Citation Numbers: 26 N.D. 244, 144 N.W. 85
Judges: Eisk, Fisk
Filed Date: 10/7/1913
Status: Precedential
Modified Date: 7/20/2022
This is an action to recover for the alleged conversion by defendant Kramar, who was sheriff of McHenry county, of certain personal property claimed to belong to plaintiff, and which such sheriff levied upon under an execution issued on a judgment against one Wellington I. Ginther, wherein the Eirst National Bank of Waterloo, Iowa, is the judgment creditor. Pursuant to such levy the defendant took the property into his possession, and subsequently sold the same at public auction to satisfy the amount called for by the execution. The property consisted of a portion of a general stock of merchandise and one new Gary safe located in a store building at Drake, in this state, and formerly owned and conducted by the execution debtor, Ginther. Plaintiff bases his claim to ownership of the property upon a certain so-called trust deed or assignment for the benefit of creditors, executed and delivered by Ginther to the plaintiff, as trustee, some time prior to the levy of such execution by defendant. The complaint is in the usual form, and the answer, as originally interposed, amounts to a general denial.
By stipulation of the parties a jury was waived and the cause tried
Appellant’s brief contains a large number of assignments of error based upon alleged erroneous rulings in the admission and exclusion of testimony, also in permitting defendant to file an amended answer after the trial, and in making certain findings of fact; but in the body of the brief counsel present and argue but two propositions. First, they contend that the assignment or trust deed is valid, and cannot be attacked or avoided by a nonassenting creditor; and, second, that in any event it is necessary for the defendant to place himself in the position of a nonassenting creditor before he can question the validity of the trust deed, and that he failed so to do by not properly pleading justification. It is argued that in not having pleaded justification under the judgment and execution, permitting the introduction of the judgment roll, transcript, and docket entries constituted reversible error, and that this was not cured by thereafter permitting an amended answer to be filed, wherein such justification is pleaded.
We shall accordingly confine ourselves to the points thus argued in the brief, treating as abandoned all assignments not thus argued, in accordance with the well-settled practice of this court. The case being one properly triable to a jury, the findings of fact have the force of the verdict of a jury, and no motion for a new trial having been made, the sufficiency of the evidence to support the findings is not in question. The cause is here on appeal, therefore, for the review only of alleged errors of law occurring at the trial (Hedderich v. Hedderich, 18 N. D. 488, 123 N. W. 276), and, as before stated, only those alleged errors will be noticed which are argued in the brief.
This brings us to appellant’s first contention. The so-called trust deed, and which appellant contends is valid and operated to transfer title to the plaintiff, is as follows:
This agreement, made and entered into in duplicate this 13th day of August, 1909, by and between Wellington I. Ginther, of Drake, North Dakota, party of the first part, and O. D. Macharen, of St. Paul, Minnesota, party of the second part, Witnesseth:
Whereas, The party of the first part is indebted to sundry and divers persons in large amounts, and is unable to pay and discharge said
Now, Therefore, In consideration of tbe premises and tbe sum of one dollar to him in band paid, tbe party of tbe first part does hereby grant, convey, assign, transfer, and deliver unto tbe party of tbe second part, as trustee, all of that stock of hardware, tinware, leather and other findings, harness, tinner’s tools, machinery, and other personal property belonging to him and contained in and about that certain store building located in tbe village of Drake, North Dakota, and situated upon tbe south half of lot 11, and all of lot 12, in Block 2, of tbe village of Drake, in tbe county of McHenry, and state of North Dakota, including book accounts and books of account, bills receivable, cboses in action. Also to convey by proper deed of conveyance all bis interest in tbe above-described lots and the building situated thereon, to have and to bold tbe same and all thereof, as trustee for the use and purpose following: To convert said personal property into cash in such manner as in bis judgment will be for tbe best interest of all parties concerned, and for that purpose party of tbe second part is hereby authorized to . continue tbe business of tbe party of tbe first part at said village of Drake, so long- as it shall seem profitable so to do, and for that purpose may use proceeds from sales and collections to buy new goods to replenish tbe stock, and out of tbe proceeds of tbe sales of tbe property and collection of accounts to pay, first, tbe reasonable charges and expenses for creating and administering tbe trust hereby created. Second, to pay in full tbe debts and liabilities of tbe party of tbe first part, if sufficient shall be realized from tbe property so to do, and, if not, to distribute tbe proceeds of said property ratably among tbe-creditors of the party of tbe first part as shall consent to this trust agreement, and shall agree, in consideration of tbe benefits accruing to them thereunder, to absolve and discharge tbe party of tbe first part from any and all liability. Third, if there should be any residue of tbe property after making tbe disbursements and payments aforesaid, to repay or return to tbe party of tbe first part all property then remaining in the bands of tbe party of tbe second part.
Tbe party of tbe first part in consideration of tbe premises and tbe
In witness whereof, the parties have hereunto set their hands the day and year first above written.
Wellington I. Ginther,
O. D. Macharen.
It will be noticed that such alleged assignment or trust deed does not purport on its face to transfer to the trustee all of the property owned by the said Ginther, but merely “all of that stock of hardware, tinware, leather and other findings, harness, tinner’s tools, machinery, and other personal property belonging to him and contained in and about that certain store building located in the village of Drake, and situated upon the south half of lot 11, and all of lot 12, in block 2, in the village of Drake, . . . including accounts and books of account, bills receivable, choses in action.” And the said Ginther therein agrees to convey by proper deed of conveyance all his interest in the above-described lots and the building situated thereon. The trustee is therein authorized to convert said property into cash “in such manner as in his judgment will be for the best interest of all parties concerned, and for that purpose the party of the second part is hereby authorized to continue the business of the party of the first part ... so long as it shall seem profitable so to do, and for that purpose may use proceeds from sales and collections to buy new goods to replenish the stock, and out of the proceeds of the sales of the property and collection of accounts to pay, first, the reasonable charges and expenses for creating and administering the trust hereby created. Second, to pay in full the debts and liabilities of the party of the first part, if sufficient shall be realized from the property so to do, and, if not, to distribute the proceeds of said property ratably among the creditors of the party of the first part
. Counsel for appellant contend that these various conditions or stipulations in the trust deed do not affect its validity as a general assignment for the benefit of creditors, citing and- relying upon certain provisions of our Code, and also upon certain cases decided in other states. Their contention is of a dual nature, as we understand their brief. They assert, first, that under the common law, which must control in the absence of any statutory provisions regulating the form and provisions of assignments for the benefit of creditors, the instrument is valid upon its face; and, second, that such instrument is in any event not a general assignment for the benefit of creditors, but a mere security transaction, wherein the debtor exercised his legal right to prefer certain of his creditors, citing and relying upon the case of Joas v. Jordan, 21 S. D. 379, 113 N. W. 73, and McAvoy v. Jennings, 44 Wash. 79, 87 Pac. 53.
After due consideration we find ourselves unable to concur in either of such contentions. By the overwhelming weight of authority such instrument is void upon its face as a general assignment for the benefit of creditors. This court, construing a like instrument, so held in Bangs v. Fadden, 5 N. D. 92, 64 N. W. 78, using the following language : “It is urged that the assignment is void for the reason that it requires all creditors who desire to receive any benefit from the trust to release their claims as a condition of receiving any dividend. If the instrument must be necessarily so construed, then its invalidity cannot he doubted. Both under the settled rule of law and under the express provisions of our Code, such an assignment is void.”
See also May v. Walker, 35 Minn. 194, 28 N. W. 252; McConnell v. Rakness, 41 Minn. 3, 42 N. W. 539; Moore v. Bettingen, 116 Minn. 142, 133 N. W. 561, Ann. Cas. 1913A, 816.
Even the cases which uphold trust deeds requiring releases as a condition to participating in the benefits thereof seem to require that such
“The fraud and gross injustice of permitting an insolvent debtor, without a surrender of all bis unexempt property, to coerce bis creditors to a compromise, is apparent. In contemplation of law, all bis un-exempt property belongs to bis creditors, . . . and to permit him to put a part of it out of their reach, unless they will submit to bis terms and take less than they are entitled to, is to permit him to binder and delay them in tbe collection of their demands out of property justly and legally liable for tbe same, even if a common-law assignment, with sucb provisions for release, be tolerated at all.”
We entertain no doubt that as to nonassenting creditors tbe instrument is void upon its face, not only upon tbe ground that it operates to coerce creditors to consent thereto and to release their claims as a condition to participation in tbe trust fund, or else be delayed and hindered in tbe collection of their claims, but also for tbe reason that it does not purport to transfer all of the debtor’s property not exempt, and for the additional reason that it provides for tbe payment of any surplus to tbe debtor, thus operating to put sucb surplus beyond tbe reach of nonassent-
This question is ably treated and the authorities collated in 5 Ene. Law & Pr., in the article on Assignments for the Benefit of Creditors. AYe quote from the text at pages 1028 and 1029 as follows:
“There can be no doubt that a person who gives credit to another taires into consideration not only the property which he has at the time, but also the probability of his acquiring property in the future; and it would seem unjust and contrary to public policy to allow a debtor to make an assignment on such terms as to compel a creditor to surrender the right to resort to future acquisitions in case the property of the debtor is insufficient to satisfy the claim in full, and thus acquire a benefit for himself at the expense of his creditors. On this point, however, there is a direct conflict of opinion.
“Many of the courts have taken the view that a debtor cannot thus coerce his creditors into accepting less than the full amount of their claims, and have held that an assignment for the benefit of creditors is rendered fraudulent and void on its face by a stipulation that the debtor shall not be liable to any creditor who assents to the same, for any deficiency that may remain unsatisfied after execution of the trust by a distribution of the assigned property. . . .
“To uphold the validity of such stipulations would, it has been held, enable every insolvent debtor to enact a bankrupt law in his own behalf; to appropriate as surplus the pro raía shares of the nonreleasing creditors; to reserve the right and power to prefer favored creditors at a future time, and compel the others to accept any terms offered to them; to dictate terms to his creditors which would make him independent of his legal obligation to devote his unexempted property unreservedly to the payment of his creditors, and enable him practically to reserve a trust for his own benefit; and, finally, would compel the creditors to come in under any scheme of settlement devised by the combined ingenuity of the assignor and the assignee selected by him.”
Appellant’s contention that the instrument should be construed as a security transaction, and upheld under our Code provisions permitting a debtor to prefer his creditors, seems to have the support of numerous courts, including the South Dakota and AYashington courts. In Joas v. Jordan, 21 S. D. 379, 113 N. W. 73, the supreme court of South Da-
And in McAvoy v. Jennings, 44 Wash. 79, 87 Pac. 53, the Washington court gives similar reasons to those of the South Dakota court for upholding the agreement upon the theory that it was a security transaction, and that the insolvent debtor had a right to prefer one class of creditors to the exclusion of others. With due respect for these .courts, we are unable to concur in the conclusion or reasoning adopted in either of such cases. Obviously, it was the intention of the debtor, in executing the instrument in question, not to secure certain of his creditors, but, on the contrary, his intention clearly was to make a general assignment of the property therein described for the benefit of such of his creditors as would consent to release their claims in full.
“On the face of the instrument here involved, it was a disposition of all the property of the assignor for the benefit of his creditors. All the creditors had a right to accept its benefits. The assignor could in no way control this discretion. Their right to do this would continue until the estate had been distributed. The character of the instrument should be judged as of the time of its execution and delivery. Otherwise the whole estate could be converted into cash and administered under the deed, without its being possible to ascertain whether it was an assignment for the benefit of creditors, or a security for a part of the creditors. Such a construction of the instrument would make it possible for any creditor to escape the provisions of the Eederal bankruptcy act by the mere phrasing of a general assignment of his property.”
The instrument in the case at bar differs from that involved in the
This brings us to a consideration of appellant’s second point, which is that defendant is not in the position of a nonassenting creditor, and therefore cannot question the validity of the trust deed. It is first insisted by counsel that, no justification having been pleaded in the original answer, it was error to admit the introduction of testimony to prove such justification, and, second, that in 'any event no justification was properly shown. In reply, counsel contend that justification may be shown under a general denial; but in any event, the allowance of the amended answer pleading justification was proper. Also that such justification was properly shown.
That justification under process is new matter which must be specially pleaded in order to avail as a defense is too firmly settled to be now open to question. 35 Cyc. 1816 and cases cited; 20 Enc. Pl. & Pr. 151—154 and cases cited; Pom. Rem. & Rem. Rights, § 704; Jacobs v. Remsen, 12 Abb. Pr. 390; Graham v. Harrower, 18 How. Pr. 144; Banning v. Marleau, 121 Cal. 240, 53 Pac. 692.
Under the issues as framed by the pleadings it was therefore clearly error to receive evidence, over plaintiff’s objection, tending to show justification. Whether the evidence offered and received for such purpose was competent, we need not determine, for the same was clearly irrelevant.
Respondent’s counsel earnestly contend that, even though it be held that justification must be pleaded in order to be available as a defense, the allowance of the amended answer after the trial in which - such justification is alleged renders plaintiff’s point in this respect of no avail. In other words, it is contended that by the allowance of such amended answer defendant is in as advantageous a position as he would have been in had he pleaded such new matter in the original answer. We are unable to uphold respondent’s contention in this respect. Had the testimony showing justification been introduced without objection, a different situation would arise, but as we understand the settled rule,
In the case at bar, what the learned trial court did was not to conform the pleading to the proof, but it granted defendant leave to file and serve an amended answer. While such order was no doubt made within the exercise of a sound discretion, the service and filing of such amended answer merely operated to change and enlarge the issues as of the date the same was served and filed. The new issue thus brought into the case cannot avail the defendant in the absence of evidence properly introduced in its support! Defendant’s counsel should have applied for leave to reopen the case and submit such evidence. The fact that plaintiff’s counsel, by. retaining the amended answer without objection, may have foreclosed their right to question the validity of the order allowing the same, does not alter the situation in the least. The fact remains that there is no competent evidence in the case proving or tending to prove justification; hence, the judgment in defendant’s favor is erroneous, and the same is accordingly ordered to be vacated and ¿ new trial had, and it is so ordered.