A chattel mortgage of the stock of goods in a store in Colorado,
given to secure the mortgagees for their liability as endorsers of
notes of the mortgagor, is held to be a chattel mortgage, and not a
general assignment for the benefit of creditors.
In Colorado, a general transfer of property by a debtor for the
benefit of a preferred creditor does not, if found to be in
violation of the policy of the state as expressed in its
legislation, become a general assignment for the benefit of all
creditors, without preferences, but is entirely void.
On March 24, 1887, Samuel Rich, a clothing merchant of
Leadville, Colorado, executed to the appellants, May and Hirsch, an
instrument conveying certain personal property, which instrument
was called a "chattel mortgage," and was duly acknowledged and
recorded. The instrument sets forth, in separate paragraphs, nine
notes to the Carbonate Bank of Leadville, the payment of eight of
which were endorsed of guarantied by May or Hirsch, severally. On
the first note, neither May's nor Hirsch's name appears. After this
description, which is full and specific as to each note, the
instrument goes on further to recite:
"And whereas said notes are all now due, and, except as
Page 148 U. S. 61
hereinbefore stated, unpaid, and whereas the said Samuel Rich is
legally liable to pay the whole amount due on said notes, and is
unable to pay the same or any part thereof, and whereas the said
the Carbonate Bank of Leadville, Colorado, threatens to commence
suit by attachment against the said Samuel Rich on the note first
hereinbefore mentioned, and do attach the property hereinafter
mentioned of the said Samuel Rich, and whereas the said A. Hirsch
and David May have assumed the payment of said note, and have
become liable and responsible therefor to said bank, and whereas
the said David May and A. Hirsch are legally liable and responsible
for the amount due on the residue of said notes, each for a certain
portion thereof, and have agreed to take up and pay the same: Now
therefore in consideration of the premises, and in consideration of
the sum of one dollar ($1.00) to the said Samuel Rich in hand paid
by the said David May and A. Hirsch, the receipt whereof is hereby
acknowledged, the same Samuel Rich has granted, bargained, and
sold, and by these presents does grant, bargain, and sell, unto the
said David May and A. Hirsch, all that certain stock of men's,
boys', and children's clothing, hats, caps, and gents' furnishing
goods, being and contained in that certain storeroom, in the City
of Leadville, County of Lake and State of Colorado, known as 'No.
313 Harrison Avenue,' together with all and singular the show
cases, counters, shelving, chandeliers, and all other property of
every kind in said room pertaining to the business of the said
Samuel Rich, which said stock of goods is the property of the said
Samuel Rich, and now in his possession in said place; to have and
to hold all and singular the said goods and chattels unto the said
David May and A. Hirsch, their heirs, administrators, and assigns,
forever."
And then, after a covenant of title, it adds:
"The said David May and A. Hirsch shall take the immediate
possession of all of said goods and chattels and of the said room
in which they are contained as aforesaid, and shall proceed to sell
and dispose of the same with reasonable diligence at private or
public sale, as they may deem best, and out of
Page 148 U. S. 62
the proceeds of such sale of said goods and chattels pay: (1)
the amount due on said notes, with the interest thereon, and the
costs and expenses of such sale; (2) rendering the surplus, if any,
to the said Samuel Rich, his executors, administrators, or assigns:
provided, however, that if the said Samuel Rich shall at any time
before a sufficient quantity of said goods and chattels shall be so
sold to realize a sum sufficient to pay said amount due and said
expenses, pay to the said David May and A. Hirsch, or their
assigns, the amount due on said notes or the balance which may be
due thereon after deducting the net amount realized from such sale,
then these presents shall be void, and the residue of said goods
remaining unsold shall be delivered to the said Samuel Rich, and
possession thereof restored to him. In witness whereof the said
Samuel Rich has hereunto set his hand and seal, this twenty-fourth
day of March, A.D. 1887."
"[Signed] Sam. Rich [Seal]"
The grantees in this conveyance took possession of the property,
and, after a very brief attempt to sell it at retail, sold it in
bulk to one Joseph Shoenberg for $20,100. A portion of this,
$2,113, they were compelled to pay in satisfaction of a claim for
goods wrongfully taken possession of and sold. The amount of the
indebtedness of Rich to the bank, assumed by May and Hirsch, was
about $18,400, including interest. It was admitted on the trial
that this sum was owing by Rich to them. The appellee, Tenney, is a
trustee for several creditors of Samuel Rich, in whose behalf he
obtained judgment on April 25, 1887, for the sum of $13,665. Upon a
hearing before the circuit court, this instrument was adjudged, in
effect, an assignment for the benefit of creditors, and an
accounting was ordered before a master as to the value of the
property received by May and Hirsch under it, as well as the names
of the various creditors of Rich, and the amounts due to them. Upon
the report of the master, a final decree was entered --
"That the chattel mortgage mentioned in the defendants'
Page 148 U. S. 63
answer herein, given by the said Rich to the said May &
Hirsch on March 24, 1887, is in legal effect an assignment for the
benefit of the creditors of the defendant Rich; that the defendants
May & Hirsch took the property conveyed by said mortgage as the
assignees or trustees of the said defendant Rich, and as such
assignees or trustees of the said Rich shall account to the said
creditors for the value of said property as determined and found by
the said master in chancery."
And then, after an adjudication of the amounts due to the
various creditors of Rich, there followed:
"It is further ordered, adjudged, and decreed that the value of
the property transferred, as aforesaid, on March 24, A.D. 1887, by
the said Rich to the said May & Hirsch, and for which the said
May & Hirsch are answerable and responsible as assignees for
the benefit of the creditors of the said Rich by virtue of the said
transfer, is the sum of $31,387, which sum of $31,387 the said
defendants May & Hirsch are hereby ordered to distribute and
pay to the parties in interest herein in the following proportions,
to-wit."
And the distribution and payment ordered are to the various
creditors in proportion to the amounts thus adjudged due to them.
From this decree, May and Hirsch have appealed to this Court.
MR. JUSTICE BREWER, after stating the facts in the foregoing
language, delivered the opinion of the Court.
The principal question in this case is whether the conveyance
from Rich to May and Hirsch was, in legal effect, a general
assignment or only a chattel mortgage. The circuit court held it to
be the former, following in this a series of decisions under the
statutes of Missouri, commencing with
Page 148 U. S. 64
Martin v. Hausman, 14 F. 160, in which Judge Krekel
ruled that
"A debtor in Missouri, under its 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. In 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 assignment or not,"
and continued in
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, 27
F. 248;
State v. Morse, 27 F. 261. Since the decision of
this case by the circuit court, and in
Chicago Union Bank v.
Kansas City Bank, 136 U. S. 223, the
several cases in Missouri, above referred to, were reviewed and
disapproved. That case, however, cannot be cited as decisive of
this, for the matter of assignment is one of local law. As was said
in the opinion then delivered, and with a view of distinguishing
between it and
White v. Cotzhausen, 129 U.
S. 329, in which a seemingly different conclusion had
been reached under the statutes of Illinois:
"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;
Loyd 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. 680;
Randolph'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
Page 148 U. S. 65
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 interpretation, 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
Detroit v. Osborne, 135 U. S. 492."
We must therefore examine the statutes and decisions of
Colorado. Before doing that, it may be well, however, to consider
how the instrument would be regarded at common law, and
independently of any local statute or decision. And first, it does
not purport to be a transfer of all the grantor's property, but
only of a certain described stock of goods, together with the show
cases and store fixings used in connection with that stock. On the
face, therefore, there is no general assignment or general
conveyance, but only a specific conveyance of particular property.
Whether the grantor was in fact possessed of other property, and to
what extent, may not be certain from the testimony. When the case
was first submitted for decision, the matter had not been a subject
of investigation, and the court said in its opinion:
"The question was not asked directly of any witness put upon the
stand, either on the part of complainants or of defendants. Counsel
seem to have ignored that as a question in the case."
And the interlocutory order which after argument was entered
gave to the parties
"time to take further testimony before the master of this Court,
or any notary public, on the question as to whether the chattel
mortgage mentioned in the complainant's bill covered all or
substantially all of the property of Rich at the time of the
execution of said mortgage."
From the testimony taken under this order, it would seem
probable that he had other property, though of small value, a few
hundred dollars or such a matter.
Again, the form of the instrument is unquestionably that of a
mortgage. It is called in the acknowledgment a "chattel mortgage."
The complainant, in his bill, constantly speaks of it as a
"mortgage," and the burden of his complaint is that it
Page 148 U. S. 66
was void because fraudulently entered into, the facts claimed to
show the fraud being specifically stated. It is true there is in
the bill a claim that it be adjudged an assignment, but the
language of the averments in this respect shows that the claim was
only that the legal effect of an assignment should be imputed to
that which was in form a chattel mortgage, for after asserting the
insolvency of Rich, it alleges --
"That it became and was necessary for him to suspend payment of
his indebtedness being insolvent, and thereupon it was his duty to
have made an assignment for the equal benefit of his creditors, and
so he proposed to the defendants May and Hirsch, but by reason of
their persuasions and promises aforesaid he gave the chattel
mortgage aforesaid instead; that said chattel mortgage was a full
and complete disposition of all the property of the said defendant
Rich in view of the insolvency, which was well known to the
mortgagees."
"And your orator claims and insists that the said mortgage
constitutes in law an assignment for the benefit of creditors,
giving preference to the claims of the mortgagees, and that the
same, being preferential, is void as to your orator and all other
of the creditors of Samuel Rich."
And in the order of the court, heretofore referred to, the
instrument was described as "the chattel mortgage mentioned in the
complainant's bill." Obviously it was the understanding and the
concession that this was in form a mortgage, and the effort was to
prove that it covered all the property of Rich, in order to bring
the case within the rule stated by Judge Krekel in
Martin v.
Hausman, supra.
Not only that, the conveyance is for the sole benefit of the
grantees named in it, May and Hirsch. No other creditor is to
receive any benefit therefrom. But an assignment contemplates the
intervention of a trustee.
"A voluntary assignment for the benefit of creditors implies a
trust, and contemplates the intervention of a trustee. Assignments
directly to creditors, and not upon trust, are not voluntary
assignments for the benefit of creditors."
Burrill on Assignments, 5th ed. sec. 3.
"The transfer by a creditor of all his property does not of
itself make what is termed a 'general assignment,' but it must
Page 148 U. S. 67
also be conveyed to trustees, to be held by them in trust for
other creditors."
Burrill on Assignments, 5th ed. sec. 122. Counsel urge that May
and Hirsch were in fact trustees, the real creditor being the
Carbonate Bank, because, as appears on the face of the paper, May
and Hirsch had not at the time paid the bank, and had only assumed
Rich's indebtedness to it. But this instrument proceeds upon the
assumption that the burden of this indebtedness to the bank was
transferred from Rich, the grantor, to May and Hirsch, the
grantees, parties who were solvent, and whose assumption of
liability was accepted by the bank, and the conveyance was to them,
and for their protection and benefit. Out of the proceeds of sales
they were to pay these notes and interest and return the surplus to
Rich. No other creditors were in terms interested in this
conveyance, and further, the defeasance clause provided for payment
not to the Carbonate Bank, but to May and Hirsch or their assigns.
The conveyance was not for the benefit of the Carbonate Bank, but
for that of May and Hirsch, who had assumed Rich's liabilities to
that bank. Suppose, the day after this instrument had been
executed, May and Hirsch had been paid by Rich the full amount due
on these notes to the Carbonate Bank, can it be doubted that all
rights under this conveyance would have been discharged? Could the
Carbonate Bank have held May and Hirsch responsible for a breach of
trust in surrendering the property under those circumstances to
Rich? It is suggested by the circuit court in its opinion that
there was no future day of payment named in the instrument, and
that the mortgagees were to take possession and sell at once; but,
as the debts for the securing of which this conveyance was made
were then due, the naming of a future day of payment was not to be
expected, and might have suggested a suspicion as to the
bona
fides of the transaction, and the duty of immediate sale cast
by this instrument upon the grantees was the duty cast upon chattel
mortgagees. Within accepted definitions and settled rules of
construction, this instrument was, in form, at least, that which
the parties, the counsel, and the court called it -- a chattel
mortgage.
Is there anything in the statutes of decisions of Colorado
Page 148 U. S. 68
which transforms the character or denies validity to such an
instrument, securing and intended to secure only one of many
creditors? In 1881, there was passed by the Legislature of Colorado
(Laws 1881, p. 35) an act to regulate assignments for the benefit
of creditors. It consisted of but a single section, which provided
that, "whenever any person or corporation shall hereafter make an
assignment of his or its estate for the benefit of creditors," the
assignee should be required to pay certain specified debts in full,
and then followed this clause:
"All the residue of the proceeds of such estate shall be
distributed ratably among all other creditors, and any preference
of one creditor over another, except as above allowed, shall be
entirely null and void, anything in the deed of assignment to the
contrary notwithstanding."
A case under that statute came before the supreme court,
Campbell v. Colorado Coal &c. Co., 9 Colo. 60, 64m and
it was held that the word "estate" meant all the debtor's property,
and hence that the statute was designed to cover general
assignments, and in the opinion pronounced by Mr. Justice Helm it
was said:
"A fundamental principle underlying this subject is that, so
long as the debtor retains dominion over his property, in the
absence of statute and fraud, he may do with it as he pleases. He
may transfer the whole of his estate in payment or in security of a
single
bona fide debt. He may assign, mortgage, or
otherwise encumber his estate, or a part thereof, in favor of some
of his creditors, excluding the rest, or he make an assignment for
the benefit of all his creditors, and therein give preferences to a
selected few. It is only when, either by a general assignment or
otherwise, the debtor has parted with the dominion over his
property that, in the absence of statute or fraud, the foregoing
privilege is forfeited. To hold that debtors may not give
preferences among their
bona fide creditors, so long as
they control their property, would greatly embarrass the
transaction of nearly all kinds of business. Some of the
authorities go so far as to say that such a rule would prevent the
carrying on of business altogether."
The statute of 1881 was superseded by that of 1885, which
Page 148 U. S. 69
was that in force at the time of these transactions. This
statute may be found in the laws of 1885, p. 43, and in the first
volume of Mills' Annotated Statutes, p. 453. The only portions of
that statute having any bearing on the matters here in controversy
are sections 1 and 3 and the last half of section 18, which are as
follows:
"Any person may make a general assignment of all his property
for the benefit of his creditors by deed, duly acknowledged, which,
when filed for record in the office of the clerk and recorder of
the county where the assignor resides or, if a nonresident, where
his principal place of business is in this state shall vest in the
assignee the title to all the property, real and personal, of the
assignor, in trust, for the use and benefit of such creditors."
"No such deed of general assignment of property by an insolvent,
or in contemplation of insolvency for the benefit of creditors,
shall be valid unless, by its terms, it be made for the benefit of
all his creditors, in proportion to the amount of their respective
claims."
". . . But nothing in this act contained shall invalidate any
conveyance or mortgage of property, real or personal, by the debtor
before the assignment, made in good faith, for a valid and valuable
consideration."
This statute, so far as we are advised, has not been before the
Supreme Court of Colorado for construction at least not for any
question involved in this case. The first section, it will be
perceived, gives permission to make a general assignment. There is
no compulsion. There is neither in terms nor by implication any
duty cast upon an insolvent to dispose of his property by a general
assignment, or anything which prevents him from paying or securing
one creditor in preference to others. On the contrary, the last
half of section 18 plainly recognizes the right of a debtor to
prefer by payment or security, and, in the light of this statute,
the quotation which we have made from the Supreme Court of Colorado
becomes pertinent, which clearly affirms the right of a debtor to
do with his property as he pleases, except as in terms restrained
by statute, and a statute which simply permits a debtor to
Page 148 U. S. 70
make a certain disposition of his property works no destruction
of his otherwise unrestrained dominion over it.
And further, when we look at section 3, we find that when a
conveyance is made which is a general assignment, it is void
unless, by its terms, it is made for the benefit of all creditors.
The rule thus declared is not that the preferences fail and the
assignment stands, but that the assignment itself fails unless it
be in terms free from preferences. So if this conveyance were in
form unquestionably a general assignment, as it contemplated the
payment only of May and Hirsch, it was not only not for the benefit
of all creditors, but avowedly for the benefit of these two, and it
would therefore have to be adjudged a void instrument, and could
not be upheld under that rule, which prevails in some
jurisdictions, of in such cases upholding the conveyance and
avoiding the preferences. So it follows that either this is a
chattel mortgage given as security to two creditors for their
debts, a transaction in no manner forbidden by the statutes of
Colorado, or if it be a general assignment, then it was an
assignment with preferences, which preferences by those statutes
avoid the conveyance. We think, therefore, the circuit court erred
in the conclusions which it reached, so far at least as this aspect
of the case is concerned.
As we have heretofore noticed, the burden of the complaint was
that this conveyance was fraudulent and void because, as alleged,
made in pursuance of a conspiracy between Rich, May, and Hirsch --
a conspiracy by which Rich was to go east and buy goods and, when
those goods had been purchased and brought to Leadville, transfer
them to May and Hirsch. So far as this charge is concerned, we
agree with the circuit court that it is not established by the
testimony. Rich evidently would like to convey that idea, and yet
he does not directly testify to it, and May and Hirsch clearly deny
it. Obviously there was no conspiracy between the parties, and all
talk between them was only to the effect that if Rich should
succeed in buying what he talked of buying, May and Hirsch would
help him to carry the burden. He largely failed in that, and they,
when he became pressed by the bank,
Page 148 U. S. 71
simply took measures for their own protection. It being
conceded, as it is, that the debts from Rich to May and Hirsch were
bona fide, the transaction amounted to this, and this
only: that the debtor used his property to prefer certain
bona
fide creditors. This the laws of Colorado allowed, and
therefore it cannot be avoided at the instance of the unpreferred
creditors.
The decree of the circuit court is reversed and the case
remanded with instructions to dismiss the bill.
