Case ID: wis_119/html/0410-01.html
Source: Caselaw Access Project
Author: {"author": "Maeshall, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Ringenoldus, Clerk, Respondent, vs. Abresch, imp., Appellant.
    
      October 2 —
    October 20, 1903.
    
    
      Assignment for benefit of creditors: Action on assignee’s bond: Debt incurred by assignee: Restoration of “property to assignor before payment: Assent of creditor: Discharge of sureties.
    
    1. The bond given by an assignee for the benefit of creditors is not an official bond, within the meaning of sec. 986, Stats. 1898.
    2. The statutes (secs. 1698, 1700, Stats. 1898) relating to the filing of claims against the assignor, have no application to an indebtedness incurred by the assignee in executing the trust.
    3. An action upon the bond of an assignee for breach thereof in restoring the property to the assignor before payment of an indebtedness incurred by the assignee in executing the trust, does not in any way attack an order discharging the assignee from all obligations as such to creditors of the assignor, especially where such order expressly required that the expenses of executing the trust be paid by the assignor as a condition precedent to the restoration of the propérty.
    4. Such partial or conditional discharge of the assignee did not relieve him or the sureties on his bond from liability in respect to the breach mentioned.
    5. An attempt to collect the debt, so incurred by the assignee, from the assignor, who had agreed with the assignee to pay the same,, was not such an election to rely upon the assignor’s liability as would discharge the assignee.
    6. The question whethe'r the sureties on the assignee’s bond would be bound by his contracts in carrying on the assigned business by order of the court, is not involved or determined.
    7. Sec. 1701, Stats. 1898, providing for restoration of the property to the assignor only upon payment by him of the expenses of executing the trust, was intended not merely for the protection of the assignee, but also for the protection of persons who, by reason of dealings with the assignee, were entitled under sec. 1700 to liens upon the property.
    8. Where a person to whom the assignee had become indebted in executing the trust, and who was entitled to a lien upon the assigned property for the amount of his claim, assented to the restoration of the property to the assignor without permission of the sureties on the assignee’s bond, such sureties were thereby released from liability for the claim.
    9. Assent of the claimant to the restoration of the property, in such a case, was sufficiently evinced by his conduct, where, after being notified that the assignee had released the property and taken an indemnity bond from the assignor to secure payment of the claim, he made no further effort to obtain payment in the assignment proceedings, but attempted to enforce the agreement of the assignor, making no claim against the assignee’s bondsmen until several years later.
    Appeal from an order of tbe circuit court for Milwaukee county: WaeREN D. TabeaNT, Circuit Judge.
    
      Reversed.
    
    Action on an assignee’s bond, in tbe name of tbe clerk of tbe circuit court for Milwaukee county, for tbe benefit of tbe creditors of tbe assignee and tbe assignor. May 10, 1897, George Scbweickhart made an assignment of bis property in due form for tbe benefit of bis creditors to Paul C. Biersacb. Tbe bondsmen of tbe assignee were Charles O. Manegold and Charles Abresch. There was an informality in tbe bond in tbat it ran to tbe state of Wisconsin as obligee instead of tbe clerk of tbe circuit court for Milwaukee county. Tbe property tbat came to tbe bands of tbe assignee was of tbe value of about $35,000 and included a factory for putting up various kinds of mineral and carbonated waters. Tbe court baving supervision of tbe execution of tbe trust authorized tbe assignee to continue operating tbe factory, wbicb be did, and in so doing incurred an indebtedness to O. F. Leng of $1,563.23 for bottles between May 10 and October 1, 1897. $812.05 thereof remains unpaid. Tbe assignee made a profit, by continuing tbe business, of $2,135.67. October 2, 1897, tbe time baving expired for creditors to file claims, upon the petition of tbe assignee, assented to by tbe assignor, showing tbat all creditors who bad filed claims bad filed releases of tbe same in tbe office of the clerk of tbe circuit court for Milwaukee county, an order was entered discharging tbe as-signee and requiring him to deliver all property in bis bands as such assignee to tbe assignor on condition of tbe latter paying tbe fees and expenses and costs of court. Thereupon tbe trust property was delivered to tbe assignor without bis first paying tbe indebtedness to Leng, who was not informed of tbe transfer till December 28, 1898, when tbe information in tbat regard came to him accompanied by an assurance from tbe assignee tbat tbe assignor bad assumed and agreed to pay such indebtedness and given a bond to indemnify tbe former against liability on account of bis baving parted with the trust property in advance of payment being made. January 10, 1900, Schweickhart filed bis petition in bankruptcy in tbe United States court for tbe Eastern district of Wisconsin, and such proceedings were subsequently taken in tbat regard tbat Leng filed in such court a claim for tbe aforesaid indebtedness against tbe bankrupt, and received thereon a dividend of $12.50, tbat being tbe full amount recoverable in such proceedings. The only recourse of Leng and others to whom Biersach became indebted as assignee and failed to pay or require the assignor to pay before returning the assigned estate to him, is upon the assignee’s bond.
    All the aforesaid facts were set forth in the complaint as a cause of action which Leng was entitled to prosecute in the name of the proper obligee in the assignee’s bond, against the obligors. The prayer for relief, among other things, was for the substitution of the clerk of the circuit court for Milwaukee county as obligee in the bond in place of the state of Wisconsin. Defendant Abrese!u demurred to the complaint for insufficiency and the demurrer was overruled. He appealed from the' order accordingly entered.
    
      Louis Q. Bohmrich, for the appellant.
    For the respondent there was a brief by E. J. Henning, attorney, and Kcmneberg & Gochems, of counsel, and oral argument by A. Kanneberg.
    
   Maeshall, J.

The major part of appellant’s propositions to support the claim that the court erred in overruling the demurrer do not seem to call for extended discussion. We will refer to them briefly.

It is said that the complaint fails to show performance of the condition precedent created by sec. 986, Stats. 1898. That regulates procedure in the enforcement of official bonds, not such as the one involved here.

It is further said that the complaint fails to show that plaintiff complied with the statutes In regard to the filing of claims by creditors of insolvents. This was not such a claim. The indebtedness accrued after the assignment, by contract with the assignee.

The next suggestion is that the complaint shows that the assignee was by order of the court discharged from all obligations as assignee to the creditors of the assignor, for any money or property that came -to his hands, and that the order cannot be collaterally attacked. We perceive no attempt to attack the order collaterally or otherwise. This suit is not to enforce tbe rights of a creditor of tbe assignor, but those of a •creditor of the assignee having a right to a lien upon the assigned property, which the assignee, in breach of his duty and of his bond, has rendered valueless. The court expressly preserved that right, in that it ordered that the expenses of executing the trust should be paid by the assignor as a condition precedent to the trust property being restored to him.

The next point made is that Leng’s remedy was under sec. 5832, Stats. 1898, for relief from the order. The answer to that is that he does not seek or want relief from the order. What he seeks is to recover his damages for a violation of the order.

Then it is suggested that the order discharged the principal and that such circumstance, upon familiar principles, discharged the surety. The trouble with that is that the principal was not discharged unconditionally. lie was required to retain possession of the property till'payment by the assignor of the expenses of executing the trust. That he failed to do, and it is for such failure, as indicated, that Leng complains.

Eurther, it is said that by Leng’s filing his claim in the bankruptcy proceedings instituted by Schweickhart, he elected to rely upon the latter’s liability, and so discharge the as-signee. The rule invoked, it will readily be seen, has no application, since the enforcement of the claim against Schweickhart, as regards his personal liability, was perfectly consistent with holding the assignee likewise bound. Upon the facts alleged there was the situation, often met with, of a contract made by one person with another for the benefit of a third person, the latter being a creditor of the former and the benefit to flow to such third person being satisfaction of the first person’s indebtedness to him. The beneficiary in such circumstances can assent to and sue on the contract made for his use without prejudice to the contractual liability of the original debtor till the actual discharge of the debt. Stites v. Thompson, 98 Wis. 329, 331, 73 N. W. 774; Kuhl v. C. & N. W. R. Co. 101 Wis. 42, 57, 77 N. W. 155.

It is further suggested that it is a question for consideration whether the sureties in any event would be bound by contracts of the assignee in carrying on the assigned business, though done by order of the court. No such question is necessarily involved here. This suit is not grounded on the idea that the sureties became liable to Leng because the assignee incurred the indebtedness to him in operating the assigned business; but on the idea, as before iterated and reiterated, that the assignee failed to pay the expenses of administering the trust, part thereof being the claim of Leng, or to see that the assignor did so, as ordered by the court, before releasing the trust property, which Leng had a right to rely upon for his pay, and thus breached his bond.

Another point made is that the condition of the bond is that the assignee will pay over to the creditors of the assignor, existing at the time of the assignment, “all moneys,” etc., and “abide the order of said court,” and that respondent was not-such a creditor. In that counsel seems to easily ignore the condition of the bond last stated, i. e., that the assignee will abide by the order of the cóurt. It is the breach of that upon which this action is founded.

But it is said that failure of the assignee to insist upon the ■assignor’s paying the expenses of executing the trust before turning over the trust property, is not an actionable breach of the bond, since the provision of the order in that regard was for the sole benefit of the assignee, and he could therefore waive it if he saw fit. Not so. Sec. 1700, Stats. 1898, made the expenses of executing the assignment a charge upon . the assigned property to be paid before the claims of creditors, .while sec. 1701 provides for a return of the assigned property, in the circumstances of this case, only upon proof being filed of the payment of all proved claims, and payment by the assignor of tbe expenses of executing tbe trust. Tbe latter section was evidently intended as mucb for tbe protection of persons entitled to liens upon tbe trust fund by reason of dealing with tbe assignee, as for tbe latter’s protection.

Tbe foregoing covers all tbe points raised by appellant’s counsel except one. Tbe manifest reason for treating them so briefly is because they seem obviously untenable. Tbe remaining point appears to be fatal to tbe complaint. It is this: It appears upon tbe face of tbe pleading that Leng, without permission of tbe sureties, consented to tbe delivery of tbe trust property to tbe assignor upon bis giving an indemnity bond to pay tbe former’s claim. There is no principle better settled than that when there is a surety for tbe payment of tbe claim of another, and a property or a fund in tbe bands of tbe principal to which such other has a legal right to resort to collect such claim, if be consents to tbe release of such property or fund without permission of tbe surety, tbe latter is ipso facto discharged. Brandt, Suretyship & Guar. §§ 426, 429, 434. That is within tbe general rule that one secured of bis claim against another by a surety owes to tbe latter a duty not to deal with bis debtor to tbe prejudice of tbe surety. Gardner v. Van Norstrand, 13 Wis. 543; Omaha Nat. Bank v. Johnson, 111 Wis. 372, 87 N. W. 237; 24 Am. & Eng. Ency. of Law (1st ed.) 851, 856. Tbe complaint shows that Leng was notified December 28, 1898, that tbe assignee bad released tbe trust property to tbe assignor, and accepted in lieu thereof, to secure payment of bis claim, an indemnity bond of such assignor. Tbe inference from such circumstances that the release was assented to, seems clear beyond reasonable controversy. No effort was made by Leng in tbe assignment proceedings to obtain payment of bis claim after receiving notice that an indemnity bond bad been given for bis benefit. Tbe assignor’s liability rested wholly on bis agreement with tbe assignee,' in consideration of which be received tbe trust property. Tbe enforcement of that agree-meut by Leng necessarily made bim a party to it. Consistent with that he made no claim whatever against the assignee’s bondsmen till nearly four years after the trust property was delivered to the assignor, and until after he became satisfied that he could not collect his claim out of Sehweickhart and his sureties. It hardly goes far enough in favor of appellant to say that such facts show clearly implied assent to the release of the trust property and to the substitution of the promise of Schweiclchart and his sureties in lieu thereof. They evince an express assent thereto, rendering obviously applicable the rule of law above stated. It follows that the demurrer to the complaint should have been sustained.

By the Court. — The order appealed from is reversed, and the cause remanded with directions to sustain the demurrer.