Nelson v. Harper , 122 Ark. 39 ( 1916 )

Wood, J.,

(after stating the facts). (1) A provision in -an assignment which requires, as a condition precedent to participation in the funds assigned, that the creditors shall release the debtor is, ¡according to the prevailing American rule, oppressive and renders the assignment void, even though all the debtor’s property is included. “This,” ¡say the authors of Euling Case Law, “is on the ground that an insolvent debtor has no right to dictate terms which shall make him independent of his legal ¡obligations -and that it is 'Contrary to justice and against public policy to ¡allow debtors to coerce their creditors into releasing their debts.” 2 R. C. L., 670-671, rand note. This doctrine was announced in Collier v. Davis, 47 Ark. 367, overruling Clayton v. Johnson, 36 Ark. 406, where the contrary was held.

Under the above rule, the condition in the instrument under review, requiring all the creditors of G-athright to release him from further .payment of their debts as a condition precedent, rendered the instrument void under the general rule as to assignments for the benefit of creditors, in the absence of a statute to the contrary.

Under the old rule in regard to assignments for the ■benefit of creditors any of the creditors of Gathright could have ignored the assignment and subjected his property to the payment of their debts. But this is not the rule under our statute.

In Richmond v. Mississippi Mills, 52 Ark. 30, we said that, where a debtor executed an instrument, in whatsoever form, or by whatsoever name, with the intention of having it operate as an assignment and with the intention of granting the property conveyed absolutely to the trustee to raise a fund to pay debts, the transaction constitutes an assignment.

(2) The court was warranted in finding, under the agreed statement of facts, that the instrument under consideration constituted an assignment and it had the effect to transfer the title to the property mentioned therein to Harper as trustee for the use and benefit of all the creditors. The agreed statement of facts shows that Harper took possession of the property through J. D. Gathright, and directed him to make an inventory, which was done, and while Harper as assignee did not comply with the requirements of the statute in regard to filing his inventory and bond with the clerk of the chancery court (Kirby’s Digest, § 336), that did not operate to divest the title out of him as trustee or change the character of the instrument, under the statute, as a general assignment for the benefit of all the creditors.

In State National Bank v. Wheeler-Motter Merc. Co., 104 Ark. 222, an insolvent mercantile firm sold its stock of goods for the sum of $1,010 and turned the proceeds over to one B. H. Kuhl for the purpose of distributing the same pro raba among its creditors. The transaction was merely verbal and not evidenced by any written assignment. Kuhl was vice president of the State Na-' tional Bank, and the money deposited was placed to his credit on the books of the bank. The amount was sufficient to pay 25 per cent, of the debtor’s liabilities. Most of the creditors agreed to accept ’the pro rata of 25 per cent., but the plaintiff creditor declined to accept that sum and brought suit in the circuit court against the debtor to recover the amount of its debt, and sued out a writ of garnishment against the bank to appropriate the funds in its hands to the payment of plaintiff’s claim. The circuit court directed a verdict for the plaintiff for the full amount of its claim against the bank as garnishee. In reversing the ruling of the trial court, we said: " “In the absence of a statute, funds or other property held under a void assignment for the benefit of creditors is subject to garnishment at the action of any creditor or of the assignor; but that rule is changed in this State by a statute, which provides that if, for any cause, .an assignment shall be declared void, ‘the same shall then be considered and treated as .a general assignment of all his property, not exempt from execution, for the benefit of all his creditors pro rata, and said property shall be disposed of and distributed for their benefit under the orders and directions of the chancery court. ’ ’ ’ Citing Tapp v. Williams, 83 Ark. 882, where we said: “The assignment of the debtor’s assets for the benefit of all the creditors must, under the statute, go to all the creditors pro rata. No one of them has the right by garnishment to subject the trust fund to the payment of all his debt to the exclusion of the debts of the others.”

(3-4) The doctrine of the above cases, under the ’ agreed statement of facts, is applicable here. At the time the goods were levied on by the constable under the execution he had notice of the assignment and that the assignee, Harper, was in possession of the property under and by virtue of such assignment. Under the facts of the above eases we held that trust funds in tbe hands of a trustee or assignee for the .payment of .all creditors of a debtor could not be reached by garnishment issued at the instance of one of the creditors to have his claim satisfied in full; that the assignment of 'the debtor’s .assets for the benefit of all the creditors must, under the statute, go to all the creditors pro rata.

(5) There is no well grounded distinction between trust funds held for the payment of debts and goods held in trust for the same purpose. If trust funds under the facts in the above eases could not be reached by garnishment, it necessarily follows that the goods held in trust under the facts of the instant ease nan not be reached by execution. The remedy of appellant grocery company for the satisfaction of its judgment, as pointed out in Tapp v. Williams, supra, was in equity against the trustee for the payment of its .claim pro rata.

The judgment of the circuit court is theref ore correct .and it is affirmed.