Brekke v. Crew

• Decision Date: 24 May 1920
• Docket Number: 4553. [*]
• Citation: 178 N.W. 146,43 S.D. 106
• Parties: BREKKE v. CREW et al.
• Court: South Dakota Supreme Court

178 N.W. 146

43 S.D. 106

BREKKE v. CREW et al.

No. 4553. ^[*]

Supreme Court of South Dakota

May 24, 1920

Appeal from Circuit Court, Hughes County; John F. Hughes, Judge.

Action by J. A. Brekke against Charles E. Crew and another to set aside an assignment for the benefit of creditors. Judgment for defendants, and plaintiff appeals. Reversed, with directions to render judgment for plaintiff.

Smith and GATES, JJ., dissenting.

Charles P. Warren, of Huron, for appellant.

Horner Martens & Goldsmith, of Pierre, for respondents.

WHITING J.

One Waite, an insolvent, conveyed all his property, real and personal, except exemptions, in trust to one Crew who accepted the trust and took possession of the property conveyed. Brekke, a creditor of Waite, having, after the execution of the conveyance by Waite to Crew, procured and docketed a judgment against Waite, brought this action to have such conveyance set aside as fraudulent, and because it hindered and delayed the creditors of Waite, and particularly because it hindered and delayed him in the enforcement and collection of his judgment. The trial court held the conveyance valid as against plaintiff, and plaintiff has appealed.

That the conveyance is an assignment for benefit of creditors and void as against appellant, a nonassenting creditor, appears to us so clear that we would so hold without any discussion whatsoever, were it not for the fact that our predecessors held a conveyance in all things of the same force and effect to be a conveyance "in the nature of a security for the benefit of the creditors assenting thereto"; and that it "did not constitute a general assignment under the provisions of our Code"; that "while the trust deed may not technically be denominated a mortgage, it constituted in effect a mortgage"; and that it was valid even as against a nonassenting creditor. Joas v. Jordan, 21 S.D. 379, 113 N.W. 73. An examination of the briefs in the Joas Case discloses that the deed therein was attacked by the objecting creditor not on the ground that it was void under our present section 2048, Rev. Code 1919, but because of a claim of actual fraud rendering it void under our present section 2041, Rev. Code 1919, which provides that any transfer is void against creditors if made "with intent to delay or defraud any creditor." We have no doubt whatsoever but that, if our predecessors had had the benefit of a brief such as has been presented to us by appellant on this appeal, they never would have fallen into the errors disclosed by the opinion in the Joas Case.

But because of the ruling in the Joas Case and the apparent reliance placed thereon by the trial court in this case, and especially because the writer of this opinion was the trial judge in the Joas Case, we feel that, in reversing the trial court in the present case and thus reversing the holding of this court in the Joas Case, we should point out most clearly, and even at length wherein the reasoning in the opinion in the Joas Case seems to us unsound and the conclusions reached therein erroneous.

The portions of the conveyance that are material to the question before us are as follows:

"The said party of the first part, in consideration of these premises and *** has granted, bargained, sold and conveyed and assigned, and does by these presents grant sell, bargain, convey and assign unto the said *** Crew, *** all and singular, his lands and tenements, goods, chattels effects, claims, demands, and bills receivable, including accounts and evidence of indebtedness, together with all collateral thereto belonging or pertaining thereto, and all his property, real, personal and mixed, as well as choses in action, without reservation or restrictions whatever, except the exemptions allowed by law to the said party of the first part, which are expressly reserved from this conveyance and are described as follows, to wit: [Then follows detailed description of property claimed as exempt.]

To have and to hold the said property, save and except that reserved herein, unto said party of the second part, his successors and assigns in trust, nevertheless, for the uses and purposes hereinafter set forth, to wit: The said party of the second part to take possession of all of said property and to sell and dispose of same at public or private sale, with all reasonable diligence, and to convert the same into money; also to collect all claims, demands and bills receivable, or settle, compromise and compound the same, or to sell and dispose thereof at either private or public sale; to hire and employ such agents or assistants for the purposes herein expressed as he may deem necessary; and with and out of the proceeds of such sales, and the proceeds of the collection or receipts made by the said party of the second part, or the property itself: First, to pay and discharge all the just debts and reasonable expenses against and charges of executing and carrying into effect the trust hereby created; second, to pay and discharge, if the residue of said proceeds be sufficient, all the debts and liabilities due and owing by said William W. Waite to those of his creditors who shall become parties hereto and who shall, in consideration of the premises, undertake and agree upon payment made, whether in whole or in part, to fully release, discharge and absolve said William W. Waite from all indebtedness to them or either of them; and if the proceeds of said property shall not be sufficient to pay said debts, liabilities and interest in full, then to apply the same as far as they will extend to the payment of debts, pro rata in proportion to the ratio which each of such claims shall bear to the entire amount of indebtedness, so that each of said creditors shall receive a like percentage of the moneys received by the said party of the second part, without preference or favor; and if, after all of said debts, liabilities and interest are paid in full, there shall be any surplus remaining in the hands of the party of the second part, such surplus to be repaid to the said party of the first part, his heirs or assigns: [Then follows: (a) A promise by the first party to make, execute, and deliver such other, further and additional deeds of conveyance, bills of sale, transfers, and assignments as may be requisite and necessary to properly vest title in second party to the property assigned; (b) a detailed description of the property conveyed; (c) a promise to

convey by proper conveyance any property that may be discovered to have been omitted.]

It is hereby further agreed that this trust deed shall take effect from and after its execution by the said party of the first part *** and its acceptance by the said party of the second part, and that said party of the second part shall thereupon take possession of the property hereby transferred, conveyed and assigned, and the said party of the second part hereby covenants and agrees with the party of the first part and with each of the creditors of the party of the first part who shall assent thereto, that he will faithfully execute the said trust hereby created."

Much is said in reports and text-books regarding two lines of holdings-one known as the "majority rule," the other as the "minority rule"-as to the effect, upon an assignment for benefit of creditors, of a provision therein requiring a creditor, as a condition to receiving benefits thereunder, to accept such benefits in full discharge of his claim. See cases cited in notes 50 L. R. A. (N. S.) 714-753; 5 Am. & Eng. L. & P. 1028-1030; 5 C. J. 1105-1106; 2 R. C. L. 670-672; Burrill on Assignments (5th Ed.) §§ 184-196. Respondents, while conceding that "there is perhaps some reason for the majority rule," yet rest their defense upon the contention that the holding in Joas v. Jordan has the support of the authorities sustaining the "minority rule." Respondents have apparently overlooked three very important facts: (1) This state, by statute, has adopted the majority rule. Section 2048, Rev. Code 1919; (2) there is not one single authority, either in text-books or reports, whether holding to the "majority" or "minority" rule, except Joas v. Jordan, supra, but that holds a deed such as the one before us to be an assignment for benefit of creditors-they differ only as to whether it is a valid or void assignment; (3) the court, in the Joas Case, did not base its decision upon either the "majority" or "minority" rule, but solely upon the premise that the instrument before it was not an assignment for benefit of creditors. The court said:

"We are clearly of the opinion that in the case at bar the purported deed of trust was in the nature of a security for the benefit of the creditors assenting thereto, and did not constitute a general assignment under the provisions of our Code. *** While the trust deed may not technically be denominated a mortgage, it constituted in effect a mortgage."

Starting from the above premise, the court, following its prior holding in Sandwich Mfg. Co. v. Max, 5 S. D. 125, 58 N.W. 14, 24 L. R. A. 524, was bound to, and did, reach the conclusion that, under what is now section 2039, Rev. Code 1919, the instrument was valid as against appellant. Section 2039 provides that:

"A debtor may pay one creditor in preference to another, or may give to one creditor security for the payment of his demand, in preference to another."

It is clear that, if the court erred in its premise, then its conclusion was erroneous.

What did the court mean by the phrase, "under the provisions of our Code," as the same is found in the above quotation from the opinion in the Joas Case? While our Code prescribes how an assignment for benefit of creditors shall be executed, and prescribes what may and what shall be done thereunder, it does...