The laws o� Rhode Island allow an assignment to be made by a
failing debtor, for the benefit of certain preferred creditors and
for the exclusion of those who should refuse to execute releases
from their respective claims.
The laws of New York do not permit such assignments.
Where an assignment with the above reservation was made in Rhode
Island by a person and to persons residing there which conveyed to
trustees certain property in Rhode Island and also property in New
York, it was proper for the Circuit Court of New York to dismiss a
bill filed by creditors residing there, provided there was no fraud
in fact in the assignment.
The complainants never acquired nor ever had any lien upon the
property in New York so as to subject it legally or equitably to
their demand against the failing debtors either before or after it
was carried into judgment in the supreme court of New York.
Livermore and Sexton, who filed the bill, were citizens of New
York, and Jenckes, Farnum, and Waterman citizens of Rhode
Island.
The complainants claimed to set aside an assignment made on the
19th of April, 1854, by Waterman, to Jenckes & Farnum, upon the
ground that the assignment was to enure to such of Waterman's
creditors who should sign a release. This provision, it was
admitted, was valid by the laws of Rhode Island, where the
assignment was executed, but invalid by the laws of New York, where
the property in question was situated. Livermore and Sexton had
become judgment creditors after the assignment was made, and if it
could be set aside, the property would be open to execution upon
their judgments.
Page 62 U. S. 127
The defendants all answered the bill, and much evidence was
taken. After the cause was heard upon the pleadings and proofs, the
circuit court passed the following decree:
"This cause having been heretofore brought on to be heard at
final hearing on pleadings and proofs, and having been argued by
Mr. A. J. Willard on the part of the plaintiffs, and by Mr. T. A.
Jenckes and Mr. C. A. Seward on the part of the defendants, now, on
consideration thereof, it is found and decided by the court, that
the property in the State of New York, assigned by the defendant
Waterman to the defendants Jenckes & Farnum, by the assignment
mentioned in the pleadings herein, was taken into possession by
said assignees, and converted into money, and the proceeds
transferred to the State of Rhode Island, prior to the filing of
the bill in this cause, and that the plaintiffs have no lien on
said property, and that there was no fraud in fact in the making of
said assignment, and it is therefore ordered, adjudged, and
decreed, that the bill in this cause be and the same is hereby
dismissed, with costs to the defendants against the plaintiffs to
be taxed, and that the defendants have execution against the
plaintiffs for such costs, according to the course and practice of
this Court."
The complainants appealed from this decree.
Page 62 U. S. 144
MR. JUSTICE WAYNE delivered the opinion of the Court.
This bill was filed by the appellants in the Circuit Court of
the United States for the Southern District of New York, as
judgment creditors of the respondents, Waterman & Samuel
Harris, to avoid an assignment made by Waterman to the respondents,
Jenckes & Farnum, in trust for the payment of the creditors of
Harris & Waterman, and of Waterman individually.
The appellants seek to avoid the assignment, on the ground that
it was voidable, from its tending to hinder, delay, and defraud
creditors; because there is a reservation in it to the assignee of
the dividends of such creditors as should refuse to become parties
to it, and to release their demands in consideration of the
dividends they might receive. It appears that a large amount of the
property conveyed was in the State of New York; that the appellants
resided there, and that they were then creditors of Harris &
Waterman. The trusts in the deed were, first, to pay the expenses
of the assignment; secondly, to pay the debts of several preferred
creditors of Harris & Waterman, and of Waterman individually;
and thirdly, to pay all the residue of the debts of Waterman
individually, and as a member of the firm of Harris & Waterman.
The assignment contained the following proviso:
"
Provided that none of my said creditors named in the
third class of this assignment shall be entitled to receive any
dividend or benefit under the deed of assignment, unless they shall
execute and deliver to my said assignee, within six months from the
date hereof, a full release and discharge, under seal, of all their
claims and demands against me, the assignor; but the dividends on
the claims and demands of the creditors who shall not execute
Page 62 U. S. 145
such release shall be paid over to me, the said assignor, or to
such person as I shall appoint."
It appears that Harris, the co-partner of Waterman, had given to
the latter a bill of sale of all their partnership property; that
the firm was then dissolved; that Waterman had the possession of
it, and that he afterwards made the deed of assignment to Jenckes
& Farnum. Now Jenckes & Farnum received and held the
property under the assignment, as well that which was in New York
as all that was elsewhere. A part of the co-partnership property
was the Owasca Lake mill, situated at Auburn, Cayuga County, State
of New York, and it is admitted that it exceeded in value the debt
due by Harris & Waterman to the complainants. As to that
property, James Fitton was a co-partner; but it appears that he
joined with Harris & Waterman in dissolving the co-partnership,
and in authorizing Waterman to "settle up" its business, having on
the same day agreed that Harris should convey to Waterman the bond
and mortgage which he had given to Harris & Waterman for the
purchase money due by him for an undivided fourth part of the
Owasca Lake mill. Thus Waterman was made the sole owner of it. He
supposed himself at that time to be solvent, and that he could
carry on the business of the mill, and worked it for some time; but
finding himself unable to do so, he conveyed it to Jenckes &
Farnum, with all the other property of the late concern which had
become his, with the intention that they should, as his assignees,
make an equitable distribution of it among his creditors; and, in
his answer to the bill of the complainants, he declares he did so
without any fraudulent intent to hinder, delay, or defraud
creditors. Waterman had been, was then, and was when he made the
assignment, a citizen of the State of Rhode Island. The property
assigned was in different states. Jenckes & Farnum accepted the
trusts of the assignment. Waterman ceased to have any control over
it, and, for aught that appears, the assignees have executed their
trust unimpeachably. After the assignment was made, the
complainants obtained, in the supreme court of New York, a judgment
upon their demand against Harris & Waterman.
They have now brought their bill as judgment creditors
Page 62 U. S. 146
against Waterman and Jenckes & Farnum, the assignees, to
avoid the assignment; alleging that they have a lien upon the
property in New York, or its proceeds, as creditors of Harris &
Waterman, because Waterman's assignment to Jenckes & Farnum
contained a reservation to the assignor, which, by the laws of New
York, was fraudulent. And so it would have been had the assignment
been made in that state by persons residing there. But the
assignment was made in the State of Rhode Island by a person and to
persons residing there, and is in every particular just such a one
as, by the laws of that state, merchants and others in failing
circumstances residing there are allowed to make in favor of
creditors within that state and those residing elsewhere, wherever
the property of the assignor may be. We see no cause for thinking
it was fraudulently made. The respondents deny it upon their oaths
as responsively to the charge made by the complainants as that can
be done. The latter have not sustained their charge by any proof
whatever. For that cause alone, if there was no other, we should
concur with the circuit judge in the decree given by him in this
case. And we also concur with him that the complainants never
acquired nor ever had any lien upon the property in New York, so as
to subject it legally or equitably to their demand against Harris
& Waterman either before or after it was carried into judgment
in the supreme court of New York. Deeming the grounds stated
decisive of this controversy, we abstain from a discussion of other
points learnedly and ably argued by the counsel in the cause in
their respective printed briefs. They were appropriate to the
cause, but we do not deem them necessary for the decision of
it.
We direct the affirmance of the decree given in the court
below.
