Union Nat Bank of Chicago v. Bank of Kansas City

• Citation: 136 U.S. 223,10 S.Ct. 1013,34 L.Ed. 341
• Parties: UNION NAT. BANK OF CHICAGO et al. v. BANK OF KANSAS CITY et al
• Decision Date: 19 May 1890
• Court: United States Supreme Court

136 U.S. 223

10 S.Ct. 1013

34 L.Ed. 341

UNION NAT. BANK OF CHICAGO et al. v. BANK OF KANSAS CITY et al.

May 19, 1890.

This was a petition, in the nature of a bill in equity, filed in a court of the state of Missouri by citizens and corporations of other states, judgment creditors, (each of them in the sum of less than $2,500,) in behalf of all the creditors of James B. Melone, of Macon, in the state of Missouri, Richard A. Melone and Charles H. Benedict, of Kansas City, in that state, and all three citizens of Missouri, and doing business at Kansas City as partners, under the name of Benedict, Melone & Co., against those three partners, three banking corporations of Missouri, and Charles Stewart, likewise a citizen of Missouri. The bill alleged that on February 16, 1882, Richard A. Melone, in behalf of the partnership, executed a deed of trust, a copy of which was annexed to the bill, purporting to be by and between the partnership of the first part, Stewart of the second part, and the three banks of the third part, and to convey to Stewart the personal property and choses in action of the partnership, provided that, if the partnership should pay certain specified debts which it owed to each of the banks, 'then these presents, and everything herein, shall cease and be void; but if they, the said Benedict, Melone & Co., shall fail or make default in the payment of such indebtedness to said three above-mentioned banks, or any part thereof, when the same shall have become past due and payable for five days, then it shall be lawful for said party of the second part to sell said property in any manner he shall think fit, and out of the proceeds arising from said sale pay off said indebtedness, or so much thereof as shall be unpaid, together with the costs and expenses of said sale, and the overplus, if any there be, shall be paid to said parties of the first part. Said party of the second part shall take immediate possession of said property.' The bill furthr a lleged that this deed included all the partnership property; that the partnership and each partner were then, as all the defendants well knew, hopelessly insolvent; that on the same day, and simultaneously with the execution of that deed, Benedict, upon a suit commenced by him in a court of Missouri to wind up the partnership, procured the appointment of Stewart as receiver of its property, and he immediately qualified and entered upon his duties as such; that James B. Melone had previously authorized his copartners to make a general assignment for the benefit of all the partnership creditors without any preferences, and never authorized or approved the deed of trust; that the action of the two other partners in executing that deed to Stewart, and having him appointed receiver, was a fraudulent attempt on their part to evade the statute of Missouri concerning voluntary assignments; that by reason of the premises, and of that statute, the deed of trust operated as a voluntary assignment of all the property of the partnership for the benefit of all its creditors; that all the partnership property was delivered to Stewart, and taken possession of by him, under the deed of trust; that out of the property Stewart had realized the sum of $58,000, enough to pay all the creditors of the partnership about 60 per cent. of their debts, if the preferences in the deed of trust should be set aside, but that Stewart, instead of performing the duties required of him by the aforesaid statute of Missouri, had treated the deed of trust as a valid mortgage, and had paid the debts of the banks in full, amounting to about $19,000, and was proceeding to distribute as receiver the rest of the trust fund in his hands. The bill prayed that the deed of trust might be declared to be a general assignment for the benefit of all the creditors of the partnership in proportion to their respective claims, that Stewart be ordered to make distribution accordingly, and that the banks be ordered to pay the sums received by them into the registry of the court.

Stewart and the three banks demurred to the petition; and, before further proceedings in the cause, it was removed, on application of the plaintiffs, into the circuit court of the United States; and that court, upon a hearing on bill, answers, replication, and proofs, before Mr. Justice MILLER and Judge KREKEL, ordered the bill to be dismissed, and they certified a division of opinion on the following question: '(1) Is the instrument of writing in this case, called a 'deed of trust,' which we find, as a matter of fact, conveys all the partnership property of Benedict, Melone, & Co. to Charles Stewart as trustee, as security for the banks therein named, void for want of the assent of James B. Melone, one of the partners, which was never given to that transfer? (2) As James B. Melone did give his previous assent and directions to the making of an assignment for the benefit of creditors, does the deed of trust above mentioned operate as a general assignment for the benefit of all the creditors of the partnership under section 354 of the Revised Statutes of Missouri of 1879? (3) Does the making of that deed of turst, and appointment of a receiver, who is the same person as the trustee, on the same day, and as part of the proceeding to administer the assets of the insolvent partnership, to which the banks, and Stewart, and the partners in the firm of Benedict, Melone & Co., agreed, constitute a general assignment for the benefit of all the creditors, and require the receiver to administer the funds in his hands in that manner?' A final decree was entered for the defendants, in accordance with the opinion of the presiding justice, and the plaintiffs appealed to this court.

C. L. Dobson and S. C. Douglass, for appellants.

Henry N. Ess. Wm. Warner, O. H. Dean, and Jas. Hagerman, for appellees.

[Argument of Counsel from pages 226-229 intentionally omitted] Mr. Justice GRAY, after stating the case as above, delivered the opinion of the court.

The claim of each plaintiff being for less than 5,0 00, and the amount in dispute, therefore, insufficient to give this court jurisdiction of the whole case, our jurisdiction is confined to answering the questions of law presented by the certificate of division of opinion between the judges before whom the case was heard in the circuit court. Rev. St. §§ 650, 652, 693; Act Feb. 16, 1875, c. 77, § 3, (18 St. 316;) Dow v. Johnson, 100 U. S. 158; U. S. v. Ambrose, 108 U. S. 336, 2 Sup. Ct. Rep. 682; Jewell v. Knight, 123 U. S. 426, 8 Sup. Ct. Rep. 193. The determination of these questions is governed by the law of Missouri, where the deed of trust was made, and the parties to it resided. In ascertaining the construction and effect of section 354 of the Revised Statutes of the state, of 1879, which is supposed to affect the case, it is important to bear in mind the law of Missouri as it existed before those statutes were enacted. The supreme court of Missouri, in 1852, speaking by Mr. Justice GAMBLE, said: 'It is not necessary to quote books for the purpose of showing that a debtor in failing circumstances may give a preference to one or more of his creditors to the exclusion of others, and that such disposition of his effects is not impeachable on the ground of fraud because it embraces all his property;' and accordingly upheld assignments by insolvent debtors of all their property to pay particular creditors. Murray v. Cason, 15 Mo. 378, 381; Richards v. Levin, 16 Mo. 596, 599. It was also well settled by the decisions of that court, that each partner, by virtue of the relation of partnership, and of the community of right and interest of the partners, had full power and authority to sell, pledge, or otherwise dispose of, all personal property belonging to the partnership, for any purpose within the scope of the partnership business, and might, therefore, without the concurrence of his copartners, mortgage the partnership property by deed of trust to secure the payment of a partnership debt, (Clark v. Rives, 33 Mo. 579; Keck v. Fisher, 58 Mo. 532,) although one partner, without the concurrence of his copartners, could not delegate to a stranger the right of the partnership to administer the partnership effects, and therefore could not make a general assignment of all the property of the partnership for distribution by the assignee among the partnership creditors, retaining no equity of redemption in the partnership, (Hughes v. Ellison, 5 Mo. 463; Hook v. Stone, 34 Mo. 329.)

The statutes of Missouri restricting voluntary assignments have always been construed rather strictly by the supreme court of the state. By the earliest statute upon the subject, 'in all cases in which any person shall make a voluntary assignment of his lands, tenements, goods, chattels, effects, and credits, or any part thereof, to any person, in trust for his creditors, or any of them, it shall be the duty of the assignee' to file an inventory of the as signed property in the office of the clerk of the circuit court of the county in which the assignee resides. Rev. St. Mo. 1845, c. 10, § 1, re-enacting Act Feb. 15, 1841, § 1, (Laws Mo. 1840-41, p. 13.) In the revised Statutes of 1855, c. 8, § 1, that section was re-enacted, and at the end of the chapter this section was added: 'Sec. 39. Every provision in any assignment hereafter made in this state, providing for the payment of one debt or liability in preference to another, shall be void; and all debts and liabilities within the provisions of the assignment shall be paid pro rata from the assets thereof.' The supreme court of Missouri repeatedly and uniformly held that, taking those two sections together, section 39 only pro- hibited preferences among the creditors designated in an assignment, either of the whole or of part of the debtor's property, but did not invalidate partial assignments for the benefit of some of the creditors of the assignor, and was so far inefficient...