1. The statute of Arkansas prescribing the manner in which
property assigned for the benefit of creditors shall he sold is
mandatory.
2. An assignment made in the state is void if it vests in the
assignee a discretion in conflict with the provisions of that
statute, and authorizes him in effect to sell such property in a
manner which they do not permit.
The statutes of Arkansas contain the following provisions:
"SEC. 385. In all cases in which any person shall make an
assignment of any property, whether real, personal, or chosen in
action, for the payment of debts, before the assignee thereof shall
be entitled to take possession, sell, or in any way manage or
control any property so assigned, he shall be required to file in
the office of the clerk of the court exercising probate
jurisdiction, a full and complete inventory and description of such
property, and also make and execute a bond to the Arkansas in
double the estimated value of the property in said assignment, with
good and sufficient security, to be approved by the judge of said
court, conditioned that such assignee shall execute the trust
confided to him, sell the property to the best advantage, and pay
the proceeds thereof to the creditors mentioned in said assignment,
according to the terms thereof, and faithfully perform the duties
according to law."
"SEC. 387. Said assignee shall be required to sell all the
property assigned to him for the payment of debts at public
auction, within one hundred and twenty days after the execution of
the bond required by this act, and shall give at least thirty days'
notice of the time and place of such sale. And any person damaged
by the neglect, waste, or improper conduct of such assignee, shall
be
Page 107 U. S. 362
entitled to bring his action on the bond in the name of the
state for the use and benefit of such person."
Gantt'a Digest, pp. 207, 208.
While these sections were in force, to-wit, on December 19,
1878, James C. Moss and John S. Bell, partners under the name of
Moss & Bell, doing business as merchants at Pine Bluff,
Arkansas, conveyed, by an assignment in writing, all their goods,
wares, and merchandise, and choses in action to the defendant James
M. Hudson, as trustee in trust for the payment of their debts. The
deed of assignment preferred certain creditors, who afterwards
became the complainants in this suit, and required the trustee to
pay them in full if the proceeds of the property assigned should be
sufficient for that purpose and if there should be any surplus to
pay it share and share alike to other creditors. The powers
conferred on the trustee were as follows:
"To sell and dispose of all of said property for cash as he
should deem advisable and right, and to this end to use his own
discretion, subject to the supervision of the creditors, . . . and
to conduct and transact all of the business as he may deem proper
in the exercise of a sound discretion, and as he shall deem most
advisable for the benefit of creditors and their trust, and he
shall have power to appoint such assistants, agents, and attorneys
as in his judgment may be necessary to enable him to fulfill this
trust,"
&c.
Hudson accepted the trust. On the 21st of December, 1878, he
gave bond according to law, and filed in the office of the clerk of
the probate court an inventory of the property conveyed to him by
the deed of assignment. On the same day, McGehee, Snowden &
Violett recovered in the court below a judgment against Moss &
Bell for $10,992. An which execution was issued thereon Jan. 12,
1879, came that day into the hands of the marshal of the district,
who levied it on and took into his possession the assigned goods
and chattels and was about to advertise and sell them to satisfy
the writ when the bill in this case was filed by the preferred
creditors. The bill recited the foregoing facts and prayed an
injunction against the marshal and McGehee, Snowden & Violett,
forbidding them to interfere with the property assigned to Hudson,
and that they might be decreed to return the same to him,
&c.
Page 107 U. S. 363
The defendant demurred to the bill for want of equity. The
circuit court sustained the demurrer on the ground that the deed of
assignment was void on its face and dismissed the bill. The
complainants thereupon appealed.
MR. JUSTICE WOODS delivered the opinion of the Court.
The statute of Arkansas provides that the property assigned for
the benefit of creditors shall be sold at public auction within one
hundred and twenty days after the execution of the bond required of
the assignee.
The deed of assignment in effect authorized the assignee to sell
at private sale, and at such time and in such manner as he should
deem advisable and right. Under this power, he could wait an
indefinite time and then sell the property at wholesale or he could
carry on the business of selling off the stock of goods in the
ordinary way of retail merchants, and without any limit of time
within which the sale should be completed. The powers conferred by
the deed of assignment were therefore in direct opposition to the
policy of the statute. It is true, the powers conferred on the
trustee were subject to the supervision of the creditors. But this
could only mean a majority of the creditors. The assignee was
therefore authorized by the assignment to dispose of the property
assigned in a manner different from that pointed out by the statute
and in disregard of the wishes and remonstrances of a minority of
the creditors. The question presented is therefore this: is an
assignment for the benefit of creditors, which authorizes the
assignee to violate the provisions of the statute regulating such
assignments, valid and binding on the creditors of the
assignor?
The contention of the appellant is that the assignment is valid
1 because the discretion given the assignee by the assignment
leaves him at liberty to follow the law, and 2 because, even if the
assignment required him to administer the trust in a manner
different from that prescribed by the law, only such directions as
conflicted with the law would be void, and the assignment itself
would remain valid.
Page 107 U. S. 364
We think that under the construction given the assignment law by
the Supreme Court of Arkansas in the case of
Raleigh v.
Griffith, 37 Ark. 153, these positions cannot be maintained.
The assignment in that case provided as follows:
"The party of the second part [the assignee] shall take
possession of all and singular the property and effects hereby
assigned and sell and dispose of the same, either at public or
private sale, to such person or persons, for such prices, and on
such terms and conditions, either for cash or upon credit, as, in
his judgment, may appear best and most for the interest of the
parties concerned, and convert the same into money."
It will be observed that the terms of the assignment did not
prevent the assignee, in the administration of his trust, from
following the directions of the statute in all particulars. He was
at liberty to sell for cash at public auction and within one
hundred and twenty days after the filing of his bond. But the
assignment vested him with a discretion to do otherwise. The court
declared the assignment to be void. It said:
"In providing for the sale of the property, the statute is
disregarded in the deed of assignment; the assignee was authorized
to sell at private or public sale, and for cash or credit. Under
such provision, it was in the power and discretion of the assignee
to prolong the execution and closing of the trust for an indefinite
period. The legislature deemed it expedient as a matter of public
policy to require assignees, in general deeds of assignment for the
benefit of creditors, to sell all property assigned to them for the
payment of debts at public auction within one hundred and
twenty-five days after the execution of the bond, on thirty days'
notice of the time and place of sale."
And the court declared:
"The statute prescribes a mode of sale in this state, and
dissenting creditors are not barred by a deed made in direct
contravention of a plain provision of the statute."
The effect of this decision is that the provisions of the
statute respecting the sale of property assigned for the benefit of
creditors are mandatory, and not directory.
See also French v.
Edwards, 13 Wall. 506, and there are no conflicting
decisions of the Supreme Court of Arkansas. This being the
construction put upon the law by the supreme court of the state
Page 107 U. S. 365
when the assignment in this case was made, it is binding on the
courts of the United States.
Brashear v.
West, 7 Pet. 608;
Sumner v.
Hicks, 2 Black 532;
Leffingwell v.
Warren, 2 Black 599. It follows that the
assignment, which vests the assignee with a discretion contrary to
the mandates of the statute, and in effect authorizes him to sell
the property conveyed thereby in a method not permitted by the
statute, must be void, for contracts and conveyances in
contravention of the terms of policy of a statute will not be
sanctioned.
Peck v. Barr, 10 N.Y. 294;
McGregor Dover
& Deal Railway Co., 18 Q.B. 618;
Jackson v.
Davison, 4 Barn. & Ald. 691;
Miller v. Post, 1
Allen (Mass.) 434;
Parton v. Hervey, 1 Gray (Mass.) 119;
Hathaway v. Moran, 44 Me. 67.
The result of these views is that the decree of the circuit
court dismissing the bill, because the assignment in question was
void on its face, was right, and must be
Affirmed.
