An assignment by an insolvent debtor of his property to trustees
for the equal and common benefit of all his creditors is not
fraudulent, and when executed six months before proceedings in
bankruptcy are taken against the debtor, is not assailable by the
assignee in bankruptcy subsequently appointed, and the assignee is
not entitled to the possession of the property from the
trustees.
The plaintiff in the court below is assignee in bankruptcy of
Bogen and others, appointed in proceedings instituted against them
in the District Court of the United States for the Southern
District of Ohio; the defendants are assignees of the same
Page 91 U. S. 497
parties under the assignment law of the state of Ohio, and the
present suit is brought to obtain possession of property which
passed to the latter under the assignment to them. The facts as
disclosed by the record, so far as they are material for the
disposition of the case, are briefly these:
On the 3d of December, 1873, at Cincinnati, Ohio, George Bogen
and Jacob Bogen, composing the firm of G. & J. Bogen, and the
same parties with Henry Mueller, composing the firm of Bogen &
Son, by deed executed of that date, individually and as partners,
assigned certain property held by them, including that in
controversy, to three trustees, in trust for the equal and common
benefit of all their creditors. The deed was delivered upon its
execution, and the property taken possession of by the
assignees.
By the law of Ohio in force at the time, when an assignment of
property is made to trustees for the benefit of creditors, it is
the duty of the trustees, within ten days after the delivery of the
assignment to them and before disposing of any of the property, to
appear before the probate judge of the county in which the
assignors reside, produce the original assignment, or a copy
thereof, and file the same in the probate court, and enter into an
undertaking payable to the state, in such sum and with such
sureties as may be approved by the judge, conditioned for the
faithful performance of their duties.
In conformity with this law, the trustees, on the 13th of
December, 1873, within the prescribed ten days, appeared before the
probate judge of the proper county in Ohio, produced the original
assignment, and filed the same in the probate court. One of the
trustees having declined to act, another one was named in his place
by the creditors and appointed by the court. Subsequently the three
gave an undertaking with sureties approved by the judge, in the sum
of $500,000, for the performance of their duties, and then
proceeded with the administration of the trust under the direction
of the court.
On the 22d of June of the following year, more than six months
after the execution of the assignment, the petition in bankruptcy
against the insolvents was filed in the district court of the
United States, initiating the proceedings in which the plaintiff
was appointed their assignee in bankruptcy. As
Page 91 U. S. 498
such officer, he claims a right to the possession of the
property in the hands of the defendants under the assignment to
them. Judgment having been rendered against them, they sued out
this writ of error.
Page 91 U. S. 500
MR. JUSTICE FIELD delivered the opinion of the Court.
The validity of the claim of the assignee in bankruptcy depends,
as a matter of course, upon the legality of the assignment made
under the laws of Ohio. Independently of the Bankrupt Act, there
could be no serious question raised as to its legality. The power
which everyone possesses over his own property would justify any
such disposition as did not interfere with the existing rights of
others, and an equal distribution by a debtor of his property among
his creditors, when unable to meet the demands of all in full,
would be deemed not only a legal proceeding, but one entitled to
commendation. Creditors have a right to call for the application of
the property of their debtor to the satisfaction of their just
demands; but unless there are special circumstances giving priority
of right to the demands of one creditor over another, the rule of
equity would require the equal and ratable distribution of the
debtor's property for the benefit of all of them. And so whenever
such a disposition has been voluntarily made by the debtor, the
courts in this country have uniformly expressed their approbation
of the proceeding. The hindrance and delay to particular creditors
in their efforts to reach before others the property of the debtor
that may follow such a conveyance are regarded as unavoidable
Page 91 U. S. 501
incidents to a just and lawful act which in no respect impair
the validity of the transaction.
The great object of the Bankrupt Act so far as creditors are
concerned is to secure equality of distribution among them of the
property of the bankrupt. For that purpose, it sets aside all
transactions had within a prescribed period previous to the
petition in bankruptcy defeating or tending to defeat such
distribution. It reaches to proceedings of every from and kind
undertaken or executed within that period by which a preference can
be secured to one creditor over another or the purposes of the act
evaded. That period is four months for some transactions and six
months for others. Those periods constitute the limitation within
which the transactions will be examined and annulled if conflicting
with the provisions of the Bankrupt Act.
Transactions anterior to these periods are presumed to have been
acquiesced in by the creditors. There is sound policy in
prescribing a limitation of this kind. It would be in the highest
degree injurious to the community to have the validity of business
transactions with debtors, in which it is interested, subject to
the contingency of being assailed by subsequent proceedings in
bankruptcy. Unless, therefore, a transaction is void against
creditors independently of the provisions of the Bankrupt Act, its
validity is not open to contestation by the assignee where it took
place at the period prescribed by the statute anterior to the
proceedings in bankruptcy. The assignment in this case was not a
proceeding, as already said, in hostility to the creditors, but for
their benefit. It was not, therefore, void as against them or even
voidable. Executed six months before the petition in bankruptcy was
filed, it is, to the assignee in bankruptcy, a closed
proceeding.
The counsel of the plaintiffs in error have filed an elaborate
argument to show that assignments for the benefit of creditors
generally are not opposed to the Bankrupt Act, though made within
six months previous to the filing of the petition. Their argument
is that such an assignment is only a voluntary execution of what
the Bankrupt Court would compel, and as it is not a proceeding in
itself fraudulent as against creditors and does not give a
preference to one creditor over another, it conflicts
Page 91 U. S. 502
with no positive inhibition of the statute. There is much force
in the position of counsel, and it has the support of a decision of
the late Mr. Justice Nelson, in the Circuit Court of New York, in
Sedgwick v. Place, First Nat.Bank.Reg. 204, and of Mr.
Justice Swayne in the Circuit Court of Ohio, in
Langley v.
Perry, 2 Nat.Bank.Reg. 180. Certain it is that such an
assignment is not absolutely void, and, if voidable, it must be
because it may be deemed perhaps necessary for the efficiency of
the Bankrupt Act that the administration of an insolvent's estate
shall be entrusted to the direction of the district court, and not
left under the control of the appointee of the insolvent. It is
unnecessary, however, to express any decided opinion upon this
head, for the decision of the question is not required for the
disposition of the case.
In the argument of the counsel of the defendant in error the
position is taken that the Bankrupt Act suspends the operation of
the act of Ohio regulating the mode of administering assignments
for the benefit of creditors, treating the latter as an insolvent
law of the state. The answer is that that statute of Ohio is not an
insolvent law in any proper sense of the term. It does not compel,
or in terms even authorize, assignments; it assumes that such
instruments were conveyances previously known, and only prescribes
a mode by which the trust created shall be enforced. It provides
for the security of the creditors by exacting a bond from the
trustees for the discharge of their duties; it requires them to
file statements showing what they have done with the property, and
affords in various ways the means of compelling them to carry out
the purposes of the conveyance. There is nothing in the act
resembling an insolvent law. It does not discharge the insolvent
from arrest or imprisonment; it leaves his after-acquired property
liable to his creditors precisely as though no assignment had been
made. The provisions for enforcing the trust are substantially such
as a court of chancery would apply in the absence of any statutory
provision. The assignment in this case must therefore be regarded
as though the statute of Ohio to which reference is made had no
existence. There is an insolvent law in that state, but the
assignment in question was not made in pursuance of any of its
provisions. The position, therefore, of counsel that the
Page 91 U. S. 503
Bankrupt Law of Congress suspends all proceedings under the
Insolvent Law of the state has no application.
The assignment in this case being in our judgment valid and
binding, there was no property in the hands of the plaintiffs in
error which the assignee in bankruptcy could claim. The assignment
to them divested the insolvents of all proprietary rights they held
in the property described in the conveyance. They could not have
maintained any action either for the personalty or realty. There
did, indeed, remain to them an equitable right to have paid over to
them any remainder after the claims of all the creditors were
satisfied. If a contingency should ever arise for the assertion of
this right, the assignee in bankruptcy may perhaps have a claim for
such remainder, to be applied to the payment of creditors not
protected by the assignment, and whose demands have been created
subsequent to that instrument. Of this possibility we have no
occasion to speak now.
Our conclusion is that the court below erred in sustaining
the demurrer to the defendant's answer, and the judgment of the
court must therefore be reversed and the cause remanded for further
proceedings.
