Smith v. Sipperley

Smith, J.: A. F. Sipperley and H. S. Lee were, prior to January 13, 1892, partners doing business as merchants at Salt Lake City, and on the above date made an assignment for the benefit of their creditors of all of their property to F. W. Ross. The written assignment, which appears in the record, after creating a class of first preferred creditors, which is denominated “Schedule A.” contains the following clause: “And whereas, the said A. F. Sipperley is indebted to Mrs. A. F. Sipperley by note dated the 10th day of March, 1887, for $4,800.00, and to Mrs. E. 3: Walling of South Cambridge, New York, by note of fourteen hundred dollars ($1,400.00); and whereas the above said H. S. Lee is indebted to H. A. Lee by note in the sum of two thousand dollars ($2,000.00). ' These last-named three debts shall hereafter be known in this conveyance as 'Schedule B/” Then follows a long list of creditors .of the firm, who are classed as “ Schedule O.” The writing provides that the assignee shall pay the debts in the following order: First; Schedule A in full; next, Schedule B in full; next, Schedule C in full; and the surplus, if any, to the assignors. Schedule A amounts to about $3,000. Schedule B, as above shown, amounted to $8,200, without interest. Schedule C amounted to about $22,000. Only $11,000 was realized from the property assigned. A number of the creditors named in Schedule C renounced the assignment so far as their claims were concerned, and attached the property of Sipperley & Co. in the hands of Ross, the assignee. Ross defended, and the creditors in Schedules A and B intervened. Ross was afterwards by agreement appointed receiver by the court, and as such ■sold the property, and holds the proceeds to be disposed of by the judgment of the court. The court found, among [271] other things, the following facts: That Mrs. A. F. Sip-perley was the wife, and that Mrs. E. J. Walling was the •aunt of the assignor A. F. Sipperley; that H. A. Lee was the son of the assignor H. S. Lee; that the firm of Sip-perley & Co., and both members thereof, were insolvent, and had each and all been insolvent since the time they .first began business in 1887; that the money due to the parties named in Schedule B was the only capital employed by said firm in said business, and was loaned by said creditors to the members of the firm, to be used as such capital, with full knowledge of the insolvency 'of the firm and the members thereof; that the attaching creditors did not know of the existence of these debts until the assignment was made. The eleventh finding of fact is “that said assignment was made by said defendants A. F. Sipperley •and H. S. Lee to said Frank W. Ross- with intent to hinder, delay, and defraud their creditors.” After making proper conclusions of law the court entered judgment making distribution of the fund in the hands of the receiver among the attaching creditors in the order of their attachments, and dismissed the petition in intervention. The interveners appeal. The first question presented is: Was the assignment void because of the preference of the creditors of the individual partners as provided in Schedule B? The next and remaining one is: If the assignment is void as to the preference .given to the parties named in Schedule B, is it not valid for all other purposes? As to the first question, it is conceded the firm was always insolvent, and that the members thereof were likewise -insolvent. The creditors in Schedule B knew this, and knowingly loaned the money, to be used as capital in this business. Is it a fraud upon the other creditors to provide for and prefer these parties? We think it is well •settled that such an act is fraudulent and void. In Webb [272] v. Armistead, 26 Fed. Rep. 70, which was a case very like the one under consideration, the court says: “ These creditors were dealing with him on the faith of such capital in ignorance of the fact that he was all the time insolvent, and that large family debts of many thousand dollars were lying in abeyance to be preferred whenever the business should come to the disastrous end, which was inevitable. I do not know how á more gross injustice could be done those who gave credit on the faith of a large in-put capital than was done by this deed, which revealed the fact when it was too late that there was no capital whatever available to protect them in the event of losses in trade or shrinkage in value.” This language we have quoted at. length, because it so aptly describes the case at bar. To-the same effect are the cases of Ferson v. Monroe, 21 N. H. 462; Bailey v. Clark, 21 Wall. 284; Cribb v. Morse, 77 Wis. 322, 46 N. W. Rep. 126. This brings us to the second question, can the assignment be upheld in any part? The supreme court of the United States in Peters v. Bain, 133 U. S., at page 670, 10 Sup. Ct. Rep. 354, say: “We agree that, as respects-fraud in law as contradistinguished from fraud in fact, where that which is valid can be separated from that-which is invalid without defeating the general intent, the-maxim ‘void in .part, void in toto’ does not necessarily apply;” and this rule is relied on by appellants to sustain the assignment notwithstanding the fraudulent preferences in Schedule B. At the, argument we were forcibly impressed with this suggestion, but the trouble is that in this case the assignment is fraudulent in fact. It was-made with a fraudulent design and purpose. This fact is expressly found. The rule in such a case is declared in Crawford v. Neal, 144 U. S., at page 598, 12 Sup. Ct. Rep. 759, as follows: “Undoubtedly the rule is that a transaction void in part for fraud in fact is entirely void.” [273] The rule is fully stated, with the authorities in support of it,, in Burrill, Assignm. (5th Ed.) § 352. See, also, Vernon v. Upson, 60 Wis. 418, 19 N. W. Rep. 400. We find no. error in the record, and the judgment of the district court is affirmed, with costs to respondents. MINER, J., and Bartoh, J., concurred.