-Bank case, also delivered the opinion of the court in Waggoner-Gates Milling Company v. Ziegler-Zaiss Commission Company, 128 Mo. 473, in which he expressly held, with the concurrence of all of this division, that the right of an individual or corporation in failing circumstances to prefer one of his or its creditors to the exclusion of — 499 — all others is the settled law of this state, and the fact he or it may intend at the time to, and does immediately thereafter, make a general assignment can make no possible difference.- There is nothing in the Larrabee case that was meant to question or weaken the authority of Crow v. Beardsley or Hargadine v. Henderson, supra. The cases of Preston v. Spaulding, 120 Ill. 208, and White v. Cotzhausen, 129 U. S. 329, and certain federal decisions were referred to as holding views contrary to our own decisions, but not to approve them. On the contrary, he pointed ‘out that notwithstanding the supreme court of Illinois had so construed the statute of that state differently from the construction placed upon our own statute by this court, our own decisions construing our own laws must control. Larrabee v. Bank was decided upon its own peculiar and exceptional features, and is not to be followed as establishing a different doctrine from the long line of decisions in this state in which the right of preference is firmly upheld. A preference other than a confession of judgment within thirty days prior to the execution of the assignment can not be a part of the deed of assignment unless it is so provided in the deed. Separate instruments, as in this case, executed by the debtor to secure separate bona fide debts, though contemporaneous, and though the debtor intends to make a general assignment, do not constitute parts of one assignment; neither does a payment in goods followed by an assignment form a part of it. The intention of the debtor to subsequently make an assignment, or the knowledge of the creditor that he so intends, will not vitiate or destroy a preference given to secure a bona fide debt. A preference by confession of judgment within thirty days prior to a general assignment is forbidden but it is the only preference dehors the deed of — 500 — assignment, that is forbidden. The specification of this one, in the light of our decisions, must be held to exclude all others from the prohibition of the statute. We hold that Powers & Hervey had a perfect right to secure Wichert in the amount they owed him. He is not to be affected by the fact that they had, without his knowledge, also assigned a part of their accounts to Eosenthal and the Sonnenfeld company. Those debts were justly due and there was no element of fraud in the transactions. They were careful only to take barely the amount of what was due them. The same may be said of the bank. It was secured only to the amount it loaned the firm. The law did not compel the firm to assign after they had made these preferences, but in so doing the assignment did not relate back and nullify their lawful transactions. It evinced a desire to turn over the remaining $8,000 or $9,000-worth of goods to their other creditors without litigation. In so doing they merely exercised a right both at common law and under our statute. It becomes unnecessary to discuss other questions,, as the decision of this point requires a reversal of the judgment. As all the facts are in the record we reverse the judgment of the circuit court and direct, judgments here in favor of each of the appellants. Sherwood and Burgess, JJ., concur.