Court Opinion

ID: 6690085
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:36:54.719154+00
Date Added: 2024-06-11T16:01:05.123087
License: Public Domain

GATES and SMITH, J. J.
(dissenting.) We fully agree with that -portion of the majority opinion which holds that the instrument in question was in fact an assignment for benefit of creditors, and that decision in the Joas case was wrong. We concede that this court has authority to overturn that decision and to apply the correct principles of law to the instant case, even though the assignor, the assignee, the assenting creditors, and the trial court strictly followed that decision. We are not convinced, however, even under the above concessions, that our oath of office obligates us either legally or morally to join with the majority in declaring, that the decision in the Joas case shall' not apply to the present case. In 7 R. 'C. L. 1009, the author says:
“The rule should be adhered to unless it appears that the evil resulting from the principle established must be productive of *134greater mischief to the community than can possibly ensue from disregarding the previous adjudications on the subject.”
In support of this proposition the author refers to a number of decisions' which fully sustain the text. We do not think that the majority have shown that greater evil will ensue by following the erroneous decision than by overturning it. Indeed the only justification attempted to be shown for the repudiation of that decision is the conclusion that it was wrong, and that the present statement of the law is right. In our opinion the evils resulting from adhering to the former decision will be no greater, if as great, than will result from a repudiation of that decision. That decision was handed down in August, 1907. So far as we can discover, it has not been follqwled by any subsequent decision of . this court. It certainly has not been criticized, modified, or overruled by any decision of this court. Certainly it will be more fair to all parties concerned that appellant be compelled to release his claim in full as a condition to his right to share equally with the other creditors (the situation in which appellant would hqye, been had bankruptcy proceedings been instituted) and the transaction be sustained as a deed of trust rather than .that appellant receive his claim in full; that other nonassenting creditors be thereby invited to proceed as did appellant; and that the assenting creditors who relied on the Joas decision be relegated to share in what may thereafter remain'. So long as the present national bankruptcy law remains in force, occasions for the application of our assignment for benefit of creditors law will be rare. Indeed had it not been for tlie reliance by the creditors on the Joas decision it can scarcely be doubted that this matter would have been thrown into a court of bankruptcy where all unsecured creditors would have shared equally. In this view the necessity of declaring wihat is the true meaning of the present instrument becomes of minor importance for the future. It seems to us that the possible, nay probable, results justify us in saying that the correction of the error should be left to the legislature.
But if that decision is to be overturned, and we are to apply the rules governing assignments for the benefit of creditors to the instant'case, yet, in our opinion, the result arrived at by the majority is wrong. ' • •
*135For convenience all statutory references herein are to Rev. Code 1919, except as otherwise indicated. The text of those sections is the same as that of the statutes in force at the time of the execution of the instrument in question. Likewise' the word “asignment” as herein used means “assignment for the benefit of creditors.” Section 2045. provides (italics are ours) :
“(An insolvent debtor, may in good faith, execute in an assignment of property, to or more assignees, in trust towards the satisfaction of his creditors, in conformity to the provisions of this chapter, subject, however, to the provisions of this title relative to trusts and to fraudulent transfers, and to the restrictions imposed by. law upon assignments by special partnerships, by corporations or 'by other specified classes of persons; provided, moreover, that such assignment shall not be valid if it be upon, or con-ta'n any trust or condition by which any creditor is to receive a preference or priority over any other creditor; but in such case the property of the insolvent shall become a trust fund to be administered in equity, in the circuit court, and shall inure to the benefit of all the creditors in proportion to their respective claims or demands.”
The first question that naturally arises is, Shall the proviso in the above section be given meaning or shall it, by judicial construction, be entirely obliterated? The majority say that the proviso has no application to the present case because they say this proviso applies only to assignments made in good faith and in conformity with the provisions .of the chapter of which this section is a part. With equal logic they might have said that the clause in that section, “subject, however, to the provisions of this title, relative to. * * * fraudulent transfers,” has no meaning of which title section 204x1 referred to by them is a part, because if a transfer is in fraud of creditors it is not in good faith. We are convinced that the clause “in conformity with the provisions of this chapter” has reference to procedure, because the meaning attempted' to be given it by the majority is already expressed in the words “in good faith.” Now it is just as much an absence of good faith to give an assignment containing a condition of preference or a condition of priority as it is to give one which violates section 2041 or section 2048.
*136“A condition in a deed of assignment, requiring the creditors to release the assignor from all claims before receiving any benefit .under the deed, the surplus returning to the debtor and. not to the .nonreleasing creditors, renders the deed fraudulent and void; and such a stipulation, as a condition of preference, although the only effect is to postpone the nonreleasing creditors to a share of the surplus, renders the assignment void.” Perry, Trusts (2d Ed.) § 592.
■As interpreted by the majority, the proviso is meaningless; it never can apply in any conceivable case. We think that the majority interpretation strains at the letter and ignores the substance. A¥e think that section 2045 means that an assignment, in order to be upheld as an asignment, must be in good- faith, but, if it is not in goad faith, because of a violation of the proviso, then the property must be administered as a trust in equity for the equal benefit of all creditors.
The next question that arises is, Does the instrument in question contain a condition by which any creditor is to receive a preference over any other creditor? We’think that there can .be but one answer to this question, to-wit: an affirmative answer. By the terms -of the instrument, the nonassenting creditor is absolutely excluded from its benefits. It seems therefore perfectly apparent to us that the instrument contains a condition whereby those creditors who assent are to be preferred over those creditors who do not assent. The majority admit this for the purpose of the opinion but in fact deny it. The validity of an assignment is to be determined by a reading of its terms, not by its ultimate outcome. In Sheldon v. Dodge, 4 Denio (N. Y.) 217, the court said:
“The vice is inherent in the assignment itself, and no future event can make a conveyance valid which contains illegal provisions. ”
Plainly this assignment by its very provisions intends and contemplates that some creditors may, and others may not, consent to its coercive provisions, and by its very terms the assignment intends and gives a preference, which may extend even to the payment of claims in full, to those creditors who consent, leaving those who refuse no benefit whatever from the assignment. The intent to prefer creditors who accept the conditions offered seems *137to us perfectly clear. The creation of a preference on condition of acceptance does not change its character. . .
The majority further assert that such a condition should not he held to be a condition of preference because of the want of authorities so holding. The reason for the scarcity of authorities is because at common lawi certain preferences were legitimate and in some of the cases it was sought to sustain a condition similar to the one in question because as a condition of preference it would have been lawful. Such a case was that of Duggan v. Bliss, 4 Colo. 223, 34 Am. Rep. 80, cited by the majority. While that decision is quoted ás an authority for the proposition that a coercive condition such as the one in question is not a condition of preference that decision did not so hold. It m|erely held that, because a preference to be valid at common law must be absolute and unconditional, the condition in question was invalid even if it was a condition of preference. In saying that “the preference here claimed is incidental to the attempted coercive discharge of the debtor” the Colorado court did not hold that there was no condition of preference in the instrument. Even if incidental to the attempted coercive discharge, the stipulation for release was none the less a condition of preference. In Armstrong v. Byrne, 1 Edw. Ch. (N. Y.) 79, it was urged that such a condition was only intended as a mode of creating a preference among creditors, and therefore lawful, but the court said:
“But it is impossible to avoid seeing that a preference among the creditors was not the sole object.”
The decision in Grover v. Wakeman, 11 Wend, (N.Y.) 187, 25 Am. Dec. 624, which is probably the leading case in this country upon the subject of assignments for the benefit of creditors, referes to stipulations for release as “conditions of preference,” viz.:
“Having thus settled the character and construction of the assignment, the question recurs, whether it is void on account of the condition on which it makes the preference given to the creditors of the second class to depend, to wit, an absolute discharge of their debts.”
In an earl)' Iowa decision, Williams v. Gartrell, 4 G. Greene (Iowa) 287, the court was viewing the case from the standpoint *138of the statute, which provided that the assent of creditors would not be presumed unless the assignment was unconditional. The court said:
“If, then, the conditions of the assignment had not been complied with by the creditors — if all had not given a written release of indebtedness, it could not be applied for the benefit of all, and hence it would be partial, if declared valid as to some, and void as to other creditors. The Code will not justify a construction by which one class of creditors would be preferred over another, nor will it justify a partial and conditional assignment.”
The court thus plainly declared that the effect of the assignment was to prefer the assenting creditors over those not assenting. In Hurd v. Silsby, 10 N. H. 108, 34 Am. Dec. 142, although the word “preference” was not used, the court plainly held that a condition exacting a release amounted to a condition of preference in violation of the statute, which required assignments to be for the benefit of all creditors in proportion to their demands. In Bump, Fraud. Conv. 431, such a condition is spoken of as a condition of preference, likewise in 2 R. C. D. 671, § 29, and in Perry on Trusts (6th Ed.) § 592, quoted supra. Burrill on Assignments (5th Ed.) § 178, says:
“Again preferences may be given either absolutely as by directing certain named creditors to be first paid , at all events; or upon condition as by preferring such creditors as shall comply with certain requisitions named in the assignment.”
See, also, Burrill, §§ 163, 193, 195. In Cissell v. Johnston, 4 App. D. C. 335, the court said:
“Looking at our statute in this light, we are of the opinion that the attempt, if such in fact it were, to limit- the benefit of the trust to such creditors only as shall release their demands if not paid in full, is a preference within the meaning of the words, ‘Every provision in any assignment hereafter made in the District of Columbia providing for the payment of ‘one debt or liability in preference to another shall be void, and all debts and liabilities within the provisions of the assignment shall be paid pro rata from the assets thereof.”
We are convinced, therefore, not only from the plain language of the statute but from the authorities cited, that a stipula*139tion for release is also a condition of preference within the meaning of the proviso of section 2045.
The next question that arises, is, Does the instrument in question contain a condition by which any creditor is to receive a priority over any other creditor? We likewise think that an affirmative answer is the only possible answer to this question. The effect of the clause reserving to the assignor that which may remain after assenting creditors have been paid (prohibited by subdivision 3 § 2048) is to hinder and delay the nonassenting credit- or. 4 Corp. Jur. 1147'. It defers the right of the nonassenting creditor to make his collection until the surplus is again in the hands of the assignor. It therefore plainly contemplates a priority to the assenting creditor over the nonassenting creditor, and as such is in violation of the proviso of section 2045. •
The next question that arises is, Should plaintiff ibe permittee to recover the full amount of his claim under section 2048, or should he only be permitted to share ratably with the other creditors under the provisions of section 2045 ? We do not categorically answer this question, as w'e did the foregoing questions. We concede that here there .is ground for difference of opinion. Where, as here, there are apparently two inconsistent remedies, the selection of the remedy is fraught with difficulty. The majority would ignore the proviso in section 2045, and would grant appellant full relief under section 2048. It seems to us that the legislative intent as disclosed by the history of these sections indicates that section 2045 should be applied to all cases where it is applicable and where there is a conflict between the two sections the application of section 2048 should be limited to those cases where section 2045 is not applicable. In that way the conflicting sections can be reconciled. Prior to the Revision of 1877 present section 2043 did not contain the proviso; certain preferences were permitted (section 1928 C. C., 1865-66) and present section 2048 (section 1932, C. C., 1865-66) was as follows, so far as here material: ' - '■■■■'.•
Sec. 1932. A!n assignment' for the benefit of -creditors is void against any creditor of the assignor not assenting thereto, in the following cases:
“1. If it gives an unlawful preference of one debt or class of debts over another.
*140“2. If it gives a preference dependent upon any condition or contingency, or with any portion of revocation reserved:
“3. If it tends to coerce any creditor to release or compromise his demand; * * *
“5. If it reserves any interest in the assigned property, or in any part thereof, to the assignor or for his benefit, 'before all his existing debts are paid.”
In the Revision of 1877 subdivisions 1 and 2 were eliminated; preferences were done away with, and the proviso to present section 2045 was added. At common law certain preferences were permitted, but by the weight of' authority stipulations for release or reservation were unlawful. Grover v. Wakeman, supra. These principles were embodied in our 'Civil Code 1865-66, as taken from the proposed N. Y. Field Code. While the practice of inserting stipulations for release or for reservations was condemned, it was not condemned because of their operation as a preference but because the effect was to permit the assignor to enact his own insolvency law. The purpose of the Revision of . 1877 was manifestly to do away with preferences in line with the trend of statutes theretofore -enacted in other states. 3 Ency. of Law (2 Ed.) 73. Now when the Legislature of 1877 abolished all preferences in assignments and declared that when an assignment did contain a condition of preference or priority, the remedy should be the ratable division of the property among all creditors, we do not think that by re-enacting the clauses which are at present clauses 1 and 3 of section 2048 it intended that creditors against whom there was a preference or priority should thereby obtain their claims in full at the expense of other creditors. It is incongruous to suppose that in the same breath the Legislature intended an eqjual division and an unequal division. Ever since the Revision of 1877, the remedy in such case, in our opinion, has not been to the individual, but for the equal benefit of all creditors ratably. If such a remedy is applied, appellant will recover ratably with other creditors, and will not lose his right to recover any residue of his claim from after-acquired property of the insolvent. Straw v. Jenks, 6 Dak. 414, 43 N. W. 941.
The legislation on this subject in the Revision of 1877 and as continued to date seems to be unique. We have been unable to *141discover that any other jurisdiction in abolishing preferences in an assignment has apparently continued a separate remedy for a-viola tion of provisions against - stipulations for release or reservation. We recognize that cases may arise which may cause peculiar results as illustrated ’by the majority.
'Considering the rule that statutes in pari materia are to be comstrued together. Black Interp. Laws, 204, and that neither is to-be eliminated (which must happen under the majority view) we are convinced of the unsoundness of the portion of the majority opinion dealing with the matter now under consideration. The majority pervert our position by saying in the opinion:
“It cannot properly -be in effect held valid as against him by administering it under section 2045.”
The proviso in section 2045, does not in effect declare' the assignment to be valid. It declares precisely the contrary, but it provides a different remedy than is apparently provided by section 2048.
The majority contend that under section 2048 appellant is entitled to recover his claim in full, and thereby receive a preference and priority over the assenting creditors because the letter of that section declared the assignment to be void only as against nonassenting creditors. Does such result necessarily follow? Does that section, standing alone, mean any more than that the assenting creditors are estopped from questioning the validity of the assignment upon any of the grounds specified in that section? Then construing that section with section 2045 as statutes in pari materia, can it be said in a case where clauses of an assignment are offensive, both as conditions of preference and priority on the one hand and as conditions of coercion and reservation on the other hand, that the Legislature intended the attacking nonassenting creditors should have the right to exhaust the estate as against the assenting creditors merely -because they had submitted to the coercion or reservation? We think not.
We think that we have clearly demonstrated that the present assignment contains provisions which violate both sections 2045 and 2048. Assuming, then, that both sections became operative the moment the assignment was executed, by section 2045 the property of the assignor immediately became a trust fund in the hands oi the assignee for the benefit of all creditors of the assignor. In such *142case, may any'creditor thereafter invoke section 2048, alleging that the assignment contains provisions which tend to coerce creditors, or wrongfully reserves to the assignor an interest in the property, and thereby acquire a superior right to take so much of the trust fund as may satisfy his own claim in full, and deprive all other creditors of their right to have the fund distributed in proportion to their respective claims or demands?
We do not think this court should be driven to any such conclusion, unless it is imperatively demanded by the terms of the statute itself. It seems to us that interpreting the provisions of this assignment, together with the sections of the 'Code applicable thereto, the right of all the creditors, to an equal distribution of the trust fund' should be given preference over the right of any single creditor.
To summarize: (1) We think the decision in Joas v. Jordan, supra, though wrong, should be followed as the lesser of two evils, and therefore that the judgment appealed from should be affirmed; (2) if that decision be not followed, then that appellant be remanded to his remedy under section 2045, and that the judgment should be affirmed without prejudice to ‘his right to so proceed.