Court Opinion

ID: 6965483
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:53:08.82752+00
Date Added: 2024-06-11T16:08:35.639862
License: Public Domain

Mr. Justice Magruder delivered the opinion of the Court; The thirteenth section of the Assignment Act does not prohibit preferences generally, but only preferences which are contained in written deeds of assignment voluntarily executed for the benefit of creditors. The language of the section is, that “every provision in any assignment hereafter made in this State for the payment of one debt or liability in preference to another shall be void,” etc. A preference, given by a debtor after he has made up his mind to execute a general assignment for the benefit of his creditors, has been held to be void, upon the theory that such a preference must be regarded as a part of the assignment. There is no such thing as a constructive assignment contemplated by the Assignment Act. That Act does not take away the common law right of a debtor to prefer one or more of his creditors. A preference may be given by the execution of a judgment note resulting in the entry thereon of a judgment; and, where a creditor files a creditor’s bill for the purpose of acquiring such a lien as is appropriate to that form of proceeding, no reason is perceived why a debtor may not give a preference by consenting to then entry of orders therein, or by withholding his opposition to the prosecution thereof. Whatever may be the nature of the act which constitutes the preference, it does not come within the prohibition of the thirteenth section, unless there is a deed or written instrument of assignment for the benefit of creditors, of which such act is a part, or may be construed to be a part. The assignment, to which said section refers, is a transfer, without compulsion of law, by a debtor of his property to an assignee or trustee, in trust to apply the same, or the proceeds thereof, to the payment of his debts, and to return the surplus, if any, to the debtor. In the present case, it is charged by the appellants, that the debtors, Clapp and Davies, gave eight of their creditors preferences, which should be declared to be void as coming within the prohibition of said section 13. On April 8, 1887, they executed and delivered to said creditors eight judgment notes, upon which eight judgments were entered up and eight executions were issued on April 14, 1887. Four of these executions were at once levied upon the stock of merchandise and store fixtures belonging to the debtors, and four were returned unsatisfied. A creditor’s bill was* filed on the same day upon the executions so returned unsatisfied in order toreada the book accounts, bills receivable and equitable assets; and such proceedings were had that a receiver was appointed, the stock and fixtures levied upon were turned over by the sheriff to the receiver, subject to the liens of the judgments under which the levies were made; and a general assignment of all their property, and notes, and accounts, etc., was executed and delivered by the judgment debtors to the receiver, under an order of the court therein entered directing them to make such assignment. The question, whether these acts and proceedings, begun on April 8 and consummated on April 14, constituted such preferences as are forbidden by said section 13, depends upon the further question, whether or not they can be construed to be parts of a voluntary assignment executed by the judgment debtors for the benefit of their creditors. Did Clapp and Davies execute any written instrument amounting to a voluntary assignment within the meaning of the assignment law? The creditor’s bill in the present case was filed in behalf of the complainants therein, and not in behalf of the other creditors of the judgment debtors. A receiver appointed under such a creditor’s bill is not necessarily a trustee for the benefit of all the creditors, but for the benefit of those creditors in whose behalf he is appointed. (High on Receivers, sec. 454 (2d ed.); Russell v. Chicago Trust and Savings Bank, 139 Ill. 538). Our statute in regard tp creditors’ bills provides, that “the court shall have power * * * to decree satisfaction of the sum remaining due on such judgments out of any personal property, money or things in action belonging to the defendant, ” etc., (Rev. Stat. chap. 22, sec. 49), the judgments referred to being those upon which executions have been issued and returned unsatisfied. The primary duty of the receiver in such a proceeding is to apply the funds, which he realizes from the property of the debtor, in satisfaction of the judgments forming the basis of the bill. (High on Recrs. sec. 453). Hence, a transfer, made by the judgment debtor to the receiver in a creditor’s bill under the order of the court, is not an assignment executed for the benefit of creditors, but rather for the payment of the judgments owned by the complainants in the suit, subject to liens, if any, existing before the filing of the bill. By such a transfer, the receiver does not become the agent of the debtor for the distribution of the property, in the sense in which the assignee becomes the agent of the assignor where there is a general assignment for the benefit of creditors. (High on Recrs. sec. 454; Bouton v. Dement, 123 Ill. 142). It has been held, that an assignment by the judgment debtor of his effects to such a receiver partakes of the nature of a mortgage for the payment of the judgment and costs. (High on Beers, sec. 446). Tue only written instrument of transfer, executed by the judgment debtors in the case at bar, was the assignment made by them under the order of the court to the receiver appointed under the creditor’s bill; and as that instrument was in the nature of a transfer of property for the payment of particular j udgments, it cannot be regarded as a general assignment for the benefit of creditors. It makes no difference, that the debtors may have consented to the entry of the order requiring them to make the transfer to the receiver, or that they voluntarily executed the instrument of transfer. A failing debtor may pay a particular creditor in money, and if he may pay his debt in money, he may also pay it by a conveyance of property. Moreover, our statute in regard to creditors’ bills is modelled after the statute of New York. (Singer & Talcott Stone Co. v. Wheeler, 6 Brad. 225). Under the former chancery practice in New York it was customary to require the judgment debtor to execute an assignment of his property to the receiver appointed under a creditor’s bill, but such an assignment was regarded more as a convenience than a necessity. Without it, there was some doubt as to the vesting of the title to real estate in the receiver. But the weight of authority in that State is in favor of the position, that the mere appointment of the receiver vests in him the title to the personal property, choses in action and equitable interests of the debtor. (High on Beers.—2 ed.—see. 443). This being so, the assignment by Clapp and Davies was not necessary. They owned no real estate. The receiver obtained possession of the stock and store fixtures through the delivery of the same to him by the sheriff; and his title thereto, as well as to the balance of the assets, was secured to him by reason of his appointment, and not by reason of the subsequent execution of the assignment. It is true that, after the filing of a creditor’s bill, other creditors may intervene and become parties thereto, and, if there is a surplus after paying the creditors who have aequi. I ' liens, such surplus may be distributed pro rata under ti orders of the Court. But the proceeding by creditor’s bill it one which necessarily recognizes priorities among creditors, and makes distribution of the assets according to such priorities. It has been held that, where a fund has already gone into the hands of a receiver appointed under a creditor’s bill filed by one creditor, another creditor may file his creditor’s bill and acquire a subordinate lien upon such fund. (Russell v. Chicago Trust and Savings Bank, supra.) It could not have been the intention of the legislature in passing the 13th section of the Assignment Act, that an instrument of transfer, executed in, and as part of, a suit, begun for the purpose of acquiring a prior lien and affording a specific remedy to particular claimants, should be regarded as a voluntary assignment for the benefit of all the creditors. The Act was not designed to repeal the statute in regard to creditor’s bills, or to change the established chancery practice applicable to that fqrm of .remedy. We are, therefore, of opinion that the preferences herein considered cannot be held to be void as contravening the Assignment Law. 1 It is claimed by the appellants that the judgment notes executed and delivered to W. B. Clapp on April 8,1887, were fraudulent as against appellants and the other intervening creditors. W. B. Clapp had been engaged in the wholesale jewelry business prior to January 1, 1884, and on the latter day sold his stock and fixtures, etc., to Clapp & Davies, and became a member of the firm. The notes in question represented the balance of the purchase money due to him, and wé see nothing in the evidence to indicate that they were not given for a good and valuable consideration. His name appeared on the stationery and advertisements as a partner from Jan-nary 1, 1884, to March 1, 1886, and at the latter date he withdrew from the firm. His withdrawal took place more ihan a year before the failure of Clapp & Davies on April 14, 1887. It is said by the appellants, that, during this period, he held himself out as a partner without putting any money into the firm; that his stock and fixtures were not contributed to the capital of the partnership, but were sold to Clapp & Davies, who were obliged to pay for the same out of the firm assets; that W. B. Clapp merely allowed the use of his name to Clapp & Davies; and that third persons were thus induced "to deal with the firm upon the strength of his credit, and under the belief that his stock was a part of the capital, while all the time he was a creditor. If appellants were injured by the connection of W. B. Clapp with the firm, they would have a right to complain. Where a member of a partnership withdraws from it, notice should be given of the withdrawal. Notice by publication to persons, who have never had any dealings with the firm, has been held to be sufficient. But actual notice, or its equivalent, must be shown to have been given to persons who have had business with the firm. Without notice, the retiring member will not be protected from liability for debts incurred in the firm name after his withdrawal. (Meyer v. Krohn, 114 Ill. 574). It is conclusively proven, that W. B. Clapp withdrew from the firm on March 1, 1886. The appellants allege in their intervening petitions, that the debts due to them from Clapp and Davies accrued within six months prior to April 14,1887. If they are bound by this allegation, then they must be regarded as having become creditors long after the retirement of W. B. Clapp. They have proved by their own testimony, that notice of W. B. Clapp’s withdrawal was published in all the leading daily newspapers of Chicago at the time when it occurred, and, in addition to this, that a printed circular, containing notice of his retirement, was sent by mail to every creditor whose name was upon the firm books. It appears that the appellants, Young and -Bennett, had some dealings with the firm before March 1, 1886. Proof of the mailing of the circular to them was prima facie evidence that they received it; and no rebutting testimony was introduced to overcome the presumption thereby created. (Meyer v. Krohn, supra.) Furthermore, the appellants have recovered their judgments in this case against Clapp and Davies alone, nor have they or any of the other intervening petitioners alleged, that W. B. Clapp was, or is, in any way, liable to them. If he is indebted to them.for goods sold to the firm while he was a member, suit should have been brought against him as a partner. There is no evidence that he was not at that time, or that he is not now, perfectly responsible. For the reasons thus stated, we are not'.convinced that the appellants have been injured by reason of the connection of W. B. Clapp with the firm, or by reason of his withdrawal from it. It is also claimed, that the indebtedness, for which the smaller of the two judgment notes given to Peabody was executed, was the individual indebtedness of Caleb Clapp, and that the execution of a firm note therefor was a fraud upon the other creditors of Clapp and Davies. There is no merit in this claim under the facts of the case. In 1882, while the firm.of Clapp and Davies was solvent, Peabody made a loan of money to the firm, as he supposéd, and received therefor the firm note of Clapp & Davies. It seems that this money was not used for the benefit of the firm, but was used by Caleb Clapp for his own private purposes. In 1886 the first note was taken up, and a new note of the firm' was given; and for the latter note the judgment note executed on April 8, 1887, was substituted. So far as the evidence discloses, Peabody knew nothing about the use of the money by one of the partners, but held the firm notes and regarded both partners as his debtors, nor does it appear that Davies ever at.any time objected to.the assumption of the. debt by the firm, although he was spoken to about it when the note was renewed in 1886. The right of a firm creditor .to subject the firm property to the payment of his debt in equity, to the exclusion of the creditor of an individual partner, results solely from the right of the other partner to have the partnership assets applied to the payment of partnership debts. The rule is for the benefit and protection of the partners themselves. The equity of the creditor is of a dependent and subordinate character, and is to be worked out and enforced through the medium of the equities of the partners, A partner may part with his right to have the firm property applied to the payment of the partnership liabilities. When he does so, the equity of the creditor is at an end. (Ladd v. Griswold, 4 Gilm. 25 ; McIntyre v. Yates, 104 Ill. 491.; Huiskamp v. Moline Wagon Company, 121 U. S. 310). After the execution of the notes of 1882, 1886 and 188-7, and the entry of the judgment upon the last note, and in view of the other facts hereinbefore stated, Davies was estopped from denying the right of Peabody to have his judgment paid out of the firm assets; and inasmuch as Davies had parted with his equity, none of the other .creditors could, through that equity, reap any benefit or advantage. The proof shows that attorney’s fees to the amount of about $1600.00 were included in the eight judgment notes, upon which the judgments in question were entered. As the judgment debtors, Clapp and Davies, were insolvent when these notes were given, the fees included therein were gifts to the preferred creditors, and must be regarded as fraudulent and void, as against the other creditors not preferred. (Hulse v. Mershon, 125 Ill. 52). But the money realized from sales and collections by the receiver was not applied to the payment of such fees, and was only applied upon such portions of the judgments as remained after deducting the fees. The funds realized were not sufficient to pay the judgments when reduced by the deduction of the attorney’s fees therein included. As no part of the funds in the receiver’s hands have been used to pay the fees, the fact that they were included in the judgments would not of itself justify a reversal in this case. It is furthermore claimed by the appellants, that the arrangement, by which the property of Clapp and Davies was appropriated to the payment of the preferred creditors, was within the statute of frauds, and, for that reason, fraudulent and void. The fourth section of the statute of frauds provides that “every gift, grant, conveyance, assignment or transfer of, or charge upon any estate, real or personal, or right or thing in action, or any rent or profit thereof, made with the intent to disturb, delay, hinder or defraud creditors or other persons, and every bond or other evidence of debt given, suit ■commenced, decree or judgment suffered with like intent, shall be void as against such creditors, purchasers and other persons.” .(Rev. Stat. chap. 59, sec. 4). Evidence was introduced to show, that Clapp and Davies intended to effect a compromise with their general merchandise creditors at less than one hundred cents on the dollar, ■after paying their judgment creditors in full. They swear, that they anticipated a surplus after the judgments by confession should be paid, and that they expected some of then-judgment creditors to lend them such amount of money, in addition to said surplus, as would be needed to carry out the compromise with their general creditors. It is true that a debtor in failing circumstances will not be allowed to place bis property beyond the reach of his creditors “with a view to his ■own advantage by forcing them to release their claims for less than the amount due.” (Nesbitt v. Digby, 13 Ill. 387). It is also true that, when a creditor accepts a preference for the purpose of aiding his debtor to hinder and delay the other creditors, as well as for the purpose of obtaining security for himself, the act of preference will be regarded as fraudulent ■and void. (Huiskamp v. Moline Wagon Co. 121 U. S. 310). If the proof in this case showed clearly that the judgment creditors had agreed with Clapp and Davies to lend them money for the purpose of enabling them to carry out such a settlement as they might thereafter force their general creditors to accept, and that they had so agreed in consideration of the consent of Clapp & Davies to the entry of the judgments and the appointment of the receiver, then it might well be claimed that the judgment creditors were aiding Clapp and Davies in a scheme to hinder and delay the general creditors in the collection of their debts. But the whole testimony, fairly considered, shows that the object of the judgment creditors was to obtain security for themselves, and not to assist the judgment debtors in forcing the unsecured creditors to settle their claims for less than the amounts due. We do not think that the preferences herein given were fraudulent and void as being within the statute of frauds. The judgment of the Appellate Court is affirmed. Judgment affirmed. Subsequently, on October 26,1893, upon an application for a rehearing, the following additional opinion was filed : Per Curiam : Since granting a rehearing, we have carefully reconsidered the case, in the light both of the briefs and arguments originally filed, and of the views submitted by the petition for a rehearing and the argument presented in reply thereto, and are brought to the same conclusion announced in the opinion prepared by Mr. Justice Magrudbr and heretofore filed. That opinion is therefore re-adopted as the opinion of the court, and in accordance therewith, the judgment of the Appellate Court will be affirmed. Judgment affirmed. ■