Carlson's for Music, Inc. v. Gould, 23706

• Decision Date: 12 October 1971
• Docket Number: No. 23706,23706
• Citation: 489 P.2d 1038
• Parties: In the Matter of the Assignment of CARLSON'S FOR MUSIC, INC., a Colorado Corporation, Insolvent, Union Trust Company, Assignee, Plaintiff in Error, v. Joseph B. GOULD, Individually, and doing business as Enterprise Building, Defendant in Error.
• Court: Colorado Supreme Court

Page 1038

489 P.2d 1038

176 Colo. 172

In the Matter of the Assignment of CARLSON'S FOR MUSIC INC., a Colorado Corporation, Insolvent, Union Trust Company, Assignee, Plaintiff in Error, v. Joseph B. GOULD, Individually, and doing business as Enterprise Building, Defendant in Error.

No. 23706.

Supreme Court of Colorado, En Banc.

Oct. 12, 1971.

Rehearing Denied Nov. 8, 1971.

A. E. Radinsky, Denver, for plaintiff in error.

Creamer & Creamer, George Louis Creamer, Denver, for defendant in error.

DAY, Justice.

This appeal is brought to review the judgment of the Denver District Court dismissing a contempt citation against defendant Gould. The chief jpoint of error, however, is directed to the trial court's ruling that the Colorado 'Assignment-Benefit of Creditors' statute (C.R.S.1963, 11--1--1 et seq.) is unconstitutional. We reverse.

The chronology of this action in the district court is as follows: On August 29, 1966 assignor Carlson's for Music, Inc., made a voluntary assignment of its assets and the Union Trust Company was appointed as assignee. Inventory of the assets and a bond in the amount of $6,566 were filed in the Denver district court on September 6, 1966 in civil action No. B--95417, In The Matter of the Assignment of Carlson's For Music, Inc., a Colorado Corporation. According to an affidavit filed with the court on September 20, 1966, notice to creditors dated September 7, 1966 was deposited in the United States mail on September 9, 1966. Among the creditors notified was Enterprise Building, c/o Joseph P. Gould.

On October 24, 1966, a motion for citation directed to Gould to show cause why he should not be adjudged in contempt of court was filed with the court. Grounds for the motion were the allegations that Gould had seized and retained a portion of the assets of Carlson's for Music subsequent to the assignment and in violation of pertinent portions of the statute. A citation for contempt was issued, and upon Gould's motion to quash, the district court without a hearing on the merits ruled the statute involved to be unconstitutional.

The district court apparently based its conclusion of unconstitutionality upon the holding of International Shoe Company v. Pinkus, 278 U.S. 261, 49 S.Ct. 108, 73 L.Ed. 318 (1929). Pinkus involved a ruling by the United States Supreme Court that the Arkansas law governing the distribution of property of insolvents was invalid because it operated within that field pre-empted by the Federal Bankruptcy Law.

The holding in that case has been distinguished by more recent decisions of the United States Supreme Court holding that, while state insolvency laws are invalid, states may, in fact, enact statutes providing for the voluntary assignment of debts for the benefit of creditors. For example, in the case of Johnson v. Star, 287 U.S. 527, 53 S.Ct. 265, 77 L.Ed. 473 (1933), the Court addressed the question of whether the Texas assignment for the benefit of creditors statute was repugnant to federal laws:

'In the case at bar the court of civil appeals for the fifth district observed the differences between state insolvency laws and those merely regulating voluntary assignments for the benefit of creditors and, following the rule established by the Texas supreme court that non-consenting creditors may not seize property covered by such assignments, held that the fund in the hands of the assignee was not garnishable. And the supreme court, approving that decision and disapproving one to the contrary announced by the court of civil appeals for the sixth district, * * * held that 'the questions at issue have been definitely settled * * *'.

Accepting as we do that court's construction of the provisions in question, we are of the opinion that they are not repugnant to the Bankruptcy Act.'

The rationale behind upholding the right of the various states to enact so-called 'assignment for the benefit of creditors' statutes has perhaps been best stated as follows:

'But for the fact that the assignors in the deed of assignment in question availed themselves of the privilege conferred by that provision of our assignment law which authorized them to exact discharges of the accepting creditors, provided they should receive from the assigned estate as much as one-third of their respective debts * * * there would be no difficulty in determining the question. The assignment, being of all the debtor's property, and being for the equal benefit of all the creditors of the assignors, would undoubtedly have been good as a common-law conveyance, even if it should be held that the effect of the passage of the United States bankrupt act of 1898 was to wholly suspend the operation of our statutes which provide for general assignments by insolvent debtors. * * *' Patty-Joiner & Eubank Co. v. Cummins, 93 Tex. 598, 57 S.W. 566 (1900).

However, the scope of such statutes has been limited. The following language would appear to hold that 'assignment for benefit of creditors' statutes are not repugnant to federal law, but sections providing for the mandatory discharge of the assignor are:

'There is nothing in the assignment, the application to the circuit court to take jurisdiction, or its order thereon, to suggest that the discharge of the assignor was contemplated. The provisions regulating the administration of trusts created by voluntary assignments for the benefit of creditors apply whether the assignor is solvent or insolvent. They do not prevent creditors from bringing action against the debtor or require those seeking to participate in the distribution of the estate to stipulate for his discharge. And, quite in harmony with the purposes of the federal Act, the provisions of c. 128 that are regulatory of such voluntary assignments serve to protect creditors against each other and go to assure equality of distribution unaffected by any requirement or condition in respect of discharge.' Pobreslo v. Joseph M. Boyd Company, 287 U.S. 518, 53 S.Ct. 262, 77 L.Ed. 469 (1933). (Emphasis added.) See also Johnson v. Star, Supra.

Therefore we must conclude that the provisions in the Colorado statute providing for discharge of the assignor (Sections 11--1--27 and 11--1--34 to 50 inclusive) have been suspended by the Federal Bankruptcy Act. See Johnson v. Star; Pobreslo v. Joseph M. Boyd Co., both Supra.

This does not mean, however, that the remaining portions of our statute are also invalid. The sections are severable without doing violence to the state's sovereign right to provide laws for distressed debtors. The Colorado statutory scheme provides perfectly acceptable provisions by which debtors may voluntarily assign their assets for the benefit of their creditors. By a long series of decisions, extending from Salsbury v. Ellison, 7 Colo. 167, 2 P. 906 (1883), to International Brown Drilling Corp., v. Ferguson Trucking Co., 141 Colo. 250, 347 P.2d 773 (1959), this court has recognized assignments for the benefit of creditors, both under statutory and common law, to be a valuable and necessary adjunct to the credit laws of this state. Thus, while compliance with the statutory provisions will not allow the debtor to be discharged from his...