Case Name: NATIONAL BANK OF THE REPUBLIC v. HODGE
Court: District of Columbia Court of Appeals
Jurisdiction: District of Columbia
Decision Date: 1894-04-02
Citations: 3 D.C. App. 140
Docket Number: No. 278
Parties: NATIONAL BANK OF THE REPUBLIC v. HODGE.
Judges: 
Reporter: Reports of Cases Adjudged in the Court of Appeals of the District of Columbia
Volume: 3
Pages: 140–149

Head Matter:
NATIONAL BANK OF THE REPUBLIC v. HODGE.
Assignments for the Benefit of Creditors.
1. A provision in an assignment for the benefit of creditors, that the assignee “ shall and do as soon as convenient sell and dispose of all such goods, property and chattels,” does not mean that the assignee shall have power to postpone the sale indefinitely until it shall suit his own convenience to make it, and thereby hinder and delay the creditors; but that the property shall be sold without unreasonable delay and as soon as it shall be found fitting and proper to do so; and such a provision is unobjectionable.
2. And a provision in such an assignment that from the money derived from the sale of the property and collection of debts, the assignee shall be allowed to deduct “ his reasonable costs, charges and expenses, including the necessary attorney’s fees ” before the payment of the residue to the creditors, is also unobjectionable.
3. A provision in such an assignment giving the assignee the right to “ ask, demand, sue for, levy, recover and receive all sums of money to me due; to give acquittances or other sufficient discharge in the law therefor; to make such compromises or other arrangements as he may deem beneficial to his trust, &c.” is not to be construed as giving the assignee power to make compromises with the creditors of the assignor, as well as with those indebted to him, but has reference only to the collection of the debts due to the assignor, and what the assignee may properly do in the matter of such collection; and does not invalidate the assignment.
No. 278.
Submitted March 8, 1894.
Decided April 2, 1894.
Hearing on an appeal by the complainants from a decree of the Supreme Court of the District of Columbia, holding an equity term, dismissing a bill for the setting aside of an assignment for the benefit of creditors.
Affirmed.
The Court in its opinion stated the case as follows:
This is a suit in equity for the purpose of having an assignment for the benefit of creditors decreed to be null and void. The validity of the assignment was sustained by the court below, which dismissed the bill of complaint; and this appeal is prosecuted by the complainants from the decree dismissing the bill.
William E.‘ Hodge, a dealer in wood and coal in the city of Washington, having 'become financially embarrassed, executed on the 17th of September, 1892, an assignment of all his personal property for the benefit of his creditors generally, without preferences of any kind. It does not appear that he had any real estate. The assignee, Samuel Sprigg Belt, after having accepted the trust, was unable for some reason to carry it into effect. On November 12, 1892, some of the creditors filed a bill in equity for the appointment of receivers to take charge of the property, and to manage it for the benefit of the creditors secured, and under this bill the defendants Tobriner and Sutherland were appointed receivers. Subsequently, under orders of the court, these receivers sold the property or most of it, and now hold the proceeds of sale.
On December 7, 1892, the appellants in this case severally obtained judgments at law against Hodge and caused writs of fieri facias to be issued thereon, which on the next day were returned unsatisfied. Thereupon, with the consent of the court in the former suit, they immediately filed the bill in the present cause against Hodge, and against his assignee Belt, and the receivers appointed in the former suit; and therein claimed that the assignment was fraudulent and void, on the ground, as they alleged, that three of its provisions tended to hinder, delay and defraud creditors. These pro visions were: i. That the assignee had a discretionary authority vested in him to sell the property “ as soon as convenient,” which it was argued gave him power to postpone the sale indefinitely to suit his convenience; 2. That he was allowed to employ attorneys and pay them reasonable attorneys’ fees for the collection of debts due to the assignor, which was assumed to be an improper preference of the legal profession to the creditors of the estate; 3. That he was allowed to make compromises, which it was claimed could be operated to give unlawful preferences and undue advantages at the volition of the assignee.
The assignor Hodge and the assignee Belt did not answer the bill, and it was taken pro confesso against them. Defense, however, was made by the receivers as the representatives of all the creditors; and they in their answer contested the allegations of the complainants’ bill. But the bill and answer developed no controversy in regard to questions of fact, but only as to the validity of the assignment on its face; and the cause was therefore set down for hearing on bill and answer. As already stated, the court below sustained the assignment, and dismissed the bill, and from the decree of dismissal the complainants have appealed.
Mr. Thomas M. Fields for the appellants:
1. A provision in an assignment fixing a period for sale so long as to hinder or delay creditors,' renders the assignment fraudulent and void. Hardy v. Skinner, g Ired., L. 191, 195 ; Phelps v. Certs, 80 Ill., 109. Postponing to an unreasonable time the period of sale and payment will avoid the assignment; and the reasonableness of the delay depends upon the character of the property, and the circumstances of the cases. Hafner v. Irwin, 1 Ired., L., 490; Bundlett v. Dale, 10 N. H., 458; Hardy v. Skinner, 9 Ired., L., 191-; Grover v. Wakeman, 11 Wend., 187; Robins v. Embry, 1 Sm. & M., 207; Arthur v. Bank, 9 Id., 396; Bank v. Douglass, 11 Id., 469; Henderson v. Downing, 24 Miss., 106; Mitchell v. Beall, 8 Yerg., 134; Bennett v. Bank, 5 Humph., 612; Hempstead v. Johnson, 18 Ark., 123; Knight v. Packer, 12 N. J., Eq. 214; Perry v. Foster, 58 Ala., 502.
■ A year’s suspension of proceedings, where the expressed object was to prevent a sacrifice of the property was held to be fraudulent. Ward v. Trotter, 3 Mon. (Ky.), 1. Where an assignment allowed the assignees to delay payment of the creditors for more than one year from the date thereof, it was held to render it absolutely void' in Dana v. Bank, 5 W. & S., 223.
Where an assignment provided that after paying the preferred debts, the assignees should distribute the funds realized from the assigned estate among the general creditors “ at such reasonable time or times as they in their discretion might think proper,” it was held to be void on that ground. DIernois v. Leavitt, 23 Barb., 63.
Where the provisions of the' assignment itself have this effect of postponing indefinitely the time for closing the trust, and making distribution, the delay will be considered fraudulent and the assignment void. Arthur v. Bank, 9 Sm. & M., 394. See also Fellows v. Bank, in Louisiana Sup. Ct, 6 Rob., 246; and Bodley v. Goodrich, 7 How., 276. The same assignment had been previously held good by the Court of Chancery in Mississippi, in Robins v. Embry, 2 Sm. & M. Ch., 267. If assignee be directed to delay sale for the purpose of obtaining higher prices for the property, it renders the deed fraudulent and void. Hart v. Crane, 7 Paige, 37; Phelps v. Curtis, 80 Ill., 109. A provision allowing the assignees “ to retain the property to await a rise in price, or a more favorable market, as they may think most advisable,” avoids the assignment. Maughlin v. Tyler, 47 Md., 545. If sale be made on conditional event it avoids the assignment. Pierson v. Manning, 2 Mich., 445, 448, 449. Where assignment provided that assigned real estate should be sold at private sale at the most favorable' opportunity which should occur within two years of which the assignee should be the sole judge; and if the property could not be sold at private sale within two years without great loss, then, at the expiration of that period, it should be. sold absolutely at public sale, it was adjudged that the necessary effect of this clause was to hinder, delay, and defraud creditors, and rendered the assignment void in Hardin v. Osborne. 60 Ill., 98.
If the deed absolutely requires the sale to take place within a reasonable time or convenient time, dealing with the fact or act itself, it may be sustained. But if it gives the assignee the power to unreasonably delay, and vests such discretion in him, which may operate to hinder or delay or defraud creditors it will avoid the deed. The fact or act is one thing. The arbitrary discretion and power given to the assignee is another and different thing. Where the assignment provided that the assignees should sell “ within convenient time as to them shall seem meet,” it was held that this clause authorized the assignees to discharge their duties whenever it should suit their convenience, and that it rendered the assignment void as operating to hinder and delay creditors. Woodburn v. Mosher, 9 Barb.', 255. And see general rule laid down in Brigham v. Tillinghast, 13 N. Y., 220.
2. A power given to assignees to declare fiiture preferences or change the order of preferences already given will render the assignment void. Barnnm v. Hempstead, 7 Paige, 568 ; Green v. Trieber, 3 Md., 11; Strong v. Skinner, 4 Barb., 546; Sheldon v. Dodge, 4 Den., 217; Kercheis 'v. Schloss, 49 How. Pr., 284; Brown v. Guthrie, 39 Hun., 29; Moody v. Paschal, 60 Tex., 483. See Simpson v. Fries, 2 Jones Eq., 156. A power to assignees to compound with any or all creditors in such manner and upon such terms as they should deem proper, held to be peculiarly objectionable and impossible to sustain. Wakeman v. Grover, 4' Paige, 41 ; Grover v. Wakeman, 11 Wend., 203. Although it was expressed with a proviso that it did not interfere with the order of preference established by the assignment, the effect of the provision being considered to be to perpetuate the right of giving preferences, by vesting in the assignees an arbitrary power in relation to the several classes of creditors, and of compounding with any one upon such terms as they might think proper. A clause authorizing the assignee to “ compromise with the creditors ” of the assignor for all his debts and liabilities, if in the opinion of the assignee “ it would be advantageous” to the creditors and the assignor, was held to render the assignment void; for its effect and intent were to delay the payment of debts, and create a trust for the assignors. McConnell v. Sherwood, 84 N. Y., 522, Affirm. S. C.; 19 Hun., 519. A clause in an assignment authorizing the trustee to compound with the creditors renders the assignment void. Hudson v. Maze, 3 Scam., 578; Keevil v. Donaldson, 20 Kans., 165. An assignment by an insolvent which authorizes the trustee to make sale of the assigned property “whenever he shall think proper and conductive to the interest of the trust” is void as to the creditors; also a provision for the trustee to pay counsel fees. Hayes v. Johnson, 6 D. C., 174. An assignment which vests the assignee with a discretion contrary to the mandate of the statute, and in effect authorizes him to sell the property conveyed thereby in a method not permitted by the statute, is void, although he might in fact follow the statute in the exercise of his discretion. Jaffray v. McGehee, 107 U. S., 361 (27-495). An assignment in trust to sell and dispose of the property, upon such terms and conditions as in the assignee’s judgment may appear best and most for the interest of the parties concerned is fraudulent and void as against creditors. Sumner v. Hicks, 2 Black, 532 (17-355).
3. If the legal effect of the written instrument making an assignment for creditors be to delay creditors it is void. Means v. Dowd, 128 U. S., 583 (32-429). If one or more provisions of an assignment indicate an intent to delay, hinder, or defraud creditors, the whole instrument, and not merely the obnoxious part is void as to creditors. It remains valid, however, as against the assignor and his representatives. 1 Anf. & Eng. Ency. Law, 869, and cases cited; Jessup v. Hulse, 21 N. Y., 168. The fraud may be evidenced by the instrument itself. If it is clearly calculated to hinder, delay, or defraud creditors, the inference that it was so in tended is irresistible. 1 Am. & Eng. Ency. Law, 870, and cases cited.
Mr. Leon Tobriner for the appellees.

Opinion:
Mr. Justice Morris
delivered the opinion of the Court:
The first of the three provisions to which objection is taken is that the assignee " shall and do as soon as convenient sell and dispose of all said goods, property and chattels." It is-argued that thereby the assignee is given power to postpone the sale indefinitely until it should- suit his own convenience to make it, and thereby to hinder and delay the creditors. But this is not the plain and obvious meaning of the provision. That plain and obvious meaning is, that the property should be disposed of by sale without unreasonable delay, and as soon as it should be found fitting and proper so to do. Townsend v. Stearns, 32 N. Y., 216 ; Benedict v. Huntington, 32 N. Y., 221 ; Ogden v. Peters, 21 N. Y., 23 ; Griffin v. Marquardt, 21 N. Y., 121 ; Maennel v. Murdock, 13 Md., 164, 180; Finlay v. Dickerson, 29 Ill., 20 ; Hollister v. Lond, 2 Mich., 321 ; Wooster v. Stanfield, 11 Iowa, 132. The discretion given to the assignee is no more than the reasonable discretion with which the law would invest' him in any event; and that cannot be fraudulent or wrong in an assignment which the law itself would necessarily determine by implication if it were not expressly so provided in the deed.
The second ground of objection in the present instance is-that from the moneys arising from the sale of the property and the collection of the claims and debts due the assignor, the assignee is allowed to deduct his "reasonable costs, charges and expenses, including the necessary attorneys'' fees," before the payment of the residue to the creditors. And it is argued that it is an improper use, of the trust fund to pay attorneys' fees -before the claims of creditors are satisfied. In support of the proposition the case of Hayes v. Johnson, 6 D. C., 174, is cited. In that case the provision of the deed of assignment was, that the moneys arising from the sale of the trust estate should "in the first instance be held liable for and be applied to the payment of all expenses attending the execution of the trust, inclusive of counsel fees for prosecuting claims of and defending and resisting claims against the trust estate, and also reasonable commissions to the trustee." Mr. Justice Olin, who delivered the opinion for the Supreme Court of the District of Columbia in that case, thought that " the equities of a creditor to a participation in his debtor's estate were superior to that of the legal profession and the provision in regard to counsel fees was one of several provisions for which the assignment was held to be void. While we see no reason to doubt the correctness of the decision in that case, we do not wish to be understood as yielding our unqualified adhesion to the reasoning of the court upon all the questions involved. It is very true that trust estates should not be wasted in needless litigation, and trustees should not be allowed to antagonize just claims of creditors by the expenditure of money for counsel fees which should properly be devoted to the payment of such claims. But that there may be cases in which it would be the duty, as well as the right, of trustees to protect a trust fund against demands upon it, and for that purpose to employ counsel and pay counsel fees, cannot reasonably be denied. But, however, that may be, the case of Hayes v. Johnson differs very much from that now before us. The provision here is not for the employment of counsel to resist the claims of creditors, but to collect claims due to the estate. If for the collection of the assets of the estate it is necessary to institute legal proceedings and for that purpose to employ counsel and to pay reasonable counsel fees, the assignee or < trustee has the right by law, in the absence of express authority, to do what any reasonably prudent man would do in that regard in his own case, subject of course to review of his conduct by a court of competent jurisdiction. And, as we have said before, with reference to the previous objection, what the law sanctions without express authority from the parties, may certainly be expressly provided for by the parties themselves. Maennel v. Murdock, 13 Md., 180; Hennessy v. Bank, 6 W. & S., 312. We regard this objection to the deed of assignment as untenable as the previous one.
The third ground of objection to the assignment is that.it provides, as is alleged, that the assignee might make compromises with the creditors, and thereby hinder and delay them, and give undue preference to some over others. The clause of the assignment in which it is said that this provision is contained, is the following: "And more effectually to enable the said Samuel Sprigg Belt to carry into effect the purposes of this trust, I, the said William E. Hodge, do hereby nominate and appoint the said Samuel Sprigg Belt my true and lawful attorney to ask, demand, sue for, levy, recover and receive all sums of money to me due; to give acquittances or other sufficient discharge in the law therefor; to make such compromises or other arrangements as he may deem beneficial to his trust; and attorneys one or more under him for the purposes aforesaid to make and constitute, and again at pleasure to revoke, hereby ratifying and confirming all he shall lawfully do in the premises." And it is sought, in behalf of the appellants, to be shown that the power to make compromises hereby given to the assignee can be construed to include the power to make compromises with the creditors of the assignor, as well as with those indebted to him, and that so construed the assignment would be invalid.
It is sufficient answer to this argument to say that in our opinion the language of the assignment is not reasonably open to any such construction. It would be an unnecessary and gratuitous distortion of the language of the deed so to hold. The whole sentencie plainly has reference only to the collection of the debts due to the assignor, and what the assignee may properly do in the matter of such collection. And here, as well as in regard to the other objections that have been considered, it may be said that the deed of assignment only gives expressly the power which the law would imply in any case. We cannot, with any pretense of reason, segregate the power to make compromises from the context in which the power is properly conferred, and give it a forced application which it does not appear that it was intended to have.
Assignments for the benefit of creditors should be fair and reasonable; otherwise courts will not sustain them. Indeed, it has been said that, wherever there is reason to suspect fraud or unfairness in such assignments, courts of equity will be astute to discover reasons for their overthrow. But fair and honest assignments should be sustained; and, so far as the record here shows, the assignment in the present instance is eminently fair and honest. Indeed, it is not often that an assignment is presented less open to objection.
We concur in the. decision of the court below, and_ we therefore affirm the decree of that court, with costs.