Colbert v. Baetjer , 4 App. D.C. 416 ( 1894 )

Mr. Justice Morris

delivered the opinion of the Court:

The question in the case is, whether the bill of sale relied upon by the appellees was fraudulent and void as against the claim of the assignees. The argument is, that the assignees represent, not only the debtor or assignor, but likewise the creditors; and are therefore to be regarded as bona fide purchasers for value.

Probably by this bill of sale the appellees merely sought in good faith to secure the payment of their own claim against William C. Lewis & Co. in the disaster which they saw to be impending over that firm; and it may be assumed that there was no intentional fraud in it. But that it would be void as against creditors of William C. Lewis & Co., who dealt with that firm on the faith of their supposed ownership of this property, and void as against all subsequent purchasers of the property, or of any part of it, in good faith in due course of business, is, of course, beyond question. Such would have been the result of the statute; and such would have been the result of the law in the absence of the statute. And if this were a controversy between such creditors or purchasers, on the one side, and the appellees on the other, there would not be much room for argument. But such is not the case here. The controversy is one between certain creditors and the voluntary assignees of the debtor for the benefit of other creditors. In substance, it is a contest between two classes or sets of creditors, wherein those claiming adversely to the bill of sale show no equity equal or superior to that of the appellees holding the legal title under that instrument. For it does not appear that any of the creditors assumed to be represented by the assignees became such on the faith of this property or of the ownership of it by Lewis & Co., or were misled into becoming such creditors by the negligence or fraud of the appellees.

The act of Maryland of 1729, Ch. 8, yet in force in the District of Columbia, provides as follows:

“ Sec. 5. And whereas it has often happened that several persons have heretofore secretly made over unto their creditors, or pretended creditors, or given their own children or others, sundry goods and chattels, and yet kept the same in their own possession, whereby they have been believed to be the proprietors of such goods and chattels, and thereby procure to themselves credit for considerable sums of money and quantities of tobacco, to the great prejudice of several inhabitants of this province, and others, be it therefore enacted, &c., That from and after the end of this session of assembly, no goods or chattels whereof the vendor, mortgagor, or donor, shall remain in possession, shall pass, alter or change, or any property thereof be transferred to any purchaser, mortgagee, or donee, unless the same be by writing and acknowledged before one provincial justice, or one justice of the county where such seller, mortgagor, or donor shall reside, and be within twenty days recorded in the records of the same county.

“ Sec. 6. Provided always, That nothing in this act shall extend, or be construed to extend, to make void any such sale, mortgage, or gift, against such seller, mortgagor, or donor, his executors, administrators, or assigns only, or any claiming under him, her, or them.”

As already stated, the bill of sale upon which the appellees rely was neither acknowledged nor recorded; and it was undoubtedly void as against bona fide purchasers for a valuable consideration. It may, also, with equal confidence»' be regarded as void, against creditors who may have dealt with Lewis & (jo., if any "'there were, on the faith of their ownership of the property mentioned in it. But by the express proviso of the statute it was good and valid against Lewis & Co. themselves, as well as against their assignees and it is therefore good and valid against the appellants, who are specifically assignees, unless it can be shown that they are, in contemplation of law, purchasers for a valuable consideration or have the rights of creditors who have dealt with the assignors on the faith of the presumption that they were the real as well as apparent owners of the property covered by the bill of sale, and received credit on that account.

There is very respectable authority for the doctrine that the voluntary assignees of an insolvent debtor are to be regarded as purchasers of the property assigned to them for a valuable consideration; and that they hold not only the title of their assignor, but also the right of the creditors to attack any false or fraudulent transfer or conveyance that may have been made by him. Such to a greater or less extent seems to have been the rule laid down by the courts of Virginia, West Virginia, and Missouri. Exchange Bank v. Knox, 19 Grat. 739 ; Harrison v. Farmers’ Bank, 9 W. Va. 424 ; Gates v. Labeaume, 19 Mo. 17. In an early case in New York, Dey v. Dunham, 2 John. Ch. 182, it was held that a general assignee in trust for creditors was to be regarded as a bona fide purchaser as against a prior unrecorded mortgage. In Ohio, under the statute of that State, a somewhat similar doctrine seems to have been maintained. Hanes v. Tiffany, 25 Ohio St. 549. The case of The Bank of Alexandria v. Herbert, 8 Cranch, 36, and the case of Casey v. Cavaroc, 96 U. S. 467, are supposed by the appellants to give countenance to the same doctrine and to be controlling upon us in this District. But undoubtedly the vastly preponderating current of authority is, and has been, to the effect that neither the assignee of an insolvent debtor under a voluntary deed of assignment, nor the creditors whom he represents, in so far as he may be said to represent them, are purchasers for a valuable consideration, without notice, as against prior equitable claims; and that the assignee takes no better title and no higher rights than the assignor had at the time of the assignment. Chace v. Chapin, 130 Mass. 128 ; Williamson v. Nealey, 81 Me. 447 ; James v. Mechanics’ Nat. Bank, 12 R. I. 460 ; Griffin v. Marquardt, 17 N. Y. 28 ; Shaw v. Glen, 37 N. J. E. 32 ; Moses v. Thomas, 26 N. J. L. 124 ; Morris’s Appeal, 88 Pa. St. 368 ; Marks’s Appeal, 85 Pa. St. 231; Hodgsen v. Barrett, 33 Ohio St. 63 ; Pierson v. Manning, 2 Mich. 445 ; Davis v. Chicago Dock Co., 129 Ill. 180 ; Head v. Miller, 45 Minn. 446 ; Roberts v. Corbin, 26 Iowa, 315 ; Drew v. Drum, 44 Mo. App. 25 ; Dunsmoor v. Furstenfeldt, 88 Cal. 522 ; Keller v. Smalley, 63 Tex. 512 ; Frow v. Downman, 11 Ala. 880 ; Carter v. Lipsey, 70 Ga. 417 ; Bowles v. Bowles, 80 Ky. 529 ; Ratcliffe v. Sangston, 18 Md. 383 ; Stockett v. Goodman, 47 Md. 54 ; Tyler v. Abergh, 65 Md. 18.

And this doctrine seems to be founded upon good reason and sound principle. For it is difficult to see how, without any new consideration supervening at the time, either the assignee or the creditors could by any deed of assignment acquire from the debtor any greater or better title than the debtor himself has at the time of making the assignment, The debtor cannot give that which he has not, or to which he is not himself entitled.

The case of assignees in bankruptcy or insolvency, statutory assignees generally, statutory receivers and receivers in equity, stands upon very different grounds. In that case the assignee may, and generally does, have, by virtue of the statute, rights and powers which the assignor may not be entitled to exercise. But such rights and powers are not derived from the assignor, but from the statute; and the assignee is not there the mere agent or representative of the assignor, to exercise only the rights that were in the assignor at the time of the assignment, but the representative of the creditors as well, armed with all their rights and powers, even rights antagonistic to those of the debtor. Indeed, in such cases, the assignee might properly be considered neither the agent of the assignor nor of the creditors, but the representative of the public authority to do justice between them, notwithstanding that his selection in the first instance may have been the sole and exclusive act of the assignor. Kennedy v. Gibson, 8 Wall. 498 ; Davis v. Gray, 16 Wall. 203 ; Bank v. Kennedy, 17 Wall. 19.

The case of The Bank of Alexandria v. Herbert, 8 Cr. 36, cited on behalf of the appellants, arose under an insolvent law enacted by Congress for the District of Columbia, 2 Stat. 237, since repealed, in which special provision was made for the appointment of an assignee to act under the orders of the court, the appointment to be actually made by the creditors, or in default of action by them, by the court itself. The debtor had no voice in the appointment; and the assignee could not in any sense be considered as his agent, but rather the agent of the creditors in antagonism to the debtor, or the officer of court. Moreover, the controversy in that case seems to have depended on the construction of the record laws of the State of Virginia with reference to an unrecorded mortgage, and that construction has no bearing upon the question involved in this case.

The case of Casey v. Cavaroc, 96 U. S. 467, was that of a receiver appointed by the parties under the civil law of Louisiana. In that case, the Supreme Court, by Mr. Justice Bradley, said : “ While it is generally true that an assignee for the benefit of creditors holds the property assigned subject to the same equities as the debtor or assignor held it, it is not universally true. Many transactions would be binding on the latter, which would not be binding on the assignee. All sales and securities made for the actual purpose of defrauding creditors are of this class. By the law of Louisiana, a pledge, in order to be effective against third persons, must be accompanied by a privilege. It may be valid as a contract between the parties without this quality, as held both in the French law (as already shown) and in Louisiana, in the case of Matthews v. Rutherford, 7 La. Ann. 225. But Art. 3162 expressly declares that the privilege arising from a pledge does not subsist, except when the thing pledged has been actually put and remained in the possession of the creditor, or of a third person agreed on by the parties. Without the privilege, or right of preference, the Credit Mobilier has no claim to hold the securities in question as against the other creditors. How, then, can it set up such a claim against the receiver ? The receiver does not represent the bank alone; he represents all the parties. He represents the law, which takes charge of the property for the benefit of all creditors, according to -their respective and mutual rights. . . . He the [receiver] is not made receiver by the voluntary assignment of the bank, but is appointed by the magistrate in invitum the bank, for the very purpose of securing equal justice to all its creditors, and under a law which sternly forbids preferences. Surely such an officer, whatever may be the rule in the case of voluntary. assignments, may assert those rights of the general creditors which the law itself creates, without being subject to all the disabilities under which the bank would labor in combating its private engagements with favored creditors.” And subsequently, commenting on the case of The Bank of Alexandria v. Herbert, already cited, Mr. Justice Bradley goes on to say: “ The case of The Bank of Alexandria v. Herbert, 8 Cranch, 36, presents a state of things almost precisely analogous to this. There the trustee of an insolvent debtor recovered the proceeds of property which the latter had mortgaged to the bank. The recovery was had on the ground that the mortgage had not been recorded in proper time, under the law of Virginia, which declared that all deeds and mortgages, though good between the parties, should be void as to creditors and subsequent purchasers without notice, unless recorded within eight months from date. ‘To set up this deed against the creditors,’ said Mr. Chief Justice Marshall, ‘would be to defeat the very object for which the law was made.’ Indeed it may be laid down as a general rule, as well at the common law as the civil law, that ,a trustee, assignee, or syndic, having the powers, and occupying the relations which are sustained by a receiver under the National Banking Act, or an assignee in bankruptcy, may well oppose any privilege or preference which the law itself, unaided by &bona Repurchase or judgment, wouldregard as void against the general creditors in a direct contest between them, and the parties claiming such privilege or preference, even though the debtor himself, on account of some personal disability arising from his own acts or engagements, could not resist the claim.”

A clear distinction is here pointed out between the cases in which the assignee of an insolvent debtor may avoid the acts of his assignor, and those in which he may not do so

But, assuming for the present that the assignees in the case before us are clothed with all the powers of the creditors of their assignor, and entitled to attack and avoid all his acts that operate as a fraud upon the rights of the creditors, it is not apparent that in any proceeding directly by themselves, or indirectly through the assignees, the creditors could successfully assail the bill of sale made by the debtor to the appellees. It is not questioned that the appellees had a valid subsisting claim against Lewis & Co., and that Lewis & Co. were justly indebted unto them in the full amount attempted to be secured by the bill of sale. There was no taint whatever of actual fraud in the transaction. The illegality, if any there be, was wholly constructive, and consisted merely in the failure to have the bill of sale acknowledged and recorded. If this omission injured no one, if no one was induced to become a creditor of Lewis & Co., on the faith of their possession and supposed ownership of the property covered by the bill of sale, it is not apparent that any right was lost by the failure of the parties to acknowledge and record the instrument. There is nothing in the record to show that the creditors, or any of them, could have successfully assailed this bill of sale. So far as we are advised by the record, Lewis & Co., at the time at which it was made, had a perfect legal right to satisfy the claim of the appellees by the delivery or pledge of goods to them, by the sale of such goods, or by mortgage. They had a right at that time to make a preference in favor of the appellees, and the bill of sale might well be regarded as a partial assignment, with a preference. Indeed, the present controversy might without impropriety be considered as a contest between two sets of preferred creditors, in which the equities in favor of those who are later in point of time have nothing whatever to commend them as superior to those of the claimants under the prior instrument.

Entertaining these views, we are compelled to hold that the judgment of the court below was right; and we accordingly affirm that judgment, with costs. •