Kayser v. Heavenrich , 5 Kan. 324 ( 1870 )

By the Court,

Kingman, C. J.

The plaintiff in error is assignee of Kallman & Co., and as such assignee had in his hands the funds realized from the property and debts due said Kallman & Co. when he was garnished by the defendants in error. He therefore filed his petition in the district court, setting up the deed of trust and his actions thereunder, making the defendants in error and the other creditors of Kallman & Co. parties, and asking the court to direct him what disposition to make of the funds. The defendants in error answered, setting up their claims and alleging that said deed of assignment was made with the intent to defraud the creditors of Kallman & Co., and was void; and asked that they be allowed the amount of their several judgments against Kallman & Co.

The cause was tried by the court, and a judgment was rendered as prayed for by the defendants. The court made special findings in the case, from which it appears that on the 19th day of March, 1866, the firm of J. Kallman & Co. made an assignment to plaintiff of certain property to pay certain preferred and other debts of the firm; that the plaintiff had'- so far executed the trust that he had in his hands the sum of $>14,300;85, received from the property and debts due the firm of Kallman & Co.; that the assignment was made by Joseph Westenberger, one of the firm of Kallman & Co., and that one of the préferred creditors was Simpson Loewenthal, and that said Westenberger was interested in the claim of Loewenthal, being an equal partner therein; and that to the extent of his part of the amount for which he preferred Simpson Loewenthal the assignment was for his own benefit and void, and that the deed was made with intent to defraud the creditors of the firm of Kallman & Co. The evidence, which makes part of a very voluminous record, fully sustains the findings of the court as to the facts; and the one material question for consideration is whether the facts, all being true, the conclusion of the court that the instrument' of assignment is void is a just conclusion of law.

It is admitted in argument, and is apparent from the record, that neither the assignee nor the creditors, except Loewenthal and Westenberger, had knowledge of the fact that the debt to Loewenthal was for the benefit of Westenberger. On the part of the plaintiff in error it is claimed that this trust for the benefit of the assignor does not vitiate the assignment as to other creditors who were not parties or privies to it; that if void as to Loewenthal it is not thereby rendered void as to the other creditors, whose rights under the assignment will be protected and enforced by the court.

Assignment: secret Trust. The assignment is not for the benefit of cred- ° p-org generally, but is in trust for the payment of certain specific sums, in full, to certain parties named in the instrument, who are declared to be creditors, and the residue of the proceeds of the property assigned is to pay certain other amounts, alleged to be due to certain other named parties who are alleged to be creditors; and if neither class can be paid in full, then the claims of such class are to be paid pro rata. In the first of these classes is the amount to be paid Loewenthal, and one-half of this amount is of right the property of one of the assignors, and is a secret trust for his benefit. Hoes this trust for the benefit of one of the .assignors vitiate the whole deed of assignment ? Section one of chapter 102 of the compiled laws, declares that “ all gifts and conveyances of goods and chattels made in trust to the use of the person or persons, making the same, shall be and are hereby declared to be void and of no effect.” It is not denied tfiat a part of the trust for which this assignment was made was for the benefit of the maker thereof, and was so far void, but it is contended that it is only void as to such ease, and that the property assigned must be distributed, pro rata, among the other persons named as creditors, as directed by the instrument of assignment. The assignee could not, of his own motion, pretermit one who, by the express terms of the trust, was to receive a certain stipulated sum; for that would be a palpable violation of the conditions upon which he received the property. Nor could a court so order it, unless with the consent of the innocent parties interested in the fund, for that would be the making of a new instrument by the court; every part of the assigned property was held in trust for the payment of this claim for the benefit of one of the assignors. Had a certain definite portion of the property been assigned to pay this particular claim, and the other portions of the estate been designated to pay the other claims, it would have presented a different question, and according to some of thb authorities, the void part of the assignment might have been so held without tainting the whole instrument; but in this case the whole conveyance was for the payment of this claim for the maker’s use.

It can make no difference that this claim was but small compared with the general indebtedness. It was an essential part of the whole trust, pervading every part, as much as though it constituted nineteen-twentieths of the trust estate. The conveyance was in trust for the maker’s use, and it cannot make any difference that others were interested in the trust when any person, having a right so to do, contests the validity of the conveyance. It comes within the provisions of the section. of the statute above quoted, and must be held void.

I»; Delating creditors. The court further found that the conveyance ° wag ma(je with the intent to defraud the creditors of said firm of Kallman & Co., and the evidence to support this finding is mainly the fact of the secret trust in the deed for the benefit of one of the assignors, and we think this is sufficient to justify the finding. To the extent of Loewenthal’s claim, the' creditor’s were injured by the deed. . The property of the assignors, to which the creditors could look for the payment of their claims was diminished over $2,400 to pay this claim, and only by litigation could the illegal nature of the trust be aseertained. So far, then, as this sum was concerned, the creditors would be defrauded of their rights. The law allows a debtor to dispose of his property for the benefit of his creditors, making such preferences as he chooses, as to who shall be first paid; but it will not tolerate him in an assignment of Ms property in such a way and manner that the creditors are not to receive the benefit of it. The very nature of the trust causes more or less necessary delay in the creditors obtaining what is due them; but when the object is distribution of his estate among his creditors, the act is upheld, because of the object sought to be obtained. But when the debtor makes his assignment, and thereby places his property beyond the reach of his creditors, and in the conveyance reserves a benefit to himself to the injury of the rights of the creditors, he thereby commits a fraud upon them. “ It is a settled principle that a reservation to the grantor, or his family, or any one not a creditor of any profit or benefit out of the property conveyed, or of a credit on account of any part of it, is a fraud in law, and voids the whole assignment,” is the language of one writer after an examination of the whole of the authorities on the subject, and is also the conclusion to which we have come from the same source. The authorities are referred to in the brief of defendants; nor do we think the authorities referred to by the plaintiff, when carefully considered, disturb this fundamental doctrine. These decisions are made upon special and peculiar cases, which are more properly exceptional as to the facts, than as to the principles established. An examination and analysis of them would be a treatise on this branch of the law. We only wish it understood that we have examined them, and .are not at all shaken in our convictions.

OiKrar.KTAL.T.'W’e reviewed. We are referred to the case of Carney and Ste-yens against Gruber & Co., in which this court sustained the deed of assignment, although the schedule in that case contained as creditors the name of a firm, one of whom was one of the assignors in that case. The deeds in the two cases are materially different. In this case the amounts specified as preferred are said to be debts, and are to be paid as such in their order, without leaving it to be ascertained whether the sums mentioned are debts or not; whilst, in the case referred, to the deed of assignment was to the creditors generally, and after the making and recording 'the deed of assignment and the assumption of the trust by the assignee, a schedule was filed containing what was believed to be a correct list of the creditors and the amounts respectively due them. When the schedule was filed it was impossible for the assignor, by any act of his, to affect the validity of the assignment.

The schedule was filed to assist the assignee in the discharge of his duties. It professed to give only what was believed a correct list of- the creditors, and left the assignee full authority and power to ascertain what were the legal debts, with no authority to pay any but legal claims; and by the deed the debts of Gruber & Go., both firm and individual, were to be paid before either of the assignors were to have anything returned to them. So that, even had it been in the power of the assignor to change the terms of the deed by a subsequently filed schedule, still no payment could be made to either partner till all the debts were paid. The two cases are so unlike, in this particular, as to fairly illustrate what may appear to be a conflict in the decisions on the subject of assignments, but which, in reality, is but the application of well settled principles to different states of fact.

KWOWLBD0E OF Fraud in Assignee. Again it is contended that the fraud, to effect the assignment, must have been known to, and participated in by the assignee or creditors. Such a doctrine would, in most cases, entirely preclude the creditors from setting up fraud in an assignment. The conveyance is usually made without consultation with the creditors, and the assignee would hardly be consulted about, or advised of any illegal or fraudulent practices on the part of the failing debtor. Neither the assignee nor the creditors are purchasers for a .valuable consideration, and it is not necessary that notice of the fraud should be brought home to them to render the conveyance void. [12 Mich., 61; Burrill on Assign., 438, 439.] The property had been converted into money; it was in the hands of the plaintiff in error; the conveyance by which he held it was fraudulent and void, so that the funds were in his possession and subject to the proceedings instituted by the defendants in error, to make them available for the payment of their claims. The judgment must be affirmed.

All the justices concurring.