Illinois Paper Co. v. Northwestern National Bank

Mr. Justice Shope

delivered the opinion of the Courts

The question presented by the record is, whether, where a debtor who has in contemplation the making of a general assignment for the benefit of his creditors, under the statute, and which is unknown to the creditor, pays indebtedness not due, in money, such payment will be an unlawful preference, within the meaning of the General Assignment act, prohibiting preferences in assignments.

It is not alleged in the bill that the creditor knew of the debtor’s insolvency, or that he knew the debtor contemplated making a general assignment, or that the payment was the result of any collusion or contrivance between the debtor and creditor to effect a distribution of the debtor’s estate to the prejudice of the general creditors, or in fraud of the Voluntary Assignment act. It is, however, alleged, that the payment was of a debt not due, and it is insisted that the creditor was thereby put upon inquiry as to the debtor’s insolvency and intended assignment for the benefit of creditors. There is nothing so unusual or extraordinary in the desire of a debtor to pay his interest-bearing debt, as this was alleged to have been, before it is due, as to excite suspicion that the debtor has some ulterior purpose in making the same. Men engaged in business, exercising prudence and care, frequently meet bills before due to avail of discounts._ And so, it is not uncommon for a debtor having the means, to be desirous of paying his interest-hearing indebtedness, and for the creditor, where an investment is not intended upon sufficient security, to receive payment, and no presumption can arise, from the mere fact of payment, of the want of good faith either in the debtor or creditor, because the debt happens, by its terms, not to be then presently payable. Were the rule otherwise, it would be necessary, in sales of goods or other property on time, for creditors to be on the alert, upon the incoming of remittances from debtor patrons, to ascertain not only the financial condition of the debtor, but whether he contemplated making an assignment. It is a matter of common knowledge that goods are purchased largely on thirty and sixty days, and perhaps longer periods of time, with an offer of discount if paid at an earlier day. To hold that, upon receipt by the seller of cash remittances before bills matured, it was necessary that he should ascertain whether the debtor intended presently to make an assignment, would interrupt the regular course of business and lead to disastrous results. The case made by the bill, therefore, is, that the debtor, having determined to make an assignment, went to his creditor, paid his indebtedness not yet due, in cash, and the creditor, without notice of the debtor’s insolvency or of his intention to make a general assignment for the benefit of creditors, received the payment and surrendered the evidence of indebtedness.

It is insisted that under the authority of Preston v. Spaulding, 120 Ill. 209, Hide and Leather Nat. Bank v. Rehm, 126 id. 46, and Hanford Oil Co. v. First Nat. Bank, id. 584, the payment by the debtor after having determined to make an assignment was a fraudulent preference, within the meaning of tha act, and that when the assignment was subsequently executed, the transaction is to be treated as part of it, and the payment regarded as a fraudulent preference, and therefore the creditor should be required to pay the money over to the assignee, to be distributed under the order of the court. A careful examination of the cases cited, in the light of the facts therein, will .demonstrate that the doctrine there announced can have no application to the case at bar. In each of those eases the claims of the preferred creditors remained unextinguished, and additional security or lien was created over the general creditors. Here there was an absolute payment in money and an extinguishment of the debt. Appellee ceased to be a creditor of the insolvent. The complete title and possession of the money at once passed to the creditor, without fraud on his part or collusion with the debtor. Where there is preference given, within the meaning of the statute, the debt remains intact, with some additional lien upon the property of the debtor not common to the general creditors. The statute provides that “every provision in any assignment hereafter made, * * * providing for the payment of one debt or liability in preference to another, shall be void, ” etc. In construing this statute so as to effectuate its equitable purpose in requiring pro rata distribution of the insolvent’s estate among his creditors, it was held in the cases cited, that where the debtor, on the eve of making a general assignment, places one or more of his creditors in a situation or condition especially advantageous, by creating liens upon his property, giving collateral security or confessing judgment, and the like, the transaction, being part of the scheme entered upon by the debtor to dispose of his property for the benefit of his creditors, would be held to be a part of the general assignment, and an unlawful preference.

We have given the provisions of the Assignment act a liberal construction, for the purpose of carrying into effect the evident intention of the legislature to effectuate equal distribution of the insolvent’s property to and among his creditors, and that a debtor contemplating an assignment may not dispose of his estate to favored creditors by creating liens or incumbrances thereon, and thereby indirectly accomplish the preferences prohibited by the statute; but it has never been held, that while the debtor retains the jus disponendi of his property, he may not pay, in money, such of his bona fide indebtedness as he may desire, if the payment is received by the creditor in good faith, without knowledge of the purpose of the debtor. While a transfer of property, which necessarily has only a relative value, or the creation of liens or incumbrances, might be regarded as security for the debt, or a provision in the assignment for a preference, it is impossible to conceive how a payment in money, and extinguishment of the debt thereby, can be regarded as a provision creating or providing for an unlawful preference. An assignment presupposes a trust for the benefit of creditors, either partial or general. In the payment of the money in extinguishment of the debt no trust relation is or can be created. The money passes to the creditor absolutely. It is the measure and standard of value, and is again carried into the ceaseless current of mercantile transactions, and its identity lost. Undoubtedly, if the payment was made by collusion between the debtor and creditor, for the purpose of defeating the equitable distribution of the debtor’s estate, as contemplated by the act, a different rule might prevail. But that question is not before us on this record, and no necessity exists for its determination. Here no such collusion is shown, or knowledge on the part of the creditor of the contemplated assignment of the debtor, and we are of opinion that a payment to the creditor of hisbona fide indebtedness, under the circumstances shown, did not create a preference', within the meaning of the statute. Home Nat. Bank v. Sanchez, 131 Ill. 330; Lamson v. Arnold, 19 Iowa, 480; Van Patten v. Burr, 52 id. 518; Field v. Geohegan, 125 Ill. 68.

The judgment of the Appellate Court will be affirmed.

Judgment affirmed.