Brown v. Wilmington Abnd Brandywine Leather Co.
| Decision Date | 25 January 1910 |
| Citation | 74 A. 1105,9 Del.Ch. 39 |
| Parties | JOHN CROSBY BROWN, et al., trading as BROWN BROTHERS & CO v. WILMINGTON ABND BRANDYWINE LEATHER COMPANY, WILLIAM T. LYNAM, Receiver of Wilmington and Brandywine Leather Company, WILLIAM T. LYNAM, Trustee, THE NATIONAL BANK OF WILMINGTON AND BRANDYWINE, G. W. BAKER MACHINE COMPANY, successor to G. W. Baker, trading as G. W. Baker & Company, THE ABE STEIN COMPANY, EDGAR LOEWE, GOAT AND SHEEPSKIN IMPORT COMPANY, LTD., INTERNATIONAL HIDE AND SKIN COMPANY, JAMES BRADFORD CO., GEO. W. BUSH & SONS COMPANY, JOHN M. HARPER, trading as Jno. M. Harper & Company, CHARLES WARNER COMPANY, THE PRESIDENT, DIRECTORS AND COMPANY OF THE FARMERS' BANK OF THE STATE OF DELAWARE (Branch at Wilmington) and ANTONIO MARANO |
| Court | Court of Chancery of Delaware |
BILL IN EQUITY. The bill alleges that on August 31st, 1907, the Wilmington and Brandywine Leather Company assigned all of its manufactured stock, book accounts and bills receivable to William T. Lynam, as trustee, to sell and collect and distribute the proceeds thereof among "such creditors of the said company as shall become parties hereto, by signing this Agreement."
On September 14th, 1907, and before all of the creditors who became parties to this agreement had executed it, the company by another instrument assigned all of its real estate and machinery to Lynam, for the purpose of selling them and distributing the proceeds thereof among the same creditors upon the happening of certain contingencies. Subsequent to the execution of the agreements, and before the happening of the contingencies provided for in the second agreement, Lynam was appointed receiver for the company on the ground of its insolvency, and, as such, took possession of said real estate and machinery. The complainants were creditors of the company, but were not parties to either agreement, and filed this suit for the purpose of having the assets of the company, mentioned in the first agreement, transferred from the trustee to the receiver, for the benefit of all of the creditors of the company.
The Chancellor having certified his disqualification to adjudicate this cause, it was heard by the Chief Justice on demurrers to the bill, and the facts material to the decision thereof sufficiently appear in the opinion.
Bill of complaint overruled.
Ward & Gray for the complainants.
The bill sets up facts to show that the title of Lynam, Trustee to the property mentioned in the agreements, is not sufficient in law or equity to remove it from the control of the Court appointing said receiver, or of such a nature as to deprive creditors generally, of the leather company, from participating in the same. In support of this contention, the bill sets forth that the assignment under which Lynam Trustee, took control of the assigned assets of the leather company, is null and void by reason of its conflict: (1) with section 4, chapter 132, Revised Code, of the State of Delaware as amended to 1893; (2) with the Statute of 13 Elizabeth; (3) with chapter 187, volume 15, Laws of Delaware; (4) with chapter 387, volume 22, Laws of Delaware.
Section 4, chapter 132, Revised Code, (1893) has been applied to varying states of facts in several cases by the Superior Court, the Court of Chancery and the Supreme Court of this State. Hutchinson v. Gordon, 2 Harr. 179; Waters, et al., v. Comly, 3 Harr. 117; King, et al., v. Johnson, 5 Harr. 31; Humphries, et al., v Smith, 4 Houst. 9; Stockley v. Horsey, et al,. 4 Houst. 603; Slessinger v. Topkis, 1 Marv. 140; Wharton, et al., v. Clements, et al., 3 Del.Ch. 209; Montell v. New Castle Iron and Steel Co., 6 Del.Ch. 364.
The averment in paragraph 6a of the bill, that the assignments were made for the purpose of hindering and delaying the complainants in the collection of their claim against said leather company, is intended to bring the assignment in question under the prohibitions of the Statute of 13 Elizabeth. Logan, et al., v. Brick, et al., 2 Del.Ch. 206; May on Statutes of Elizabeth, (Blackstone Co., ed. 1887) 14.
Chapter 187, Volume 15, Laws of Delaware, provides the only statutory method, under the laws of Delaware, to make a valid assignment for the benefit of creditors. It covers all voluntary assignments of the whole, or any part, of the debtor's estate, and for the benefit of all, or for some only, of the creditors. That the first agreement was essentially a voluntary assignment, plainly appears from the first clause thereof, where the parties of the third part are named as "such creditors of said company as shall become parties hereto by singing this agreement as hereinafter provided for." It is contended that such an assignment in no way bound any creditor not executing the same, or prevented him from participating adversely in the application of the assets of the assigning company for the payment of his debt. Montell v. New Castle Iron and Steel Co., supra.
Paragraph 6b of the bill of complaint plainly charges the violation of Chapter 187, Volume 15, Laws of Delaware, in every particular, by the Trustee, and, as said statute is the only statute under which such an assignment could have any validity, it is submitted that such assignments confer upon said trustee, or the creditors for whom he is trustee, no rights whatsoever to the fund resulting from said assignment, and that nothing in said assignments can preclude this Court from requiring said trustee to turn over to the receivership the funds in question.
There is nothing in Chapter 387, Volume 22, Laws of Delaware, to prevent its application to this case. It simply provides "that a sale of any portion of a stock of merchandise otherwise than in the ordinary course of trade in the regular and usual prosecution of the seller's business or a sale of an entire stock of merchandise in bulk will be presumed to be fraudulent and void as against the creditors of the seller," unless certain things are observed. The bill plainly alleges that the manufactured stock "constituted the stock of merchandise of said Wilmington and Brandywine Leather Company;" that said sale of all finished leather belonging to said company was a sale otherwise than in the ordinary course of trade in the regular and usual prosecution of the business of said company, and a sale of the entire stock of merchandise in bulk, within the meaning of said statute.
Saulsbury, Ponder & Morris for defendants, G. W. Baker Machine Co., Abe Stein Co., Edgar Loewe, Goat & Sheepskin Import Co. and John M. Harper.
The agreement of August 31st, 1907, is not invalid as contrary to the provisions of Section 4, Chapter 132, Revised Code (1893), because this act has been construed by the Court of Errors and Appeals of Delaware to invalidate agreements by which persons, in contemplation of insolvency, assign their entire estate for the benefit of creditors, thereby giving a preference to such creditors, and, therefore, does not apply to a case where part only of the estate was so transferred. Waters v. Comly, 3 Harr. 117; Tunnell v. Jefferson, 5 Harr. 206; Wharton, et al., v. Clements, et al., 3 Del.Ch. 209; Montell v. New Castle, &c., Co., 6 Del.Ch. 364; Stockley v. Horsey, 4 Houst. 603.
This agreement lacks some of the essentials of an assignment for the benefit of creditors, such as is technically known to the law: (1) There was no provision that any surplus remaining in the hands of the trustee, after payment of the creditors, should be returned to the assignor, but, on the other hand, this agreement expressly provided that all the personal property therein mentioned was accepted by the creditors in full liquidation of their claims. (2) The creditors released the assignor from all liability to make up any deficiency that might remain after the distribution of the fund arising from a conversion of the personal property covered by said agreement. This would not be true in a case of an assignment for the benefit of creditors. 4 Cyc. 222; Smith, &c., Co. v. Carson, et al., 52 P. 880.
A debtor, under the laws of Delaware, may prefer creditors, and one of the methods of so doing is by transferring property to a third person in trust to hold and dispose of it for the benefit of the creditors. Burrell on Assignments, 108. An insolvent debtor may exercise this right of preference, not only in the form of actual payment of money to a particular creditor, but also in the form of assignment or appropriation of property, by either of the following methods:
1. By the transfer of property directly to the creditor.
2. By consenting to a transfer by operation of law, as by voluntarily confessing a judgment.
3. By transferring property to a third person in trust to hold and dispose of it for the benefit of the creditor. Stevens v. Bell, 6 Mass. 339; Nostrand v. Atwood, 19 Pick. 281.
The agreement of August 31st, 1907, was not an assignment contrary to Section 4, Chapter 132, Revised Code, but a payment by accord and satisfaction of the creditors therein mentioned. Bartlett v. Rogers, 3 Sawyer 62, Fed. Cas. 1079; Wilkinson v. Inglesby, 5 Johns. 386; Eaton v. Lincoln, 13 Mass. 425.
The agreements did not operate together as one agreement, because, (1) The parties to them were not the same; (2) the so called agreement of September 14th, 1907, was not effective or binding, either on the party making it, or on the persons for whose benefit it purports to have been made; it was unilateral and without valid consideration; it was nudum pactum and could not have been enforced; and (3) the agreement of September 14th, 1907, purports to have been after the agreement of August 31st, 1907, had been signed by some of the parties to it.
The agreement is not invalid and ineffective by reason of non-compliance with Chapter 187, Volume 15, Laws of Delaware,...
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