Case ID: mass_29/html/0456-01.html
Source: Caselaw Access Project
Author: {"author": "Shaw C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Thomas W. Foster versus The Saco Manufacturing Company, Principals, and Isaac Parker et al. Trustees.
    An indenture was made, by which a debtor assigned all his property in trust to pay certain creditors, parties to the indenture, and it was stipulated that he should continue to use the property in his business as before, until the assignees should think it expedient to take possession, and that the assignees should take possession of subsequently acquired property and apply it to the payment of subsequently contracted debts. The assignees having taken possession of all the property and the same having been attached in their hands by a trustee process, it appeared that the demands of the creditors who had become parties to the assignment before the service of the process, exceeded the amount of the proceeds of the assigned property. Heldf that these creditors were entitled to the whole of the property as against the attaching creditor, and that it was not competent to him to object that the assignees intended to distribute part of it among creditors not parties to the assignment.
    By the answers of Parker and others, summoned as trustees, it appeared that on December 16, 1829, an indenture was made between the Saco Manufacturing Company of the first part, the respondents of the second part, certain banks of the third part, and persons who had indorsed &c. certain notes for the accommodation of the company, of the fourth part, by which indenture all the property, real and personal, of the company is assigned to the respondents, in trust, that until default of payment of debts mentioned, the respondents shall permit the company to remain in possession of all the property, and to sell and dispose of all the personal property, (except machinery) according to the usual course of their business, unless the respondents shall be of opinion that the safety of creditors requires them to take immediate possession ; in which case they shall have the right so to do ; and it is agreed that the respondents, whenever they shall deem it necessary to take actual possession, as above mentioned, shall also have the right to take possession of all property which the company shall then be in possession of, whether the same is included in the indenture, or shall have been thereafter purchased with the proceeds of property so included, or by other means, and to sell the property &c., and to collect the debts &c., and the proceeds of such sales and collections (after discharging out of the proceeds of property hereafter acquired, all the debts of the company hereafter created for stock and materials or for labor, and for the ordinary expenses of the company in carrying on their operations,) the respondents shall apply to the payment of the debts of the banks. The indenture contained no release nor covenant to be signed by the creditors who should claim for supplies furnished after the date of the indenture, nor any provision requiring an expression of their assent. The respondents took possession of part of the property On December 31, 1829 ; and the factory belonging to the company, with the machinery, and a great quantity of stock and goods, having been destroyed by fire on February 21, 1830, the respondents immediately thereafter, and before the service of this trustee process, took possession of all the real estate, goods, choses in action and other property, to be administered according to the trusts set forth in the indenture. The debts specified in the indenture as due to the banks, amounted to $ 300,000; the debts contracted after the date of the indenture, to $31,000 ; the proceeds of all the property assigned, to $254,000, a part of which sum, viz. $ 19,800, was the proceeds of property acquired after the date of the indenture. The parties of the first, second and third parts, and some of the creditors of the fourth part, executed the indenture on or about the 16th of December 1829. Of the creditors, whose demands accrued after the 16th of December, some, having claims to the amount of about $23,000, signified to the respondents in writing, before the service of this trustee process, their intention to avail themselves of the provision made for their benefit in the indenture ; and the rest, whose claims amounted to about $ 8000, did not signify such intention until after such service. The plaintiff’s demand accrued before the 16th of December. He did not become a party to the indenture. In answer to the question, whether the respondents intended to divide the proceeds of the after-acquired property among all the persons who became creditors after the 16th of December, or to pay the same to those creditors only who assented to or became parties to the indenture prior to the service of the trustee process, the respondents said it was their intention to divide the funds among all the creditors in proportion to their respective claims, unless the Court should determine that they must pay t^ie w^°*e amount of the debts to the creditors assenting prior to the service of the process, or unless they should be otherwise instructed or advised upon the subject.
    
      April ith.
    
    
      S. Hubbard, for the plaintiff,
    cited Halsey v. Whitney, 4 Mason, 214 ; Ward v. Lamson, 6 Pick. 358; Lupton v. Cutter, 8 Pick. 298 ; Thorndike v. De Wolf, 6 Pick. 120; Andrews v. Ludlow, 5 Pick. 28.
    
      C. G. Loring, for the respondents,
    was stopped by the Court.
    
      April 6th.
    
   Shaw C. J.

delivered the opinion of the Court. The object of this process seems to be, to charge that portion of the funds in the hands of the trustees, which was intended to go to those creditors who furnished supplies and labor for the manufactory after the date of the indenture, and who did not become parties to it until after the service of the writ. But we think, that according to the principles heretofore established upon this subject, the plaintiff is not entitled thus to recover.

The law upon the subject of assignments by insolvent debtors in this Commonwealth, has grown up by a series of judicial decisions ; but these are mainly founded on a few legal principles, by reference to which it is to be determined whether any particular case falls within the established rule. The first is, that a debtor may prefer any one or more of his creditors, to the exclusion of others, and convey his property in satisfaction or security of such preferred creditor or creditors, if it be done without fraud, that is, if it be on good consideration, not at an under value, nor upon any secret trust for the grantor. An other is, that a debtor may enter into a contract with a creditor or class of creditors, to convey his property, and may actually convey it to a third person, in trust for the creditors, to the same effect as to the creditors themselves. These principles, we think, will settle the present case.

The Saco company conveyed their real ■ and personal prop erty to the trustees in December 1829, with a stipulation that the business was to go on, and that the vendors were to remain in possession till, in the judgment of the trustees, the security of their constituents should require them to take possession. There was a further provision, that this contract of sale and the right to take possession should extend to all property afterwards to be acquired by the company. It was also stipulated, that all debts afterwards incurred by the company should be paid out of the funds in the hands of the trustees arising from the after-acquired property. This last provision was obviously necessary, to enable the parties to accomplish their object, of having the business go on by the company ; as no persons could be presumed to be willing to furnish supplies or perform labor, for a company avowedly insolvent, without some such provision.

These are the facts ; and the first obvious remark upon them is, that this assignment, as to the personal estate, was inoperative and void, against any creditor who should have attached before the trustees took possession. The stipulation that the vendors should remain in possession and have the use of the property, would have rendered it void, as against creditors. But it was a good executory contract, and when the possession was actually taken, in pursuance of its terms, the sale became complete. The possession accompanied and followed the deed. Bartlett v. Williams, 1 Pick. 288.

The same principle applies to the property to be acquired after the date of the indenture. It was a good executory contract between the parties, for a future sale, by deed, to take effect and become executed upon a contingency, that is, when the trustees should think it necessary to take possession.

Then, when possession was actually taken, pursuant to this contract, and with the consent of the vendors, the sale, as between the parties, was complete.

Then the question recurs, has an attaching creditor a right to interfere. The rule upon that subject is, that if the debts of the creditors who have become parties to an assignment, either directly to themselves, or to a trustee for their use, are not of an amount equal to the assigned property, the surplus is open to attachment by a creditor of the assignor. But if those debts equal or exceed the assigned prop erty,. they have the prior and better title, and nothing remains to be reached by an attachment.

Now the trustees state explicitly, that the amount of the debts of the banks and other parties to the assignment, who became such before the attachment, greatly exceeds the whole amount of the proceeds of the assigned property. This is decisive of the present case, and shows that nothing was left for the attaching creditors. But the trustees were asked, whether they intended to divide the money received from the sale of the after-acquired property, among all the creditors who became such after the date of the indenture, or to pay the same to those only who assented to or became parties to the indenture, prior to the service of this trustee writ. To this the trustees answer, that, as then advised, they intended to divide it among all those creditors, whether parties to the assignment or not. And why should they not ? As between the creditors under the assignment, parties thereto before the attachment, and the attaching creditors, the former had a legal right to hold to the full amount of their debts. Now if, in consequence of trusts and stipulations, they were under legal or conscientious obligations, to appropriate a part of these proceeds, to satisfy particular claims, or to give an equal participation to other creditors, who should come in after the attachment, it is only discounting these sums out of their own funds, which, as against all other creditors of the common debtor, they have a right to hold. It is therefore no concern of the attaching creditors, how the trustees propose to distribute the proceeds of the assigned property. It is sufficient, that the trustees, representing creditors having claims to an amount exceeding the whole of the assigned property, have a good legal right to hold it; and it is a question solely between them, their constituents the creditors under the assignment, and any others having legal or equitable claims, in virtue of the trusts, covenants and stipulations in the assignment, how the proceeds are to be appropriated and distributed.

Trustees discharged. 
      
       See St. 1836, c. 238; St. 1838, c. 163; Bradford v Tappan, 11 Pick. 76, Everett v. Walcott, 15 Pick. 94.