Whether, in a deed of assignment by a debtor for the benefit of
creditors made under a state statute, a disregard of and departure
from some directions of the statute shall invalidate the assignment
or only make the varying provision in it void will depend upon the
general policy of the statute -- whether it is intended to restrain
or to favor such assignments.
A provision in an assignment by a debtor for the benefit of his
creditors under the statute of the Texas of March 24, 1879,
Rev.Stat. Texas, 1879, App. 5, that any surplus shall be paid to
the debtor, made in violation of the direction in § 16 of the
statute that such surplus shall be paid into court, does not affect
the validity of the assignment, but only invalidates the violating
provision.
The words
"all his lands, tenements, hereditaments, goods, chattels,
property, and choses in action of every name, nature and
description, wheresoever the same may be, except such property as
may be by the constitution and laws of the state exempt from forced
sale,"
are a sufficient description to convey all the debtor's estate
under the Texas statute of March 24, 1879, regulating assignments
by insolvent debtors.
A statement in a deed of assignment by a debtor for the benefit
of his creditors, that he "is indebted to divers persons in
considerable sums of money which he is at present unable to pay in
full" is a declaration of the insolvency of the grantor.
This was an action in the nature of trespass brought by an
assignee of an insolvent debtor against a marshal of the
Page 125 U. S. 78
United States for levying upon goods of the debtor covered by
the deed of assignment. The defendant contested the validity of the
assignment. Judgment for defendant. 15 F. 853. Plaintiff sued out
this writ of error. The case is stated in the opinion of the
Court.
MR. JUSTICE BRADLEY delivered the opinion of the Court.
This action is in the nature of an action of trespass, brought
by an assignee for the benefit of creditors against the Marshal of
the United States for the Northern District of Texas for seizing,
levying on, and converting certain goods of one Wallace, which had
been assigned to the plaintiff. The seizure by the marshal was made
under an attachment issued out of the circuit court at the suit of
Naumberg, Kraus, Lauer & Co., who are also defendants in the
present action. The plaintiff, in his petition, sets out his
ownership, as derived under a deed of assignment, a copy of which
is attached, and is in the words and figures following, to-wit:
"The State of Texas, Kaufman County:"
"This indenture, made the 24th day of October, A.D. 1881,
between S. W. Wallace of the first part, I. G. Lawrence of the
second part, and the several creditors of the party of the first
part who shall hereafter accede to these presents of the third
part, witnesseth that whereas the party of the first part is
indebted to divers persons in considerable sums of money which he
is at present unable to pay in full, and he is desirous to convey
all his property for the benefit of his creditors,"
"Now the party of the first part, in consideration of the
Page 125 U. S. 79
premises and of one dollar paid to him by the party of the
second part, hereby grants, bargains, sells, assigns, and conveys
unto the party of the second part and his heirs and assigns all his
lands, tenements, hereditaments, goods, chattels, property, and
choses in action of every name, nature, and description,
wheresoever the same may be, except such property as may be, by the
constitution and laws of the state, exempt from forced sale, to
have and to hold the said premises unto the said party of the
second part, his heirs and assigns, but in trust and confidence to
sell and dispose of said real and personal estate, and to collect
said choses in action, using a reasonable discretion as to the
times and modes of selling and disposing of said estate as it
respects making sales for cash or on credit at public auction or by
private contract, taking a part for the whole where the trustee
shall deem it expedient so to do, then in trust to dispose of the
proceeds of said property in the manner following,
viz.,"
"First. To pay the costs and charges of these presents, and the
expenses of executing the trusts herein declared, together with all
taxes which are a charge upon any of said property."
"Second. To distribute and pay the remainder of the said
proceeds to and among all the parties of the third part who will
accept thereof in full satisfaction of their claims against said
party of the first part, ratably in proportion to their respective
debts."
"Third. To pay over any surplus, after paying all the parties of
the third part who shall accede hereto as aforesaid in full, to the
party of the first part, his executors, administrators, or assigns,
and the party of the first part hereby constitutes and appoints the
party of the second part his attorney irrevocable, with power of
substitution, authorizing him, in the name of the party of the
first part or otherwise, as the case may require, to do any and all
acts, matters, and things to carry into effect the true intent and
meaning of these presents which the party of the first part might
do if personally present, and the party of the second part, hereby
accepting these trusts, covenants to and with each of the other
parties hereto to execute the same faithfully, and the party
Page 125 U. S. 80
of the first part hereby covenants with the said trustee, from
time to time and at all times when requested, to give him all the
information in his power respecting the assigned property and to
execute and deliver all such instruments of further assurance as
the party of the second part shall be advised by counsel to be
necessary in order to carry into full effect the true intent and
meaning of these presents, and the parties of the third part, by
acceding hereto, and by accepting the benefits herein conferred,
hereby and thereby agree to and with the said party of the first
part to release him from any and all claim or claims, debt or
debts, demand or demands, of whatever nature which they
respectively have and hold against him, and this assignment is made
for the benefit of such of the parties of the third part only as
will consent to accept their proportional share of said estate of
the said party of the first part, and discharge him from their
respective claims."
"Witness our hands this 24th day of October, A.D. 1881."
"[Signed]"
"S. W. WALLACE"
"I. G. LAWRENCE"
The defendants filed an exception to the petition, in the nature
of a demurrer, assigning therefor the following reasons,
to-wit:
"1st. Because the paper appended thereto and called an
'assignment' or 'deed of assignment' is not such in fact and does
not on its face purport to convey to the creditors of S. W.
Wallace, the grantor, all of his estate not exempt from forced sale
for the benefit of his creditors"
"2d. Said deed is, only purports to be, for the benefit of such
creditors as will accept it and release the said Wallace from his
debts due to them, reserving to said Wallace all of the estate not
used in the payment of said accepting creditors, and directing the
plaintiff Lawrence to pay to him all that part of the estate not
appropriated by the accepting creditors."
"3d. Said deed shows on its face that it was and is not an
assignment under the statute, and that the trust was to be
administered out of the court. "
Page 125 U. S. 81
"4th. It is not shown or assigned that any creditors have
accepted such assignment"
"5th. The petition shows that the creditors at whose suit the
attachment was levied, to-wit, Naumberg, Kraus, Lauer & Co.,
were and are nonresidents of the State of Texas, and that they
reside in New York."
"6th. Said deed does not show that said Wallace was insolvent or
in contemplation of insolvency."
"7th. Said deed shows that the property pretended to be conveyed
was to be disposed of by agents appointed by said Wallace, or by
his authority, and that Lawrence was but an agent, and not a
grantee."
This demurrer being sustained, the petitioner had leave to
amend, and did so by an averment that after the execution of the
assignment, and within the time allowed by law, the following-named
creditors of Wallace had come in and accepted under the same,
to-wit, Holt, Rivers & Corley, $108.40 [and 21 others named],
the total amount of whose claims aggregated over $14,000, and it
was averred that the indebtedness so proven up against Wallace was
largely in excess of the assets that came to the plaintiff's hands,
including the property attached by the marshal.
The demurrer was still sustained notwithstanding the amendment,
and judgment was rendered for the defendants, to reverse which this
writ of error was brought.
The assignment in question was made under a law of the State of
Texas passed on the 24th of March, 1879, immediately after the
repeal of the national bankrupt law, and evidently intended to take
the place of that law, as well for the benefit of creditors as that
of insolvent debtors. Its main object seems to have been to secure
a speedy appropriation of all the property of an insolvent debtor,
willing to make an assignment, to the payment of his debts, so far
as it might be adequate for that purpose. As an encouragement to
the making of such assignments, the law provides that if the debtor
so desires, he may make his assignment for the benefit of such
creditors as will accept their proportional share of his estate and
discharge him from their respective claims, and the
Page 125 U. S. 82
whole statute is evidently framed with a view to make the
proceedings as simple as possible and to obviate technical
objections to their validity.
The principal provisions of the act bearing upon the questions
raised in this case are as follows, to-wit:
Section 1 declares that
"Every assignment made by an insolvent debtor or in
contemplation of insolvency for the benefit of his creditors shall
provide, except as herein otherwise provided, for a distribution of
all his real and personal estate, other than that which is by law
exempt from execution, among all his creditors, in proportion to
their respective claims, and, however made or expressed, shall have
the effect aforesaid, and shall be construed to pass all such
estate whether specified or not."
Section 2 requires an inventory to be annexed containing a list
of all the creditors of the debtor, with their residence, the
amount due to each, and the consideration thereof, and whether any
judgment or security exists therefor, and an inventory of all the
debtor's estate, with an affidavit of the truth thereof, but it is
declared in § 10 that no assignment shall be declared fraudulent or
void for want of any inventory or list, but it may be required by
the assignee.
Section 3 enacts as follows:
"Any debtor desiring so to do may make an assignment for the
benefit of such of his creditors only as will consent to accept
their proportional share of his estate, and discharge him from
their respective claims, and in such case the benefits of the
assignment shall be limited and restricted to the creditors
consenting thereto; the debtor shall thereupon be and stand
discharged from all further liability to such consenting creditors,
on account of their respective claims, and, when paid, they shall
execute and deliver to the assignee for the debtor a release
therefrom."
Section 4 provides for notice of his appointment to be given by
the assignee.
Section 5.
"The creditors of the assignor consenting to such assignment
shall make known to the assignee their consent in writing within
four months after publication of the notice provided in the
preceding section, and no creditor not assenting
Page 125 U. S. 83
shall receive or take any benefit under the assignment, provided
however that any creditor who had no actual notice of such
assignment may make known his assent at any time before any
distribution of assets under the assignment has been made."
Section 8.
"Any creditor not consenting to the assignment may garnishee the
assignee for any excess of such estate remaining in his hands after
the payment to consenting creditors of the amount of their debts,
and the costs and expenses of executing the assignment."
Section 9 provides that property conveyed in contemplation of an
assignment with intent to defeat, delay, or defraud creditors or to
give preferences shall pass to the assignee notwithstanding such
transfer, without affecting the validity of the assignment.
Section 16 declares that:
"Whenever any assignee shall have fully performed the duties of
his trust and desires to be finally discharged therefrom, he may
make a report of his proceedings under the assignment, showing the
money and assets that have come into his hands and how the same
have been disbursed and disposed of, the truth of which shall be
verified by his affidavit, and such report shall thereupon be filed
and recorded in the office of the county clerk of the county in
which the assignment is recorded, and no action shall be brought
against such assignee by reason of anything done by him under the
assignment, as shown by his report, unless the same be brought
within twelve months from the time of the filing thereof as
aforesaid, and any moneys or funds on hand shall be deposited in
the district court subject to be paid out upon the decree of said
court."
The assignment in the present case was made under the third
section of the act -- namely for the benefit of such creditors of
the debtor as would consent to accept their proportional share of
his estate and discharge him from their claims, and the principal
objection made to it is that it directs the assignee to pay over to
the assignor any surplus remaining after paying all the consenting
creditors in full, instead of paying such surplus into court as
required by the sixteenth section of the act.
Page 125 U. S. 84
It is contended that this not only violates the law, but is a
reservation for the benefit of the debtor, tending to delay and
hinder those creditors who do not accede to the terms of the
assignment in the collection of their debts. We do not see the
force of the latter part of the objection -- namely that the
stipulation referred to tends to delay and hinder creditors. The
law itself, in section 8, takes care that the remedy of
nonconsenting creditors shall not be suspended for a moment. By
that section, it is provided that any such creditor may garnishee
the assignee for any excess of the estate remaining in his hands
after the payment of the consenting creditors and the costs. Of
course, the stipulation in the assignment that the balance should
be paid to the assignor was intended and understood to be subject
to this right of garnishment. Such a qualification of the
stipulation would be a condition in law. We do not see, therefore,
how it can be said that the terms of the assignment were intended
to delay and hinder creditors. The surplus referred to in the
stipulation must, by intendment of law, have been only such surplus
as might remain after satisfying the garnishing, as well as the
consenting, creditors.
But conceding that, as to the surplus still remaining, the
stipulation in the deed is not in conformity with the requirement
of the sixteenth section, the question still remains whether the
stipulation only is to be regarded as void, or whether the whole
deed is void by reason of the stipulation, and the answer to this
question depends upon the general policy of the statute. Is it
intended to restrain assignments or to aid and encourage them? If
restraint is the object, the regulations prescribed may, according
to a well settled course of decisions in the state and federal
courts, be regarded as conditions precedent, necessary to be
observed in order to render an assignment valid. If aid and
encouragement is intended to be given to assignments, in the
interest of creditors as well as debtors, as a substitute for the
Bankrupt Act, the courts may well disregard incidental variations
from the law as void under its operation and sustain the assignment
itself, if it contains the main thing -- the transfer of the entire
property of
Page 125 U. S. 85
the debtor for the benefit of his creditors -- and carry it out
in accordance with the law for the purposes intended. A careful
examination of the act convinces us that its policy is to favor
assignments and to give them such construction that they may stand,
rather than fall, and this in the interest of creditors quite as
much, if not more, than in that of debtors. It will be noted that
some of its express features look in that direction, and the whole
act taken together corroborates this view. And such is the light in
which it is viewed by the Supreme Court of Texas.
In the case of
Blum v. Welborne, 58 Tex. 157, decided
in December, 1882, it was held that when an assignment for the
benefit of creditors is made under the statute, the rights of the
creditors attach to it, and no act of the assignor or of the
assignee, or of both at the time the assignment is made, or
preceding it, but in contemplation of it, done with intent to
defeat, delay, or defraud creditors will authorize a creditor to
treat the assignment as void or justify his attachment of the
assigned property to the prejudice of the other creditors. In that
case, as in this, the assignment was made under the third section
of the act, for the benefit of such creditors as would accept their
dividends in satisfaction of their claims. One of the nonconsenting
creditors attached the property assigned. The assignee having died,
a substituted assignee sued the attaching creditors for damages.
They pleaded that the debtor fraudulently disposed of a large
amount of goods to his assignee immediately before the assignment,
with intent to hinder, delay, and defraud the creditors. This plea
was overruled on the ground above mentioned. The court said:
"The manifest purpose of the act was to provide a mode by which
such debtors as were contemplated thereby might make assignments of
their property, simple in form and yet effective to pass all of
their property, real and personal, to an assignee for the benefit
of creditors except such as might be exempt from forced sale. It
further manifests an intention to make such assignments effective
without reference to the form of the deed of assignment, provided
it evidences
Page 125 U. S. 86
an intention to pass to the assignee all the property of the
debtor subject to forced sale, for the purpose of distribution
among creditors, and is executed in substantial compliance with the
requirements of the act. It also evidences an intention to avoid
much of the difficulty heretofore met with by the courts in
determining whether assignments were valid or not, and to supply by
the law itself much in which the deed of assignment might be
deficient under the rules applicable to ordinary assignments."
The court then proceeds to the particular case, and, in view of
the provisions of the first and ninth sections of the act, declares
that
"The assignment passed all the property of the debtor except
that exempt, as well that in his possession or owned by him at the
time the assignment was made, as that which he may have
fraudulently attempted to convey, and neither the fraud of the
assignor nor of the assignee could annul the assignment, in which
all creditors might have an interest. When the assignment is
completed, the rights of the creditors attach to it."
Again:
"No act of the assignee, nor of the assignor, after the
assignment is made or preceding it but in contemplation of it,
however fraudulent the act may be, shall divest the right of the
creditors to have the trust estate administered for their benefit
in accordance with the spirit of the statute, and the act itself
provides means by which such administration may be enforced in
default of the faithful performance of his trust by the assignee.
To permit one or more of the creditors, whenever in their opinion
the estate was not all delivered to the assignee or when the
assignee might in their opinion be acting in violation of his duty,
to disregard the assignment and seize and have sold the trust
estate or any part of it for the satisfaction of such dissatisfied
creditors would contravene the very purpose of the law, which was
intended to provide for the equitable distribution of the proceeds
of the estate of an insolvent or failing debtor."
In another case decided at the same time,
Donoho v.
Fish, 58 Tex. 164, where the whole property of the debtor was
not assigned, as where two partners made an assignment of their
partnership property only (and not their individual
Page 125 U. S. 87
property) for the benefit of such creditors only as would accept
their proportional share thereof, under the third section of the
act, it was held that such an assignment failed to comply with the
fundamental requisite of the act that all the debtors' property not
exempt from forced sale must be assigned, and therefore that it was
void as against attaching creditors. The same views, however, were
expressed by the court as in the previous case as to the liberal
construction which would be placed upon an assignment which
purported to convey all the property of the debtors, however
defective it might be in form.
In the case of
Keating v. Vaughn, 61 Tex. 518, decided
in May, 1884, the very point now under consideration came before
the court, and it was held that the stipulation that the assignee
should pay the surplus to the assignor after the consenting
creditors were paid in full did not vitiate the deed of assignment.
The court said:
"Under the statute, it is unimportant whether the assignor, by
the assignment, reserves to himself any surplus which may remain
after payment of the consenting creditors, for the statute itself
regulates that matter, independent of what the terms of the deed
may be in this respect, if the assignment be, as is this, under the
third section of the act, which, with some of the following
sections, refers to assignments made for the benefit of consenting
creditors only. Under such an assignment, strictly, other creditors
than those consenting to the release of the debtor do not take at
all; but the eighth section of the act provides that nonconsenting
creditors may garnishee the assignee for any excess of such estate
remaining in his hands after the payment to the consenting
creditors of their debts, and the costs and expenses of executing
the assignment. If nonconsenting creditors should not pursue that
course, in case of an excess, the sixteenth section of the act,
when the trust has been executed, and the assignee desires to be
discharged therefrom, provides that the excess shall be paid into
the district court, subject to be paid out upon the decree of that
court, which would no doubt be so made as to protect
Page 125 U. S. 88
nonconsenting creditors who might show themselves entitled
thereto, and take the necessary steps to fix a legal claim on the
fund, insofar as the fund would go. If, however, no claim to such a
fund was made by any creditor, the court, after the lapse of a
reasonable time, would certainly direct the excess to be delivered
to the assignor. Thus the statute regulates the whole matter, and
must control if there be any conflict between its provisions and
the deed. If the property passes to the assignee for the benefit of
creditors generally, or for the benefit of consenting creditors
alone, no provision which the assignee can make in the deed can
interfere with the distribution of the estate as the statute
requires."
It is suggested by the defendants' counsel that this decision
was made in view of an amendatory statute passed in April, 1883,
which declares
"That no fraudulent act, intent, or purpose of the assignor or
assignee shall have the effect to defeat the assignment, or to
deprive the creditors consenting thereto from the benefits thereof,
but any such fraudulent act, intent, or purpose on the part of the
assignee shall be a sufficient cause for his removal as being an
unsuitable person to perform the trust, and any consenting creditor
may be or become a party to prosecute or defend in any suit or
proceeding necessary or proper for the enforcement of his rights
under such assignments, or for the protection of his interests in
the assigned property."
It is contended that this provision renders null and void
stipulations like the one in question, so that the deed of
assignment may have the effect and operation intended by the
statute of 1879, notwithstanding such stipulation, and that the
decision in
Keating v. Vaughn was based on the amendment.
But this cannot be true, inasmuch as the assignment in that case
was made on the 9th of May, 1883, and the amendment did not go into
effect until the 12th of July of that year. It carries out,
however, the policy which we have supposed to pervade the act of
1879 of securing to the creditors of an insolvent debtor making an
assignment a speedy and just appropriation of all his property to
the payment of his debts.
In the case of
Schoolher v. Hutchins, 66 Tex. 324, the
most
Page 125 U. S. 89
recent reported case on the subject, the deed of assignment
(which was also executed before the amendment of 1883 took effect)
authorized the assignee to sell the property at public or private
sale, to employ the assignors to aid in the disposition of the
property, with such compensation as he might deem proper, and to do
various other things which the defendants contended were not
lawful. But the court said:
"If the deed of assignment attempted to confer powers which,
under the law, an assignee could not legally exercise in the
execution of the trust, this would not be a sufficient reason for
holding an assignment invalid. When an assignment is made under the
statute, the rights of creditors vest, and they can compel the
assignee to exercise the powers which the law expressly, or by
implication, confers upon him, as can they restrain him if he
attempts to exercise powers which the law does not confer upon
him."
This view of the proceeding, as being wholly governed and
controlled by law and regarding as null and inoperative
stipulations and powers in the deed contrary to, or not in
conformity with, the provisions of the statute, and not as
affecting the validity of the deed itself so long as the main
purpose is accomplished -- of appropriating the whole of the
debtor's property to the payment of his debts -- seems to us so in
harmony with the spirit and purpose of the act that we do not
hesitate to adopt it. We have given careful attention to the
opinion of the circuit court in the present case, but have failed
to be convinced by it, and feel constrained to express our
concurrence in the line of decisions of the Supreme Court of
Texas.
One or two other points are made in the briefs of counsel
against the validity of the deed which require but a brief notice.
They are substantially met by the considerations already adverted
to.
First. It is objected that the deed does not convey all the
debtor's estate, not exempt from forced sale, for the benefit of
his creditors. It is a sufficient answer to say that it does, in
terms, convey
"all his lands, tenements, hereditaments, goods, chattels,
property, and choses in action of every name,
Page 125 U. S. 90
nature, and description, wheresoever the same may be except such
property as may be by the constitution and laws of the state exempt
from forced sale."
According to the decisions of the Supreme Court of Texas, this
general description is sufficient, under the statute of 1879, to
convey all the debtor's property.
Blum v. Welborne, 58
Tex. 157, 161. The first section of the act declares that the
assignment, however expressed, shall be construed to pass all the
debtor's real and personal estate, whether specified therein or
not.
Secondly. It is objected that the deed of assignment does not on
its face show that the assignor was insolvent or in contemplation
of insolvency. The obvious answer is that if this is a necessary
requirement, the deed does state that the assignor "is indebted to
divers persons in considerable sums of money, which he is at
present unable to pay in full." When a person is unable to pay his
debts, he is understood to be insolvent. It is difficult to give a
more accurate definition of insolvency. The objection is without
foundation.
We do not observe any other objection which it is necessary
specially to notice.
The judgment of the circuit court is reversed, and the cause
remanded, with instructions to proceed therein according to
law.