A., in due course of legal proceedings, recovered, March 14,
judgment against B., a merchant who, the preceding day, had made an
assignment of all his property for the benefit of his creditors. An
execution was forthwith sued out upon the judgment and levied upon
certain goods, part of the property so assigned. On the petition of
a creditor, filed March 31, alleging that B. had committed acts of
bankruptcy by fraudulently suspending and not thereafter resuming
payment of his commercial paper due January 1 and by making said
assignment, B. was by the proper court adjudged to be a bankrupt,
and his estate conveyed in the usual form by the register to the
assignee in bankruptcy, who filed his bill against A. to determine
the title to the proceeds of the sale of the goods, which by
consent had been made without prejudice to the rights, if any, of
A. by the levy of the execution. Upon the hearing it appeared by
the proofs that the assignment by B. was made in good faith to
secure the distribution of his property among all his creditors.
Held that A. acquired no priority by the levy, and that
the assignee in bankruptcy is entitled to the proceeds.
William H. Shuey, a merchant at St. Paul, Minn., executed, March
13, 1874, a deed of assignment conveying his entire property,
including his stock in trade, to William S. Combs in trust, for the
equal benefit of all his creditors. Upon the same day, immediately
after the acknowledgment of the deed, Combs entered upon the
discharge of his duties as assignee and took possession of Shuey's
stock. During the succeeding day, Mrs. Reed obtained a judgment in
one of the state courts of Minnesota against Barnard and Shuey for
the sum of $5,120.45. An execution was immediately issued, and the
sheriff forthwith levied it upon the same goods of which Combs had
taken possession. Upon the occasion of the levy, the officer was
notified of the assignment and Combs' possession. On the 31st of
March, 1874, Mrs. Sanderson, a creditor of Shuey, by petition filed
in the proper court, prayed that he might be declared a bankrupt,
upon two grounds: 1st, that being a merchant and trader, he had,
Jan. 1, 1874, fraudulently stopped and suspended payment of his
commercial paper, to-wit, the promissory note held by her, and had
not resumed payment thereof; 2d, that, March 13, 1874, being then
insolvent, he made the
Page 98 U. S. 508
said assignment to Combs with intent to hinder, delay, and
defraud his creditors, which she alleged was an act of bankruptcy.
Before the return of the rule which issued upon this petition,
Shuey, by written stipulation, filed in court, without admitting or
denying the alleged grounds of bankruptcy, consented that an
adjudication might be entered against him. This was at once done,
the order reciting that, in consideration of Shuey's written
consent and of the proofs in the cause, the facts set forth in the
petition were found to be true, and it was therefore adjudged that
he was a bankrupt within the meaning of the act of Congress.
McIntyre was duly selected as assignee, and to him the usual
conveyance by the register was made. Afterwards, to prevent a
sacrifice of the goods at a forced sale and to save expense, a
written agreement was made between Mrs. Reed and McIntyre whereby
the latter took possession of and sold all the property levied
upon, but without prejudice to such rights as she had acquired
under and by virtue of her execution or to her right to raise any
question in a suit in equity to be promptly instituted which she
might have raised if that property had remained in the custody of
the sheriff.
The present suit was commenced by a bill in equity filed by
McIntyre for the purpose of obtaining a judicial determination of
Mrs. Reed's rights in the property levied on, or rather in its
proceeds. She claimed that to the extent of the judgment against
Shuey, her rights acquired by the levy are superior to those of the
assignee in bankruptcy. That view was controverted by him, and a
decree having been rendered in his favor, Mrs. Reed appealed.
Page 98 U. S. 509
MR. JUSTICE HARLAN, after stating the case, delivered the
opinion of the Court.
It is stated in the printed argument of counsel for the
appellee, and the statement is not controverted by opposing
counsel, that at the date of the assignment to Combs, there was no
statute of Minnesota relating to assignments by debtors for the
benefit of creditors.
In determining, therefore, the validity and effect of the
assignment in question, we must look to the doctrines of the common
law and to the provisions of the Bankrupt Act.
The assignment to Combs was, according to the evidence in this
cause, made in good faith for the purpose of securing an equitable
distribution of the debtor's property for the benefit of all of his
creditors, including the appellant, and not with any intent to
hinder, delay, or defraud them. The right of a debtor at common law
to devote his whole estate to the satisfaction
Page 98 U. S. 510
of the claims of creditors results, as Mr. Chief Justice
Marshall declares, "from that absolute ownership which every man
claims over that which is his own."
Brashear
v. West, 7 Pet. 608;
Mayer v. Hellman,
91 U. S. 496.
Assignments of property for such purposes, not made with the intent
to hinder, delay, or defraud creditors, were upheld at common law
even where certain creditors were preferred in the distribution of
the debtor's effects. Nor, according to the doctrines of the common
law, could the validity of the assignment to Combs be assailed
simply because its effect was to prevent the appellant from
obtaining by judgment and execution a priority and preference over
other creditors. An assignment which had the effect to delay a
creditor in the enforcement of his demand by the ordinary process
of law was not for that reason alone fraudulent and void. If not
made with the intent to hinder, delay, or defraud creditors, it was
sustained at common law. Such an intent was often conclusively
presumed if the assignment contained provisions inconsistent with
good faith or so unreasonable and unusual in their character as to
justify the conclusion that it was, in the language of Lord
Mansfield in
Cadogan v. Kennett, Cowp. 432, 434, a mere
"trick or contrivance to defeat creditors." But where its
provisions were consistent with an honest purpose to deal fairly
and justly with them -- the deed reserving for the benefit of the
debtor or his family no control over or interest in the property
and imposing no improper restrictions upon its speedy sale and
distribution in satisfaction of the debts -- the consequent
temporary interference with the prosecution by particular creditors
of their claims by the ordinary legal remedies was regarded at
common law as a necessary and unavoidable incident in the discharge
by a debtor of his duty to creditors.
Mayer v. Hellman,
supra. Such interference was not regarded as hindrance and
delay within the meaning of the statutes against fraudulent
conveyances. This precise question arose in
Pickstock v.
Lyster, 3 Mau. & Sel. 371. In that case, a debtor, being
sued, made an assignment by deed of all of his effects for the
equal benefit of creditors. The jury having been instructed that
they must find the deed void if made with the intent to defeat the
plaintiff in his execution, returned
Page 98 U. S. 511
a verdict in his favor. But the verdict was set aside upon the
ground that the jury were misdirected. Lord Ellenborough held that
the assignment was
"to be referred to an act of duty, rather than of fraud, when no
purpose of fraud is proved. The act arises out of a discharge of
the moral duties attached to his character of debtor to make the
fund available for the whole body of creditors. . . . It is not the
debtor who breaks in upon the rights of the parties by this
assignment, but the creditor who breaks in upon them by proceedings
in his suit. I see no fraud; the deed was for the fair purpose of
equal distribution."
In the same case, Bayley, J., said:
"It seems to me that this conveyance, so far from being
fraudulent, was the most honest act the party could do. He felt
that he had not sufficient to satisfy all of his debts, and he
proposed to distribute his property in liquidation of them; this
was not acceded to, for the plaintiff endeavored by legal process
to obtain his whole debt, the obtaining of which would have swept
away the property from the rest of the creditors."
To the like effect are the authorities generally, as will be
seen from an examination of the adjudged cases cited in Burrill's
Treatise on Voluntary Assignments (3d ed.), sec. 319
et
seq., and in 1 American Leading Cases (5th ed.), 71
et
seq. Our conclusion, therefore, is that the assignment to
Combs could not, upon common law principles, be impeached simply
because it had the effect to prevent the appellant, by means of the
execution levy, from securing priority over all other
creditors.
But it is contended that her right of preference over other
creditors in the distribution of the proceeds of the property
levied upon can be sustained under the provisions of the bankrupt
law and the adjudication of bankruptcy against Shuey. The argument
is, that that adjudication having been made upon the ground, in
part, that the assignment to Combs was made with the intent on the
part of Shuey to hinder, delay, and defraud his creditors, such
assignment is to be regarded as fraudulent and void from the moment
of its execution, and therefore as interposing no obstacle whatever
in the way of the levy subsequently made in her behalf. This
argument, although plausible and ingenious, is not, in our
judgment, sound, or at all consistent with the objects intended to
be
Page 98 U. S. 512
accomplished by the bankrupt law. If that law had not been in
force, the appellant would not have acquired priority over other
creditors by the sheriff's levy, for the obvious reason that the
right of property in the goods seized under the execution had
previously passed, by a valid and unimpeachable deed, to Combs, and
they were not thereafter subject to execution as the property of
the debtor. We have often declared that the
pro rata
distribution of the property of the bankrupt was the main purpose
of the bankrupt statute.
Buchanan v.
Smith, 16 Wall. 277. A serious defect in that
statute would be developed if its provisions received such a
construction as would enable the appellant to defeat that purpose
by obtaining an advantage over other creditors. We are of opinion
that no such construction is demanded either by its letter or its
spirit. Since by the sheriff's levy the appellant acquired no
priority of right in or lien upon the goods, how could the
subsequent proceedings in bankruptcy have the retroactive effect to
give her a preference over the other creditors of Shuey? The
argument in support of the opposite view ignores the fact that
neither Combs nor the creditors who, under the assignment to him,
acquired an equitable interest in the property were parties to
those proceedings. Their rights, therefore, under his assignment,
were not, and necessarily could not be, conclusively determined by
those proceedings. Notwithstanding the adjudication, Combs, the
assignee of Shuey, was at liberty to contest with the assignee in
bankruptcy the question whether the assignment to Combs was a fraud
on the Bankrupt Act, or was made with the intent to hinder, delay,
or defraud creditors or to prevent the property from coming to the
assignee in bankruptcy or from being distributed under that act.
That no such issue was made between the assignee in bankruptcy and
Combs, representing the creditors of Shuey, is due doubtless to the
fact that the administration of the debtor's effects in the
bankruptcy court would accomplish the same end designed by the
assignment to Combs -- namely the distribution of the property for
the equal benefit of all the creditors. But the absence of such an
issue and the failure of Combs to assert his rights against the
appellee cannot have the effect to increase the appellant's rights
to any extent whatever. She cannot
Page 98 U. S. 513
complain that the creditors submit without contest to the
distribution of the property through the assignee in bankruptcy,
rather than through Combs, under the assignment to him. If she did
not acquire any right by force of the levy, it is of no consequence
to her, under the issues in this suit, that the assignee in
bankruptcy rather than Combs has possession of the property in
question. She cannot use the adjudication in bankruptcy to give
vitality to an execution levy which, when made, was ineffectual for
any purpose of priority, and then employ the levy thus vitalized to
defeat the primary object of the adjudication, which was to
distribute the bankrupt's effects for the equal benefit of all the
creditors. Whatever may be the respective claims of the assignee in
bankruptcy and Combs, it is sufficient for the disposition of this
case to say that the appellant acquired no priority of right by the
execution levy. The adjudication in the bankruptcy court was for
the purpose of bringing the bankrupt's effects into that court for
distribution, and the appellant cannot, by force of that
adjudication, secure a priority which, without such adjudication,
she would not have had. To hold otherwise would be to make the
bankruptcy proceedings the instrument of defeating the wise and
beneficent policy which the Bankrupt Act was intended to subserve.
Even if it were conceded that the assignment to Combs was an act of
bankruptcy upon the ground that it was made with the intent to
prevent the property from coming to the assignee in bankruptcy and
from being distributed under the Bankrupt Act, it was not invalid,
except with reference to proceedings under the bankrupt statute, to
be instituted by the bankrupt or by some creditor for the purpose
of bringing the bankrupt's effects into the bankruptcy court.
Everett v. Stone, 3 Story, 446;
Dodge v. Sheldon,
6 Hill (N.Y.), 9;
Seaman v. Stoughton, 3 Barb. (N.Y.) Ch.
348; 15 Nat.Bank.Reg. 228.
Decree affirmed.
MR. JUSTICE BRADLEY dissented.
