South Branch Lumber Co v. Ott

• Decision Date: 18 January 1892
• Citation: 35 L.Ed. 1136,142 U.S. 622,12 S.Ct. 318
• Parties: SOUTH BRANCH LUMBER CO. v. OTT et al
• Court: U.S. Supreme Court

142 U.S. 622

12 S.Ct. 318

35 L.Ed. 1136

SOUTH BRANCH LUMBER CO. v. OTT et al.

January 18, 1892.

STATEMENT BY MR. JUSTICE BREWER.

On April 27, 1886, George Ott, one of the defendants, doing business at Davenport, Iowa, made a general assignment of all his property, for the benefit of his creditors, to Charles F. Meyer. The next day complainant commenced its action at law in the district court of Scott county, Iowa, against Ott, to recover $37,191.69, and caused a writ of attachment to be issued against the property of Ott. The writ was served by a levy upon certain real estate; and by the garnishment of Meyer, the assignee, and also of Charles Hill and Addie Kloppenberg, holders of chattel mortgages against Ott. The action was removed by the plaintiff to the circuit court of the United States for the southern district of Iowa, and thereafter proceeded to judgment on September 17, 1887, for $40,261.34. Shortly after such removal complainant commenced this suit, in aid of the action in attachment, by filing its bill in that court, the object of which was to have the assignment declared void, and a receiver appointed of the property. The debtor, Ott, his assignee, Meyer, the chattel mortgagees, Hill and Kloppenberg, and the guardian of the latter, were made parties defendant. Thereafter Meyer, the assignee, died, and in his place were substituted his successor, J. B. Meyer, and his executrix, Auguste Meyer. Answers were filed, proofs taken, and at the June, 1887, term, a decree was entered sustaining the validity of the assignment, but adjudging the mortgage to Hill fraudulent as against complainant, and ordering that the assignee, out of the funds in his possession, pay to complainant the sum of $3,225, the amount due on that chattel mortgage. From this decree the plaintiff has appealed to this court.

F. J. Smith and J. M. Flower, for appellant.

[Argument of Counsel from pages 623-626 intentionally omitted] John C. Bills, for appellees.

Mr. Justice BREWER, after stating the facts in the foregoing language, delivered the opinion of the court.

The single question in this case is as to the validity of the assignment. Its invalidity is claimed under section 2115 of the Code of Iowa: 'No general assignment by an insolvent, or in contemplation of insolvency, for the benefit of creditors, shall be valid unless it be made for the benefit of all his creditors in proportion to the amount of their respective claims.' Rev.Code. p. 569. This statute has been in force since 1851. Code 1851, § 977; Revision 1860, § 1826. The assignment in question, standing by itself, presents no ground of challenge. It purports to be a general assignment, is for the benefit of all creditors, and contains no preferences; but the contention of plaintiff is that nearly contemporaneously with it were executed by Ott, the assignor, certain other instruments, which are to be taken as part of the one transaction, and by which preferences were given. The object of the statute was to secure equality among creditors, an object which certainly has the merit of equity. Curiously enough, counsel for plaintiff insists that this equity misled the circuit court, and protests against its like infiuence upon our judgment, while strenuously insisting upon such a construction of the transaction as will enable his client to obtain that preference which it was the purpose of the statute to prevent. He says: 'Somestress is laid by the learned judge who decided this case in the court below upon the inequitable result of holding the Ott assignment void, as it would give to the attachment creditors the entire estate. Undoubtedly it would be much more satisfactory to a court of equity had the law provided that the preferences and not the assignment should be void. The fact that the penalty imposed by the legislature was a harsh one, and operated unjustly upon the right of others, seems to have been something of an obstacle in the way in determining Ott's intent.' But if we apply the letter alone of the statute, then he has no cause of complaint; for the assignment, standing by itself, is without preferences, and only an assignment with preferences is denounced. Only by going beyond the letter, and, in obedience to the spirit, inquiring whether antecedent instruments were not so related to the assignment as fairly to be taken as parts thereof, and constituting with it but one transaction, has the plaintiff any standing in court. But shall we ignore the letter and heed the spirit to give a party a standing in court, and then ignore the spirit and heed only the letter in the further consideration of the case?

The rights of the parties are determined by this local statute, and the construction placed thereon by the supreme court of the state is decisive: 'The question of the construction and effect of a statute of a state, regulating assignments for the benefit of creditors, is a question upon which the decisions of the highest court of the state, establishing a rule of property, are of controlling authority in the courts of the United States. Brashear v. West, 7 Pet. 608, 615; Allen v. Massey, 17 Wall. 351; Lloyd v. Fulton, 91 U. S. 479, 485; Sumner v. Hicks, 2 Black, 532, 534; Jaffray v. McGehee. 107 U. S. 361, 365, 2 Sup. Ct. Rep. 367; Peters v. Bain, 133 U. S. 670, 686, 10 Sup. Ct. Rep. 354; Randolph's Ex'r v. Quidnick Co., 135 U. S. 457, 10 Sup. Ct. Rep. 655.' Union Bank of Chicago v. Kansas City Bank, 136 U. S. 223, 235, 10 Sup. Ct. Rep. 1013.

This statute, which, as we have seen, has been in force in the state of Iowa for 30 years, has been repeatedly before its highest court. In the margin may be found a list of cases decided by that court in which it has been the subject of construction.¹ These propositions seem to be established:

First, this section does not prevent partial assignments with preferences, or sales or mortgages of any or all of the party's property in payment of or security for indebtedness. Its operation is limited to the matter of general assignments, and does not destroy that jus disponendi which is an incident to title. Cowles v. Ricketts, 1 Iowa, 582; Fromme v. Jones, 13 Iowa, 474; Lampson v. Arnold, 19 Iowa, 479, 486. In this latter case the court enters into a full consideration of the import of the statute, and says: 'This statute, it will be observed, does not limit or affect the right of an insolvent debtor, or one contemplating insolvency, or, indeed, any other, to sell or mortgage a part or all of his property to one or more of his many creditors, in payment or security of a particular debt or debts. And this is true, although such sale or mortgage may, practically, defeat all other creditors than the grantee from collecting their demands. Nor does the statute prohibit or interfere with the right of any debtor, as it existed prior to the statute, to make a partial assignment. In other words, the statute does not, expressly or by implication, extend any further, or apply to any instrument or conveyance, other than to a general assignment. Bock v. Perkins, 139 U. S. 628, 641, 11 Sup. Ct. Rep. 677. And therefore it is still competent for any debtor to pay a part of his creditors in full; to secure another part by mortgage or deed of trust upon a part of his property; to make a partial assignment of still other property for the benefit of certain other creditors, with or without preference, and afterwards to make a general assignment. The statute simply provides that such general assignment shall not be valid, unless it is made for the benefit of all the creditors pro rata.'

Second, several instruments executed by a debtor, at about the same time, may be considered as parts of one transaction, and in law forming but one instrument; and if, as thus construed, they have the effect of a general assignment with preferences, they are within the denunciation of the statute. Burrows v. Lehndorff, 8 Iowa, 96; Cole v. Dealham, 13 Iowa, 551; Van Patten v. Burr, 52 Iowa, 518, 3 N. W. Rep. 524.

And, third, that although several instruments may be executed by the debtor at about the same time, they do not necessarily create one transaction or are to be considered as one instrument; and whether they do or not, and whether they come within the denunciation of the statute, depend upon the character of the instruments, the circumstances of the case, and the intent of the parties. Lampson v. Arnold, 19 Iowa, 479; Van Patten v. Burr, 55 Iowa, 224, 7 N. W. Rep. 522; Perry v. Vezina, 63 Iowa, 25, 18 N. W. Rep. 657; Gage v. Parry, 69 Iowa, 605, 29 N. W. Rep. 822; Garrett v. Plow Co., 70 Iowa, 697, 29 N. W. Rep. 395; Bolles v. Creighton, 73 Iowa, 199, 34 N. W. Rep. 815; Loomis v. Stewart, 75 Iowa, 387, 39 N. W. Rep. 660.

The case of Van Patten v. Burr, in 52 and 55 Iowa, and 3 and 7 N. W. Rep., is instructive. In that case the debtor, being insolvent, had executed two chattel mortgages and an assignment, all bearing date November 30, 1878. When first presented to the supreme court it came on demurrer to the petition, in which it was alleged that the debtor, 'in contemplation of insolvency, and being then insolvent, made, executed, and delivered in writing a general assignment of his property for the benefit of his creditors, contained in three instruments executed by him,' etc.; and also 'that said instruments were intended and do constitute as a whole a general assignment of his property for the benefit of creditors.' And it was held, under such allegations, that the three instruments were to be treated as one, and together making a general assignment with preferences. The case went back for trial, and upon the testimony it appeared that one of the mortgages was accepted by the mortgagee without any knowledge of the contemplated assignment; and in 55 lowa, and 7 N. W. Rep., it was held that such mortgage was good.

In Perry v. Vezina, 63 Iowa, 25, 18 N. W. Rep. 657, it appeared that a chattel mortgage was executed about three hours before a...