TORLINA V. TRORLICHT, 1891-NMSC-019, 6 N.M. 54, 27 P. 794 (S. Ct. 1891)
TORLINA, Plaintiff In Error,
vs.
TRORLICHT & HOHNSTRATOR, Defendants In Error
No. 342
SUPREME COURT OF NEW MEXICO
1891-NMSC-019, 6 N.M. 54, 27 P. 794
July 25, 1891
COUNSEL
Neill B. Field for plaintiff in error.
W. B. Childers for defendants in error.
JUDGES
Lee, J. O'Brien, C. J., and McFie and Seeds, JJ., concur.
OPINION
{*54} On Rehearing
Petition for rehearing.
The opinion states the case on rehearing.
{*63} {7} In addition, the facts established, as throwing light upon the instrument, that the preferred creditors were the near relatives of the debtors. The instrument, although made in April, 1876, was not placed on record until July of the same year, and the assignors, from April to the last named date, remained in the actual control of the property assigned, selling the same in the usual course of business, collecting the proceeds of such sales, and carrying on the business generally, under the protection afforded by the deed of assignment. This is the kind of instrument which the supreme court in that case, under the circumstances stated, had under consideration, to which it gave construction holding the same to be fraudulent. The language used by the court should be considered with reference to the instrument being construed, and not as intending to give a general rule for the construction of conveyances or assignments wholly different in important particulars, from the one then in the mind of the court. The fact that the assignors, Montgomery & Dowd, were to remain in possession of the goods, carry on business as usual, make collections, replenish stock, etc., under cover of the assignment, make it clearly apparent that the instrument under consideration in that case was on its face fraudulent; and under like circumstances this court would be bound, not only upon the authority of Means v. Dowd, but also in view of other cases giving construction to like instruments, to hold a like rule. But in the case here there is nothing from which this court, against the finding of fact by the court below, can say that any such device was intended by the defendants in error. If it was clearly apparent that the defendants in this case intended such unreasonable delay as that contemplated by Montgomery & Dowd, of course the rule there adopted would be applied. In that case, in the view of the court the instrument was so fraudulent upon its {*64} face that the court said with respect thereto: "In the case before us the whole face of the instrument has the obvious purpose of enabling the insolvent debtors who made it to continue in their business unmolested by judicial process. * * * It specifically provides that the grantors should remain in possession of said property and choses in action, with the right to continue to sell the goods and collect the debts under control of the grantees. * * * It is difficult to imagine a scheme more artfully devised between insolvent debtors and their preferred creditors to enable the former to continue in business, at the same time withdrawing their property used in its prosecution from the claims of other creditors, which might be asserted according to the usual forms of law." In view of the facts of that case, and the expressions of the court upon the case as a whole, together with what the court has said and decided in other causes on the same subject, both before the decision of Means v. Dowd and since that time, it does not seem to us that the court decided, or intended to decide, that the mere slight delay necessarily incident to conversion of the property of the debtor by assignee, whereby to apply the same to the payment of his debts, amounts to fraud in law; and that principle is the one embraced in in the instructions which the court refused to give, and about which complaint is made, in the cause now in this court under consideration.
{8} In Brashear v. West, 32 U.S. 608, 7 Peters 608, 8 L. Ed. 801, the supreme court upholds an assignment tending in a considerable degree to delay creditors in the collection of their debts by the usual process of law, and in the course of discussion makes the following statement, in speaking of the assignment in that case: "It is also objected that the assignment is in general terms. That a general assignment of all a man's property is per se fraudulent has never been alleged in this country. The right to make {*65} it results from that absolute ownership which every man claims over that which is his own. That it is a circumstance entitled to consideration, and in many cases to much consideration, is not to be controverted. If a man were to convey his whole estate and afterwards to contract debts, there would be much reason to suspect a secret trust for his own benefit. The transaction would be closely inspected, and a sweeping conveyance of his whole property would undoubtedly form an important item in the testimony to establish fraud. So in many other cases which might be adduced; but a conveyance of all his property for payment of his debts is not of this description. It is not of itself calculated to excite suspicion. Creditors have an equitable claim on all the property of their debtor; and it is his duty, as well as his right, to devote the whole of it to the satisfaction of their claims. The exercise of this right by the honest performance of this duty can not be deemed a fraud. If transferring every part of his property, separately, to individual creditors, in payment of their several debts, would be not only fair, but laudible, it can not be fraudulent to transfer the whole to the trustees for the benefit of all. In England such an assignment could not be supported, because it is by law an act of bankruptcy, and the law takes possession of a bankrupt's property, and disposes of it; but in the United States, where no bankrupt law exists for setting aside a deed honestly made transferring the whole of the debtor's estate for the payment of his debts, the preference given in this deed to favored creditors, though liable to abuse, and perhaps to serious objection, is the exercise of a power resulting from the ownership of property which the law has not yet restrained. It can not be treated as a fraud."
{9} Mayer et al. v. Hellman is a case in point. On the third of December, 1873, George Bogen and Jacob Bogen, composing the firm of G. & J. Bogen, and the {*66} same parties, with Henry Muller, 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 in the case, to three trustees, in trust for equal and common benefit of all their creditors. The deed was delivered upon its execution, and the property taken possession of by the assignees. To carry out this assignment necessarily involved a delay to the creditors, such a delay as would enable creditors to convert the property into cash for distribution for payment among creditors. As a matter of fact, some six months did occur before any effort was made to disturb the assignees. More than six months after the execution of the assignment a petition was filed in the district court of the United States, controverting the right of the assignee to hold the property, and in the last named court an assignee in bankruptcy was appointed to take possession of all the assigned property, and administer the same under the bankrupt law then in force. This assignee brought his action against the first assignee to procure possession of the property assigned to him by virtue of the assignment therein dated December 3, so that the question arose as to the legality of the first assignment. The contention was that the first assignment was fraudulent and void, and title was in the assignee under the second assignment. The court held, however, that the first assignment, although it disposed of all of the assignee's property in such a way as to create some delay, was not fraudulent and void, but to the contrary, and upheld the first assignment. It is said by that court, Mr. Justice Field delivering the opinion: "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 every one possesses {*67} 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 the 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 incidents to a just and lawful act, which in no respect impair the validity of the transaction."
{10} Applying the statement of the supreme court of the United States to the terms of the instructions which the court below in this case refused to give, it will be observed that the very hindrance and delay which the court below was asked to declare to be a fraud in law our court of last resort declared not to be so, and it is this distinction between a delay so great and unreasonable in character as necessarily to work injury to the creditor, and slight and necessary delay, incident to the conversion of property into cash, stated by the supreme court in Mayer v. Hellman, which this court had in view in the original opinion, as applied to the proposition of law embraced in the instructions refused. It will be borne in mind that in Mayer v. v. Hellman the assignee under the second assignment began his proceeding in the district court of the United {*68} States against the first assignee to recover the property, and one of the theories sought to be maintained by the plaintiff in that case was that the first assignment was absolutely void. The district court took that view of the question, and decided against the first assignee, who carried the case to the supreme court of the United States, and there the ruling of the district court was reversed, and the law held to be in favor of the first assignee. In discussing the question in that case in the supreme court, an argument is made which clearly indicates that the exact point in the mind of that court is as to the fraudulent character of the first assignment. The court observed: "The counsel of the plaintiffs in error have filed an elaborate argument to show that assignments for the benefit of the creditors generally are not opposed to the bankrupt act, though made within six months of 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 the creditors, and does not give a preference to one creditor over another, it conflicts with no possible 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, and of Mr. Justice Swayne in the circuit court of Ohio in Langley v. Perry, 14 F. Cas. 1113, 2 N.B.R. 596. Certain it is that such an assignment is not absolutely void."
{11} In the case we are considering, the proposition of law clearly involved in the instruction which the court refused to give seems to us to be set at rest by the declaration of the supreme court of the United States that such delays as are unavoidable incidents through a lawful act in no respect impair the validity of the transaction. Reed v. McIntyre, 98 U.S. 507, 25 L. Ed. 171, also sustains the opinion heretofore rendered in {*69} this court in the cause under consideration. Reed v. McIntyre was commenced in the circuit court of the United States for the district of Minnesota. Substantially the facts were that William H. Shuey, a merchant of St. Paul, executed in March, 1874, a deed of assignment conveying his entire property 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 of assignment, Combs' assignee entered upon the discharge of his duties as such, and took possession actually of Shuey's stock of goods. During the succeeding day Mrs. Reed obtained a judgment in one of the state courts of Minnesota against Barnard & Shuey for the sum of $ 5,000. She immediately issued execution on her judgment, and levied the same on the stock of goods belonging to Shuey in the hands of Combs, the assignee.
{12} The question arose in the circuit court of the United States as to the legality of the assignment to Combs. The circuit court upheld that assignment. Mrs. Reed appealed. On this appeal the supreme court also sustained the assignment to Combs, as being legal and binding. It is said by the court in the opinion: "It is stated in the printed argument of counsel for the appellee that 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 right of a debtor at common law to devote his whole estate to the satisfaction 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, 32 U.S. 608, 7 Peters 608, 8 L. Ed. 801; Mayer v. Hellman, 91 U.S. 496, 23 L. Ed. 377. {*70} 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 doctrine of the common law, could the validity of the assignment to Combs be assailed simply because its effect was to prevent the appellant 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 or unusual in their character as to justify the conclusion that it was, in the language of Lord Mansfield in Cadogan v. Kennett, 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. * * * 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 {*71} the execution levy, from securing priority over all other creditors."
{13} So it may be said in the case now under consideration, even if the evidence proved -- a question it was for the court below to determine -- that the defendant in error contemplated such an assignment as would prevent the appellant, by means of the attachment levy, from securing priority over all other creditors on common law principles, the transaction could not be impeached for that reason, and in so dealing this court would have the support of the authority above quoted. The authority will appear more applicable when it is remembered that in this territory, when this cause was commenced, there was no statute regulating assignments, and the question here, as in the Minnesota case above cited, must be determined on common law principles. In a later case ( Peters v. Bain, 133 U.S. 670, 33 L. Ed. 696, 10 S. Ct. 354) the same question is again considered. The court says: "The deed of assignment was attacked as fraudulent in law and in fact. We understand counsel to contend that the deed contains certain provisions which must so hinder, delay, and defraud creditors that fraud in its execution is to be conclusively presumed without regard to the intention of the parties. The doctrine in Virginia, settled by a long and uninterrupted line of decisions, is that, while there may be provisions in a deed of trust of such character as of themselves to furnish evidence sufficient to justify the inference of a fraudulent intent, yet this can not be so, except where the inference is so absolutely irresistible as to preclude indulgence in any other; hence, provisions postponing the time of the sale, and reserving the use of the property of the grantor meanwhile, though perishable and consumable in use; permitting sales on credit; for the payment of surplus after satisfaction of creditors secured; the omission of a schedule or inventory, and the like -- have been regarded as insufficient to justify {*72} the court in invalidating the deed for fraud in point of law. The fraudulent intent is held not to be presumed, even under such circumstances, and, in its absence, the fact that creditors may be delayed or hindered is not of itself sufficient to vacate the instrument." The court not only thus recognizes and applies the established law of Virginia on that subject, but also in its discussion considers the question somewhat upon its own merits. The court adds: "The question is not whether the trustees might prove unfaithful -- a contingency of which there is no intimation here -- but whether the provisions of the deed, if carried out according to their intent, would be fraudulent in their operation." In view of the authorities cited, and others examined and not cited, this court remains of the opinion that it is a safe and sound doctrine to hold that a conveyance, otherwise honest and in good faith, of the property of a debtor for the purpose of applying the same to the payment of his debts, but involving some slight incidental delay, necessary to the conversion of the same, by reasonable and fair means, into cash with which to pay debts, is not because of such delay fraudulent in law, and hence the petition for rehearing is overruled.