Farwell v. Nilsson

• Citation: 24 N.E. 74,133 Ill. 45
• Parties: FARWELL et al. v. NILSSON et al.
• Decision Date: 31 March 1890
• Court: Supreme Court of Illinois

133 Ill. 45

24 N.E. 74

FARWELL et al.

v.NILSSON et al.¹

Supreme Court of Illinois.

March 31, 1890.

Appeal from appellate court, first district.

Tenney, Hawley & Coffeen, for appellants.

Emery S. Walker, for appellees.

PER CURIAM.

The following is a sufficiently full and accurate statement of this case, prepared by the appellate court, and the opinion of that court therein:

‘Appellants filed a creditors' bill, in which, after alleging the recovery of a judgment against said appellee, Nilsson, and the return of an execution issued thereon, no part satisfied, it is further alleged that, April 5, 1888, and for some time prior to that date, the defendant, Nilsson, was engaged in mercantile business in the city of Chicago, and on that date, and for a long time prior thereto, but for how long complainants are unable to state, said Nilsson was wholly insolvent, and unable to pay his debts; that, knowing his said insolvent condition, and that he could no longer continue in business, and would shortly be obliged to yield the control and possession of his property to his creditors, he set about arranging his affairs with that end in view. Knowing that, if he made a general assignment for the benefit of all his creditors in the usual and regular form, he would not be able legally to incorporate into such assignment preferences for any of his creditors above the others, and desiring to accomplish substantially the same result, he devised a scheme whereby by fraudulently to avoid the effect of the assignment law of this state, and to enable certain of his creditors to secure an unfair and unlawful advantage over the others in the distribution of his property. In pursuance of this scheme said defendant, well knowing that such preferences were sufficient to exhaust the whole of his assets, and that by such preferences all the other creditors would be deprived of any share in his property, caused judgments to be entered against himself by confession in the superior court of Cook county, upon the 5th of April, 1888, in favor of the following named defendants, for the amounts set opposite their respective names, to-wit: (setting out the names of the co-defendants, and the amount of the judgment of each.) That said defendant, Nilsson, caused executions to be issued forthwith upon said judgments, and had the same placed in the hands of the sheriff of Cook county to execute; that, under said executions, on the same date, the sheriff levied upon the stock of goods belonging to said defendant, that being all of his property subject to levy, and sold the same under said executions on the 16th and 17th of April, 1888, realizing therefrom $5,571.25, which amount was all applied upon said executions, and paid to said execution creditors, respectively, by said sheriff; that said defendant, Nilsson, caused said judgments to be entered, and the said executions to be issued, in pursuance of a plan to turn over and assign all his property to a small number of his creditors, and fraudulently to exclude and deprive his other creditors of any share in his property, or of any benefit of said assignment; that said confessions of judgment were, in effect, but one act, although carried out in a way intended to avoid the outward appearance of a formal and statutory assignment, and that the same constitute a general assignment for the benefit of all creditors, within the true meaning and intent of the assignment law of this state; that said preferences in said assignment in favor of said judgment creditors were each of them fraudulent, illegal, and void as to your orators, and the other bona fide creditors of said Nilsson; that said judgments were confessed by said Nilsson, while he was, and knew himself to be, wholly and absolutely insolvent, and about to quit business, and that said judgments were fraudulent, illegal, and void as preferences in his said assignment, and constituted a fraud upon the rights of said defendant's bona fide creditors. The bill waives answer under oath, and prays that the confession of judgment and execution levies may be declared to be part of one transaction and plan, to constitute both in law and in fact an assignment by said Nilsson for the benefit of all creditors, within the true intent and meaning of the laws of this state in that behalf; and that said judgments, executions, and the pretended liens thereof may be vacated and set aside, and the property covered thereby administered by this court for the equal benefit of all the creditors of said Nilsson; that a receiver may be appointed, and that said defendant may be required to turn over to such receiver all his property, and that the judgment creditors, who are made defendants herein, may each be required to account for and pay over to said receiver all moneys realized by them, respectively, from the transactions above set forth, to be distributed among the creditors of said Nilsson; and that complainants may have general relief. Nilsson demurred to the bill, assigning, as special ground of demurrer, that it does not appear from the allegations therein that he ever intended to make a voluntary assignment for the benefit of all his creditors, or that he performed any act at or before the entry of said judgments which would confer jurisdiction on this or any other court to declare the judgments fraudulent and void as against complainants. The court sustained the demurrer, and dismissed the bill for want of equity, and complainants bring the record to this court by appeal, and assign the action of the court in sustaining the demurrer as error.

‘MORAN, J. The question presented by this case and argued by counsel is, whether a debtor who is in failing circumstances may prefer creditors by giving to one or more of them judgment notes, by which such creditors are enabled to satisfy their claims out of the debtor's property to the exclusion of other creditors, and by the appropriation of all the debtor's assets. Appellants' contention is based on what is claimed to be the proper construction of the voluntary assignment law of this state, known as the ‘Act of 1877,’ and the argument is that, as that act declares that every provision in any assignment providing for the payment of one debt or liability in preference to another shall be void, it effectually inhibits the debtor who is insolvent from paying any creditor what he owes him by turning out or transferring property to him, or by giving him a judgment note which will enable him to subject all the debtor's property to the payment of his debt, to the exclusion of other creditors of such insolvent. The right of a debtor to pay one creditor in preference to another, or to turn out property in satisfaction of, or to create a lien upon it, for the security of a particular debt, in preference to, and to the exclusion of, other liabilities, always existed at common law. And this right of preference might be exercised by the debtor when making a general assignment, in this state, prior to the passage of the act of 1877, as has been repeatedly decided by the supreme court. The act does not purport, by its terms, to regulate or prohibit preferences generally, but only preferences in any assignment; that is,...