Beans v. Bullitt & Fairthorne , 1868 Pa. LEXIS 93 ( 1868 )

The opinion of the court was delivered, by

Strong, J.

This case has been very ably and elaborately argued on behalf of the plaintiffs in error, but we are not convinced that there was any mistake in the instruction given to the jury by the District Court. The charge is well vindicated by the opinion of the president of that court on the motion for a new trial.

To constitute an assignment in trust for the benefit of creditors, within the meaning of the Act of March 24th 1818, there must be a transfer of the property assigned to anothermore than a mere transmission of its custody or management. The form is not material, but there must be the substance. There must be a trust also created for the creditors of the assignor, and .a trust which is enforceable in equity. Tried by these principles, in regard to which there is no controversy, it cannot be held that either of the three instruments executed by Lawson & Yerke§, or that all of them, constituted such an assignment. The first was made on the 10th of July 1860. It was simply a pledge or a mortgage to Fairthorne to secure subsequent advances he might make, to pay the debts of Lawson & Yerkes, not exceeding $22,962.37, coupled with a power given him to pledge or to mortgage the property to others to secure any money he might borrow to make the advances. This surely did not constitute him a trustee for creditors. It transferred 'no ownership to him except so far as was needed to secure him for advances he might make. It left the remainder of the ownership in Lawson & Yerkes as much exposed as ever to seizures by their creditors, and it left the entire ownership subject to seizure until the contemplated advances were actually made: Terhoven v. Kerns, 2 Barr 96; Bank of Montgomery County’s Appeal, 12 Casey 170. Or, if it be considered to have been obligatory upon Fairthorne to make advances, it was a mortgage to the extent of his agreement to make them. The purpose for which the advances were to be made is immaterial. It may have been a motive for Fairthorne’s entering into the arrangement, but it cannot change the character of the instrument. It certainly does not amount to an appropriation of the money to be advanced to the creditors. An avowed purpose of a borrower of a sum of money to apply it or to have it applied in a declared way, has never yet been held to be an application of it. The creditors of the assignors then acquired no rights against Eairthorne under the instrument of July 10th 1860.

It is argued, however, that a trust was created in their favor by the second-instrument, dated July 25th 1860. The provisions of that were in substance as follows. It recognised that the dissolution of the partnership of Lawson & Yerkes was to take place on the 31st day of that month. It provided that the stock of goods on hand should be equally divided between the partners, and that each should give his note to Eairthorne for the appraised value of the half of the stock taken by him, the notes to be held by Eairthorne as attorney in fact of Lawson & Yerkes. The notes, bills, book accounts, claims and effects of the firm were by the said instrument also placed in the hands of the said Eairthorne as attorney in fact of the firm, they agreeing to do all acts necessary to enable him to vest a complete title to the property in any purchaser or purchasers, and to collect, and sell and convert the property and assets into money. The instrument further stipulated that Eairthorne took the said assets for the purpose of converting them into- money; with power to make settlements, and compromises and exchanges; with power to sell, restricted only by a requirement to consult Lawson & Yerkes, giving to either of them who might object to his proposed sale the option to take the claim or property within forty-eight hours after notice. Eairthorne was required to apply the proceeds of all the assets to the payment of the debts of Lawson & Yerkes, after deducting his advances and expenses, having the right in certain contingencies to call for the payment of the notes first above mentioned, given for the appraised value of the stock on hand, and having a right to call for other notes, to be renewed from time to time. It was finally stipulated that the power of attorney was given to enable Eairthorne to wind up the business of the firm, and was only intended to constitute him attorney in fact of the firm. There are other provisions, but none bearing upon the present case. Under this power money was realized, but not enough to reimburse to Eairthorne his advances, before the attachment was laid, or before all the interest of Lawson & Yerkes was assigned by the third instrument hereafter to be referred to.

Now, of this instrument of July 25th 1860, it may be said that it is a simple power of attorney, coupled with no interest in the property placed in the custody of Eairthorne. He had an interest in the execution'of the power, but none in the property itself. The legal title remained in Lawson & Yerkes, except so far as it had been pledged by the instrument of July 10th 1860. Had it been pledged by the first instrument to some other person than Eairthorne, the operation of the second instrument clearly would have been only to create Eairthorne a mere agent. But what difference can it make that it was pledged to the same person ? In either case it could confer power only over the rights that the principals had, and it carefully avoids a transmission of those rights. It reserves a voice in all sales.

But it is argued that because the attorney was directed to apply the proceeds of the assets to the payment of all the debts of the firm of Lawson & Yerkes, the creditors acquired an interest under the power, and that it must be regarded as an assignment in trust for creditors, notwithstanding it passed no title to the attorney, under the doctrine enunciated in Watson v. Bagaley, 2 Jones 164. That case certainly went very far. Speaking for myself, I may say I have always thought the Act of 1818 had only in view those peculiar instruments that were commonly understood to be assignments in trust for creditors. They were very common and well known. I do not believe the legislature contemplated any such writings as were held in Lucas v. The Sunbury and Erie Railroad Company, 8 Casey 458, and in Bittenbinder against the Same, 4 Wright 269, to be such assignments m trust. I bow, however, to the decisions. But Watson v. Bagaley went upon the ground that the power of -attorney was not revocable after it had been executed, and after the attachment had been laid. The money had been collected under the power, and there was a devotion of it to certain specified creditors. It might, therefore, have been held an appropriation to those creditors under Sharpless v. Welsh, 4 Dall. 280, and United States v. Vaughan, 3 Binn. 400. But in the present case the power of attorney had not been executed when Lawson & Yerkes assigned all the property placed in the hands of Eairthorne directly to certain creditors, without the intervention of any trust, subject, it is true, to the terms of the preceding agreement, and subject to Eairthorne’s claim for advances. This third instrument was made on the 25th of September, 1861, before the plaintiff’s attachment was laid. Eairthorne had not then realized under the first instrument, or under the power of attorney, enough to repay his advances. Of course he had nothing in hand for the creditors, and having nothing the power was revocable, subject only to his rights. No creditor could resist a revocation, or any appropriation Lawson & Yerkes might determine to make. We have gone very far in favoring what are called equitable assignments or appropriations, but never so far as to hold that an agent directed to pay money generally without specification of amount or of the person of the payee, as distinguished from others, is a trustee for any other than the principal.

We hold, then, that neither by the instrument of July 10th 1860, nor that of July 25th 1860, nor by both, was any assignment in trust for the benefit of creditors created. There was no transmission of property for such a purpose to an assignee, nor was there any legal or equitable interest vested in creditors. The first was but a pledge or mortgage. The second was a mere power of attorney, without any trust for creditors, and the paper of September 25th 1865 was an absolute'transfer, without a trust; not an assignment for the benefit of creditors, as ruled in Chaffees v. Risk, 12 Harris 432, Henderson’s Appeal, 7 Casey 502, and York County Bank v. Carter, 2 Wright 446. There was, therefore, nothing in the hands of the garnishees subject to the plaintiff’s attachment when it was laid, and hence the jury were properly instructed to return a -verdict in their favor.

Judgment affirmed.