Grubbs v. Morris

• Decision Date: 08 October 1885
• Citation: 103 Ind. 166,2 N.E. 579
• Parties: Grubbs and others v. Morris and others.
• Court: Indiana Supreme Court

103 Ind. 166

2 N.E. 579

Grubbs and others

v.Morris and others.¹

Supreme Court of Indiana.

Filed October 8, 1885.

Appeal from Henry circuit court.

John M. Morris, for appellants.

Mellett & Bundy, for appellees.

Elliott, J.

The theory of the complaint of the appellants is that Francis M. Crull assigned to George B. Morris notes and accounts in trust, and that the purpose of the trust was to enable Morris to collect the notes and accounts, and use the proceeds in paying the indebtedness of the assignor to the appellants and to Robertson and Perry. To the complaint the appellees addressed an answer containing, in substance, these allegations: That Francis M. Crull, being in failing circumstances, and not having sufficient property to pay his debts, made an assignment to George B. Morris of all his property and choses in action for the benefit of all of his creditors; that the assignment was in writing and under seal; that it provided that John W. Grubbs and Robertson and Perry should be preferred creditors; and that the claims of the appellants are founded solely on this assignment.

The important question presented by this answer is whether the assignment to Morris is valid. The contention of the appellants is that a debtor may prefer such creditors as he chooses. The position of the appellees is that the statute prohibits the preference of creditors in a general deed of assignment. The provision of the statute is this: “Any debtor or debtors in embarrassed or failing circumstances may make a general assignment of all his or their property, in trust, for the benefit of all his or their bona fide creditors, and all assignments made for such purpose, except as provided for in this act, shall be deemed fraudulent and void.” There are also provisions as to the form and method in which the deed shall be executed, as to the duties of the trustee named in the deed, as to the power and duty of the court, and as to the distribution of the proceedsof the property conveyed to the trustee; but there is no provision that in express words prohibits the preference of creditors. The provision quoted, taken in connection with the other provisions of the statute, and considered in connection with the general spirit and purpose of the law, does authorize the conclusion that where a debtor in failing circumstances makes an assignment of all of his property for the benefit of all of his creditors, he cannot prefer one or more creditors, but must place all of them upon an equality. The general doctrine that a debtor may prefer a creditor has been too long established in this state to be now departed from. Lord v. Fisher, 19 Ind. 7;Wilcoxon v. Annesley, 23 Ind. 285. But this general doctrine does not apply where the assignment is made in the cases contemplated by the statute and for which it makes provision.

The statute is evidently intended to secure an equal distribution of the debtor's property among all of his creditors, and it does secure to them and to the debtor important rights. It places the trustee or assignee under the control and supervision of the courts, and the property is, in a qualified sense at least, in the custody of the law. It is so far in the custody of the law that the trustee can, under the supervision of the court, control and dispose of it, without being embarrassed or annoyed by levies of executions or attachments. The statute prevents the sacrifice of the property upon execution sales, and secures equal rights to all creditors, and secures a benefit to the debtor as well as to the creditors. Where the property is conveyed by an assignment not made under the statute, it may be made subject to the claims of creditors when of greater value than the debt it was conveyed to secure; that is, the surplus over the amount required to pay the debt secured may be reached by legal process; but when the property goes into the hands of an assignee or trustee under the statute, it is so far in custodia legis that it cannot be levied upon, but must be disposed of by the assignee under the supervision of the court, and in the manner provided by the statute.

Where property is absolutely conveyed to a creditor to pay a debt, the rule we have laid down cannot govern, for it is well settled that such conveyances are valid. Boling v. Howell, 93 Ind. 329,vide page 331; Dessar v. Field, 99 Ind. 548. Where there is only a partial transfer of property, as where part only of the debtor's property is conveyed, or where only one debtor is preferred, and there is no general assignment, a conveyance to a trustee will, according to our decisions, be sustained as not in contravention of the statute. The case of Cushman v. Gephart, 97 Ind. 46, supports our conclusion. It was there said: “The statute only provides for a general assignment of all a debtor's property for the benefit of all of his creditors. And when that is attempted the statute must be complied with, or the assignment, without regard to actual fraud, will be held fraudulent and void; but an assignment by a debtor for a benefit of part of his creditors, in order to be held void, must be actually fraudulent.” Thompson v. Parker, 83 Ind. 96, goes somewhat further than the case from which we have quoted; further, perhaps, than the earlier and later decisions warrant.

For many years the courts have been earnestly condemning the rule that permits a preference of creditors where property is conveyed by the debtor to a trustee. In Riggs v. Murray, 2 Johns. Ch. 565, Chancellor Kent very strongly censures the rule and clearly demonstrates its injustice, and many other courts have expressed similar views. Cunningham v. Freeborn, 11 Wend. 240,vide 256; Burd v. Smith, 4 Dall. 76;Pingree v. Comstock, 18 Pick, 46;Atkinson v. Jordan, Wright, 246; Beers v. Lyon, 21 Conn. 610. In a respectable treatise upon the subject of assignments for the benefit of creditors, the difference between the direct conveyance of property by the debtor to the creditor is pointed out, and it is said: “But where an insolvent debtor, instead of retaining the dominion of the property, divests himself of it by a general assignment to a trustee, with directions to the latter to...