Court Opinion

ID: 7277339
Source: CourtListenerOpinion
Date Created: 2022-07-25 20:01:44.98365+00
Date Added: 2024-06-11T16:18:55.180599
License: Public Domain

Mr. Justice Bobb
delivered the opinion of the Court:
We have examined the record with care, and are convinced that Hensey, at the time he made the assignment in question, was indebted to Mertens and Agnew as they contend. While their transactions with him, and the methods of bookkeeping employed, were a little unusual, we are not prepared, in the absence of proof, to question their testimony. They appear to be reputable business men, and, aside from the careless manner in which they dealt with Hensey, there is no reason to question the bona tides of their claim against him.
A bona fide debt existing, Hensey had a perfect right to prefer Mertens and Agnew over other creditors, provided the preference was not given with intent to hinder, delay, or defraud other creditors.
Unquestionably the taking of this absolute assignment by Mertens and Agnew from their insolvent debtor Hensey, and entering into what must be considered as a secret arrangement to pay him any overplus, constitutes a badge of fraud. Under the Code (sec. 1120, [31 Stat. at L. 1368, chap. 854]), intent to defraud is made a question of fact, and not of law. We are, therefore, of the opinion that while the transaction on its face is presumptively fraudulent, yet, nevertheless, that presumption is rebuttable; that is, susceptible of explanation. If, then, from all the facts and circumstances surrounding the case we find the acts of the parties to be consistent with an honest purpose, and that other creditors were not in fact prejudiced, we are not required to avoid the assignment.
Mr. Justice Brown, in Huntley v. Kingman & Co. 152 U. *73S. 532, 38 L. ed. 542, 14 Sup. Ct. Rep. 688, said: “The tendency of courts in modern times has been not to hold instruments-of this character to be fraudulent and void upon their face, un.less they contain provisions plainly inconsistent with an honest purpose, or the instrument indicates with reasonable certainty that it was executed not to secure bona fide creditors, but to-enable the debtor to continue to carry on his business under cover of another’s name.”
In the instant case the favored creditors did not in fact obtain enough from the suit assigned them to liquidate their claim against the debtor. The claim was worth no more when it was assigned than when they recovered final judgment thereon. It was a suit on an indemnity bond, and although it had then been in court two years, no progress appears to have been made in its-prosecution. The debtor had no funds to prosecute it, and no steps were taken by creditors, including appellants, to reach the-debtor’s interest therein; neither were any steps taken to assist in its prosecution. The appellees were not, therefore, taking an assignment of a chose in action of fixed and certain value, but were buying a lawsuit, with the costs and expenses incident thereto. We think there can be no doubt that had they given Hensey no defeasance agreement, the transaction would have-been a perfectly legitimate one. In other words, had they, in consideration of the extinguishment of their claim against Hensey, taken the assignment in question, other creditors could not have complained, even though the assignees ultimately recovered more than their claim, for the obvious reason that the consideration for the assignment in the circumstances of the case would not have been so inadequate as to have avoided the transaction. That the actual value of the thing assigned was not greater than Hensey’s indebtedness to the assignees is clear in the light of the fact that the judgment ultimately obtained was not sufficient to liquidate that indebtedness. In the circumstances of this case it seems to us inequitable and illogical to set aside this assignment because of the agreement as to overplus, when but for that agreement the transaction would not have been open to question. It must have appeared to'Mertens and Agnew at-*74the time the assignment was taken, as testified to by their counsel, Mr. Woodard, that it was extremely doubtful whether .there would be any overplus. It must have appeared equally as doubtful to other creditors, because no questions were asked •either Mertens or Agnew concerning the transaction. Had any creditor solicited information on the subject, and received an ■evasive and misleading reply, this case would be on an altogether different basis. That they did not do so indicates a willingness on their part to refrain from action until these diligent creditors had prosecuted the claim assigned them to a successful issue.
For two years prior to the assignment of this suit against the trust company there was nothing to prevent creditors from instituting bankruptcy proceedings against this. debtor, and prosecuting the suit for the benefit of all creditors. Their failure to do so has a distinct bearing, in our view, on the question as to what was the then understood value of that suit. It will not do to say the suit had been commenced, and that it was not ■encumbent upon them to act until its termination, because the record shows that the debtor was unable to prosecute the suit, ■and that but for the diligence of appellees it might have gone by default.
In this case the debtor parted absolutely with dominion and control over the thing assigned. Hensey’s interest was completely extinguished except in the very uncertain event of an overplus, — an event probably not expected by anyone. It seems, therefore, that this agreement as to overplus in the circumstances of this case was a mere incident to, and not in any sense the reason for, the assignment. Under the authority of Leitch v. Hollister, 4 N. Y. 211, the reasoning of which was adopted by ■the Supreme Court in Huntley v. Kingman & Co. 152 U. S. 532, 38 L. ed. 542, 14 Sup. Ct. Rep. 688, this overplus agreement would not have been deemed fraudulent had it been made public. The case then narrows itself down to the question whether the mere fact that this agreement was not made public avoids the assignment. It must be borne in mind that we are mot dealing with a mortgage, which must be recorded; neither *75are we dealing with a case where the slightest misrepresentations, aside from that imputable to the instrument itself, have heen made. Counsel might have entertained an honest doubt as to whether or not they could absolutely control the prosecution of the suit assigned unless it appeared that their assignment was absolute. Entertaining that view, there was no place where the defeasance agreement could have been recorded, and we are unable to discover wherein the other creditors were in the slightest degree prejudiced because of the failure on the part of the .assignees to publish the fact of this defeasance agreement.
In Muchmore v. Rudd, 53 N. J. L. 369, 22 Atl. 518, this •question was carefully and exhaustively treated. There a verbal agreement as to overplus accompanied the bill of sale of the insolvent debtor to a third person for the benefit of preferred •creditors. The court treated the transfer as a mortgage, and, .after reviewing 'the authorities, held that, inasmuch as the thing assigned was of less value than the debts secured, nothing was fraudulently put beyond the reach of creditors. There was a -dissenting opinion in the case, but it was put upon other grounds, the writer of the opinion regarding the question as to the reservation of the surplus as “one of very minor importance” in that •case.
In the present case the thing assigned was of uncertain value, ■and its subsequently ascertained value proved to be less than the •debt preferred. The preferred creditors were compelled to expend a very substantial sum of money and considerable time and ■effort in recovering on the suit assigned them. Because it is now discovered that when they took the assignment they were not actuated by a desire to retain out of the proceeds thereof more than their claim and actual expenses, we are asked to hold that they perpetrated a fraud upon other creditors, and this, ■notwithstanding that it must then have been clear to them that •a surplus was a very remote contingency.
An honest debt existing, all fraud being denied, no actual fraud or deceit being shown, and the value of the thing assigned being less than the debt, we do not believe equity re*76quires us to deprive these diligent creditors of the fruit of their efforts.
The decree below will be affirmed, with costs. Affirmed.
An appeal by the appellant to the Supreme Court of the-United States was allowed November 13, 1908.