Upon appeal from a decree in equity of the circuit court of the
United States, accompanied by a certificate of division in opinion
between two judges before whom the hearing was had, in a case in
which the amount in dispute is insufficient to give this Court
jurisdiction, its jurisdiction is confined to answering the
questions of law certified.
Upon the question of the construction and effect of a statute of
a state regulating assignments for the benefit of creditors, the
decisions of the highest court of the state are of controlling
authority in the courts of the United States.
Section 354 of the Revised Statutes of Missouri of 1819,
concerning voluntary assignments for the benefit of creditors, does
not invalidate a deed of trust in the nature of a mortgage by an
insolvent debtor of all his personal property to secure the payment
of preferred debts, reserving a right of redemption.
By the law of Missouri, one partner has power to bind his
co-partners by a mortgage of all the personal property of the
partnership to secure the payment of particular debts of the
partnership.
A receiver derives his authority from the act of the court, and
not from the act of the parties, and the effect of his appointment
is to put the property from that time into his custody as an
officer of the court for the benefit of the party ultimately proved
to be entitled, but not to change the title or even the right of
possession.
By the law of Missouri, a mortgage by one partner of the
personal property of an insolvent partnership to secure the payment
of particular debts of the partnership is valid, and does not
operate as a voluntary assignment for the benefit of all its
creditors under § 354 of the Devised Statutes of 1879, although
another partner does not assent to the mortgage and has previously
authorized the making of a voluntary assignment under the statute,
and although the partner making the mortgage procures a
simultaneous appointment of a receiver of all the partnership
property.
This was a petition, in the nature of a bill in equity, filed in
a court of the State of Missouri by citizens and corporations of
other states, judgment creditors (each of them in the sum of less
than $2,500), in behalf of all the creditors of James
Page 136 U. S. 224
B. Melone, of Macon, in the State of Missouri, Richard A. Melone
and Charles H. Benedict, of Kansas City, in that state, and all
three citizens of Missouri, and doing business at Kansas City as
partners, under the name of Benedict, Melone & Co., against
those three partners, three banking corporations of Missouri, and
Charles Stewart, likewise a citizen of Missouri. The bill alleged
that on February 16, 1882, Richard A. Melone, in behalf of the
partnership, executed a deed of trust, a copy of which was annexed
to the bill, purporting to be by and between the partnership of the
first part, Stewart of the second part, and the three banks of the
third part, and to convey to Stewart the personal property and
choses in action of the partnership, provided that if the
partnership should pay certain specified debts which it owed to
each of the banks,
"then these presents and everything herein shall cease and be
void, but if they, the said Benedict, Melone & Co., shall fail
or make default in the payment of such indebtedness to said three
above-mentioned banks, or any part thereof, when the same shall
have become past due and payable for five days, then it shall be
lawful for said party of the second part to sell said property in
any manner he shall think fit, and out of the proceeds arising from
said sale, pay off said indebtedness, or so much thereof as shall
be unpaid, together with the costs and expenses of said sale, and
the overplus, if any there be, shall be paid to said parties of the
first part. Said party of the second part shall take immediate
possession of said property."
The bill further alleged that this deed included all the
partnership property; that the partnership and each partner were
then, as all the defendants well knew, hopelessly insolvent; that
on the same day, and simultaneously with the execution of that
deed, Benedict, upon a suit commenced by him in a court of Missouri
to wind up the partnership, procured the appointment of Stewart as
receiver of its property, and he immediately qualified and entered
upon his duties as such; that James B. Melone had previously
authorized his co-partners to make a general assignment for the
benefit of all
Page 136 U. S. 225
the partnership creditors without any preferences, and never
authorized or approved the deed of trust; that the action of the
two other partners in executing that deed to Stewart and having him
appointed receiver was a fraudulent attempt on their part to evade
the statute of Missouri concerning voluntary assignments; that by
reason of the premises and of that statute, the deed of trust
operated as a voluntary assignment of all the property of the
partnership for the benefit of all its creditors; that all the
partnership property was delivered to Stewart and taken possession
of by him under the deed of trust; that out of the property,
Stewart had realized the sum of $58,000, enough to pay all the
creditors of the partnership about sixty percent of their debts if
the preferences in the deed of trust should be set aside, but that
Stewart, instead of performing the duties required of him by the
aforesaid statute of Missouri, had treated the deed of trust as a
valid mortgage, and had paid the debts of the banks in full,
amounting to about $19,000, and was proceeding to distribute as
receiver the rest of the trust fund in his hands. The bill prayed
that the deed of trust might be declared to be a general assignment
for the benefit of all the creditors of the partnership in
proportion to their respective claims, that Stewart be ordered to
make distribution accordingly, and that the banks be ordered to pay
the sums received by them into the registry of the court.
Stewart and the three banks demurred to the petition, and before
further proceedings in the cause, it was removed, on application of
the plaintiffs, into the circuit court of the United States, and
that court, upon a hearing on bill, answers, replication, and
proofs, before Mr. Justice Miller and Judge Krekel, ordered the
bill to be dismissed, and they certified a division of opinion on
the following question:
"1. Is the instrument of writing in this case, called a 'deed of
trust,' which we find as a matter of fact conveys all the
partnership property of Benedict, Melone & Co. to Charles
Stewart as trustee as security for the banks therein named, void
for want of the assent of James B. Melone, one of the partners,
which was never given to that transfer? "
Page 136 U. S. 226
"2. As James B. Melone did give his previous assent and
directions to the making of an assignment for the benefit of
creditors, does the deed of trust above mentioned operate as a
general assignment for the benefit of all the creditors of the
partnership under section 354 of the Revised Statutes of Missouri
of 1879?"
"3. Does the making of that deed of trust, and appointment of a
receiver, who is the same person as the trustee, on the same day,
and as part of the proceeding to administer the assets of the
insolvent partnership, to which the banks, and Stewart, and the
partners in the firm of Benedict, Melone & Co., agreed,
constitute a general assignment for the benefit of all the
creditors, and require the receiver to administer the funds in his
hands in that manner?"
A final decree was entered for the defendants in accordance with
the opinion of the presiding justice, and the plaintiffs appealed
to this Court.
Page 136 U. S. 229
MR. JUSTICE GRAY, after stating the case as above, delivered the
opinion of the Court.
The claim of each plaintiff being for less than $5,000, and the
amount in dispute therefore insufficient to give this Court
jurisdiction of the whole case, our jurisdiction is confined to
answering the questions of law presented by the certificate of
division of opinion between the judges before whom the case was
heard in the circuit court. Rev.Stat. §§ 650, 652, 693; Act of
February 16, 1875, c. 77, § 3, 18 Stat. 316;
Dow v.
Johnson, 100 U. S. 158;
United States v. Ambrose, 108 U.
S. 336;
Jewell v. Knight, 123 U.
S. 426.
The determination of these questions is governed by the law of
Missouri, where the deed of trust was made and the parties to it
resided. In ascertaining the construction and effect of section 354
of the Revised Statutes of the state of 1879, which is supposed to
affect the case, it is important to bear in mind the law of
Missouri as it existed before those statutes were enacted. The
Supreme Court of Missouri, in 1852, speaking by Mr. Justice Gamble,
said:
"It is not necessary to quote books for the purpose of showing
that a debtor in failing circumstances may give a preference to one
or more of his creditors to the exclusion of others, and that such
disposition of his effects is not impeachable on the ground of
fraud because it embraces all his property,"
and accordingly upheld assignments by insolvent debtors of all
their property to pay particular creditors.
Murray v.
Cason, 15 Mo. 378, 381;
Richards v. Levin, 16 Mo.
596, 599.
Page 136 U. S. 230
It was also well settled by the decisions of that court that
each partner, by virtue of the relation of partnership, and of the
community of right and interest of the partners, had full power and
authority to sell, pledge, or otherwise dispose of all personal
property belonging to the partnership for any purpose within the
scope of the partnership business, and might therefore, without the
concurrence of his co-partners, mortgage the partnership property
by deed of trust to secure the payment of a partnership debt,
Clark v. Rives, 33 Mo. 579;
Keck v. Fisher, 58
Mo. 532, although one partner, without the concurrence of his
co-partners, could not delegate to a stranger the right of the
partnership to administer the partnership effects, and therefore
could not make a general assignment of all the property of the
partnership for distribution by the assignee among the partnership
creditors, retaining no equity of redemption in the partnership,
Hughes v. Ellison, 5 Mo. 463;
Hook v. Stone, 34
Mo. 329.
The statutes of Missouri restricting voluntary assignments have
always been construed rather strictly by the supreme court of the
state.
By the earliest statute upon the subject,
"In all cases in which any person shall make a voluntary
assignment of his lands, tenements, goods, chattels, effects, and
credits, or any part thereof, to any person in trust for his
creditors, or any of them, it shall be the duty of the
assignee"
to file an inventory of the assigned property in the office of
the clerk of the circuit court of the county in which the assignee
resides. Missouri Rev.Stat. of 1845, c. 10, § 1, reenacting Act of
February 15, 1841, § 1, Missouri Laws of 1840-41, p. 13.
In the Revised Statutes of 1855, c. 8, § 1, that section was
reenacted, and at the end of the chapter this section was
added:
"§ 39. 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."
The Supreme Court of Missouri repeatedly and uniformly held
that, taking those two sections together, section 39 only
prohibited
Page 136 U. S. 231
preferences among the creditors designated in an assignment
either of the whole or of part of the debtor's property, but did
not invalidate partial assignments for the benefit of some of the
creditors of the assignor, and was so far inefficient to prevent
preferences among creditors, and the court observed:
"If the legislature wish to strike at the root of the evil they
must go back to an old principle of the common law which permits a
debtor to prefer one creditor to another, and which privilege can
be effected in a variety of modes other than those referred to in
our statutes concerning assignments."
Shapleigh v. Baird, 26 Mo. 322, 326;
Johnson v.
McAllister, 30 Mo. 327;
Many v. Logan, 31 Mo. 91;
State v. Benoist, 37 Mo. 500, 516.
An act of February 13, 1864, repealed section 39 of the act of
1855, and enacted that "Every assignment hereafter made in this
state" under the provisions of the act of 1855
"shall be for the benefit of all creditors who shall present and
prove up their claims under the provisions of said act, and all
debts and liabilities so proved and allowed shall be paid
pro
rata from the assets thereof."
Act of February 13, 1864, §§ 8, 9, Missouri Laws of 1863-64, p.
6. In 1865, this provision was reenacted in this form:
"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."
Gen.Stat. of 1865, c. 112, § 1; 1 Wagner's Stat. (3d ed.)
150.
In 1878, the construction and effect of this provision were
drawn in judgment before the Supreme Court of Missouri in
Crow
v. Beardsley, 68 Mo. 435, where a debtor had conveyed his
stock of merchandise by a deed of trust in no respect differing
from the one now before us to secure the payment of certain of his
creditors. It was contended that the provision of the statute just
quoted avoided all conveyances of property which gave a preference
among creditors. But it was held that while that provision had a
wider scope than § 39 of the act of 1855, and was designed to
prevent any preference of creditors "by assignment," yet it did not
avoid deeds of
Page 136 U. S. 232
trust in the nature of mortgages, which were only securities for
the payment of debts. The court clearly pointed out the distinction
between assignments and deeds of trust in the nature of mortgages,
saying:
"An assignment is more than a security for the payment of debts.
It is an absolute appropriation of property to their payment. . . .
The distinction is that an assignment"
"is a conveyance to a trustee for the purpose of raising funds
to pay a debt, while a deed of trust in the nature of a mortgage is
a conveyance in trust for the purpose of securing a debt, subject
to a condition of defeasance."
"The deed in question here is therefore a deed of trust in the
nature of a mortgage."
Id., 437, 438. Upon these reasons it was adjudged that
the deed was not within the statute concerning assignments, and
could not be avoided by a creditor not named in it except for
fraud. The section there construed was afterwards reenacted in the
same words in section 354 of the Revised Statutes of 1879, which
were the statutes in force when the deed of trust in this case was
made.
The only embarrassment in the present case has been occasioned
by the course of decision in the circuit court of the United States
within the State of Missouri originating in a case decided in 1882
by an opinion of Judge Krekel with the concurrence of Judge
McCarthy.
Martin v. Hausman, 14 F. 160.
In that case, the debtors assigned and transferred their whole
stock in trade by a deed which declared that it was made to secure
certain debts therein mentioned, but directed the assignee to
proceed at once to sell the property, and out of the proceeds to
pay the debts as they matured, and provided that, after they had
been fully paid, "this deed shall be released," and reserved no
right of redemption to the assignors. Upon a review of the
decisions of the Supreme Court of Missouri, and especially
Shapleigh v. Baird, State v. Benoist, and
Crow v.
Beardsley, above cited, it was held that, as the deed did not
purport to be a security for a debt, leaving an equity of
redemption in the grantors, and empowering the trustee to sell only
if the debts specified should not be paid
Page 136 U. S. 233
at maturity, but conveyed the property absolutely to the
trustee, to be sold for the payment of the debts named and
preferred in it, it was not a mortgage security, but an assignment
for the benefit of creditors, and Judge Krekel laid down this
general rule:
"A debtor in Missouri, under it legislation and adjudications
thereon, may, though he be insolvent at the time, prefer one or
more of his creditors by securing them; but he cannot do it by an
instrument conveying the whole of his property to pay one or more
creditors. Instruments of the latter class will be construed as
falling within the assignment laws, and as for the benefit of all
creditors, whether named in the instrument or not."
14 F. 166.
he rule thus laid down has since been followed by the same and
other judges in the federal courts within the State of Missouri,
and has been extended, in disregard of the adjudication of the
supreme court of the state in
Crow v. Beardsley, so as to
hold a deed of trust in the nature of a mortgage of all the
personal property of the debtor to be a voluntary assignment within
the meaning and effect of the Missouri statute.
Dahlman v.
Jacobs, 16 F. 614;
Kellog v. Richardson, 19 F. 70;
Clapp v. Dittman, 21 F. 15;
Perry v. Corby, 21 F.
737;
Kerbs v. Ewing, 22 F. 693;
Freund v.
Yaegerman, 26 F. 812, and 27 F. 248;
State v. Morse,
27 F. 261.
That rule, as thus construed and applied, has not, however,
always been approved in the circuit court.
In Clapp v.
Dittman, above cited, MR. JUSTICE BREWER, then circuit judge,
confessed that if it were a new question, his own conclusion would
be different, and in harmony with the decisions in
National
Bank v. Sprague, 20 N.J.Eq. 13, 28;
Farwell v.
Howard, 26 Ia. 381;
Doremus v. O'Harra, 1 Ohio St.
45;
Atkinson v. Tomlinson, 1 Ohio St. 237, and other
cases, and declared that he should follow the rule as having been
established by the course of the decisions in the courts of the
United States within the State of Missouri until there should be
some authoritative construction of the statute by the Supreme Court
of the United States or by the supreme court
Page 136 U. S. 234
of the state. 21 F. 17.
See also Perry v. Corby, 21 F.
737;
Freund v. Yaegerman, 27 F. 248;
Elgin Co. v.
Meyer, 30 F. 659;
Weil v. Polack, 30 F. 813.
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. It has been followed by the St. Louis
Court of Appeals in
Holt v. Simmons, 16 Mo.App. 97, and by
the Kansas City Court of Appeals in
Sampson v. Shaw, 19
Mo.App. 274, and in
Smith & Keating Co. v. Thurman, 29
Mo.App. 186, and it has been approved and acted on by the Supreme
Court of Missouri in a very recent case in which the court, after
repeating and enforcing the reasoning upon which
Crow v.
Beardsley proceeded, said:
"The assignment law of Missouri is not, in letter or spirit, a
bankrupt or insolvent debtor's act. A debtor, whether solvent or
insolvent, may in good faith sell, deliver in payment, mortgage, or
pledge the whole or any part of his property for the benefit of one
or more of his creditors to the exclusion of others, even though
such transfer may have the effect of delaying them in the
collection of their debts. Its terms in no way qualify the rule by
which the character of this instrument is to be determined. Reading
the instrument, then, as a whole in the light of the circumstances
under which it was executed, was it intended as a security, or as
an absolute, unconditional conveyance
in praesenti to the
grantee of all the grantor's interest in the property, both legal
and equitable, to the exclusion of any equitable right of
redemption?"
And it was accordingly adjudged that the assignment law was
inapplicable to a deed of trust, conveying all the debtor's
property, real and personal (except his homestead and household
furniture, and a horse and buggy) to a trustee in trust to secure
the payment of part of his debts, for which he was liable either as
principal or as surety, which appeared to the court, upon a view of
all its provisions as applied to the facts of the case, to be
"not an absolute indefeasible assignment of all the grantor's
title, both legal and equitable, in the property, 'in trust for his
creditors,' but a deed of trust to secure the
Page 136 U. S. 235
payment of debts and other liabilities in which the grantor has
an interest in the property conveyed,' for the protection of which
'equity gives him a right of redemption, though no clause of
defeasance was inserted in the deed."
Hargadine v. Henderson, 97 Mo. 375, 386-389.
The question of the construction and effect of a statute of a
state regulating assignments for the benefit of creditors is a
question upon which the decisions of the highest court of the
state, establishing a rule of property, are of controlling
authority in the courts of the United States.
Brashear
v. West, 7 Pet. 608,
32 U. S. 615;
Allen v.
Massey, 17 Wall. 351;
Lloyd v. Fulton,
91 U. S. 479,
91 U. S. 485;
Sumner v.
Hicks, 2 Black 532,
67 U. S. 534;
Jaffray v. McGehee, 107 U. S. 361,
107 U. S. 365;
Peters v. Bain, 133 U. S. 670,
133 U. S. 686;
Randlph's Executor v. Quidnick Co., 135 U.
S. 457. The decision in
White v. Cotzhausen,
129 U. S. 329,
construing a similar statute of Illinois, in accordance with the
decisions of the Supreme Court of that state as understood by this
Court, has therefore no bearing upon the case at bar. The fact that
similar statutes are allowed different effects in different states
is immaterial. As observed by MR. JUSTICE FIELD, speaking for this
Court:
"The interpretation within the jurisdiction of one state becomes
a part of the law of that state, as much so as if incorporated into
the body of it by the legislature. If, therefore, different
interpretations are given in different states to a similar local
law, that law in effect becomes by the interpretations, so far as
it is a rule for our action, a different law in one state from what
it is in the other."
Christy v.
Pridgeon, 4 Wall. 196,
71 U. S. 203.
See also City of Detroit v. Osborne, 135 U.
S. 492.
In the present case, there can be no doubt that the deed of
trust conveying the personal property of the partnership to secure
the payment of its debts therein named and reserving in the
clearest terms a right of redemption to the grantors by providing
that if they shall pay those debts, the deed shall be void, as well
as by authorizing the trustee to sell the property only in case of
their failing to pay those debts or any part thereof for five days
after they became payable, was, according to the settled his course
of decision in the courts of the state
Page 136 U. S. 236
of Missouri, a mortgage only, and not an assignment under the
statute relied on, and therefore, according to the decisions in
Missouri cited at the beginning of this opinion (no fraud being
proved or suggested), an instrument which one partner had the
inherent authority to bind the partnership by although his
co-partners did not join in it.
The deed of trust executed by and with the consent of two of the
three partners being a valid mortgage and not an assignment within
the meaning of the statute, the fact that the third partner had
authorized his co-partners to execute an assignment which was never
executed cannot affect the validity of the operation of the deed of
trust.
Nor did the simultaneous appointment of a receiver of the
partnership property at the suit of one of the partners alter the
nature of the deed of trust or transform it into a voluntary
assignment within the meaning of the statute of Missouri as
construed by the supreme court of the state. A receiver derives his
authority from the act of the court appointing him, and not from
the act of the parties at whose suggestion or by whose consent he
is appointed, and the utmost effect of his appointment is to put
the property from that time into his custody as an officer of the
court for the benefit of the party ultimately proved to be
entitled, but not to change the title or even the right of
possession in the property.
Skip v. Harwood, 3 Atk. 564;
Anon., 2 Atk. 15; Wiswall v. Sampson, 14 How. 52, 65,
Ellis v. Railroad Co., 107 Mass. 1, 28;
Maynard v. Bond,
67 Mo. 315;
Heiman v. Fisher, 11 Mo.App. 275, 281. And in
the present case, the three banks have claimed and received payment
of the full amount of their debts from Stewart as trustee under the
mortgage, and not as receiver under the appointment of the
court.
The necessary conclusion is that each of the questions certified
must be answered in the negative, and that the decree of the
circuit court dismissing the bill must be
Affirmed.
Page 136 U. S. 237
THE CHIEF JUSTICE, having been of counsel, and MR. JUSTICE
BREWER, not having been a member of the Court when the case was
argued, took no part in its consideration or decision.
