U.S. Supreme Court
Estes v. Gunter, 122 U.S. 450 (1887)
Estes v. Gunter
Submitted May 3, 1887
Decided May 27, 1887
122 U.S. 450
APPEAL FROM THE DISTRICT COURT OF THE UNITED
STATES FOR THE NORTHERN DISTRICT OF MISSISSIPPI
In Mississippi, an insolvent debtor may make a general assignment of his property for the benefit of his creditors, with preferences.
A deed by an insolvent debtor in Mississippi to secure sureties on his note made in advance of, and in contemplation of, a general assignment for the benefit of creditors is valid under the laws of that state, although containing a provision that the grantor shall remain in possession until the maturity of the note.
A payment by an insolvent debtor of a debt due to his wife, in advance and in contemplation of a general assignment for the benefit of creditors, does not invalidate the subsequent assignment.
The taking of supplies and of money for family use from the store of an insolvent trader by his wife does not invalidate a general assignment for the benefit of creditors subsequently made.
In March, 1882, one S. H. Gunter, a merchant who had been for many years engaged in business at Sardis, in Mississippi, was largely indebted to the complainants and others, and, being unable to pay them in full, made a general assignment of his property of every description, except such as was exempt from execution, to one S. G. Spain, as trustee, for their benefit, which was recorded the same day. The assignment preferred certain of the creditors, who are named in a schedule annexed. Among them were the complainants, Estes, Doan & Co., merchants at Memphis, in Tennessee. The chanroblesvirtualawlibrary
sum due them was $13,587.68, but they were preferred only to the amount of $10,000. Their claim grew out of advances of cash and supplies furnished to Gunter. There is no question as to its amount or justice. On the same day, and immediately preceding the execution of the assignment, Gunter executed a deed of a house and lot in Sardis to one J. G. Hall, as trustee, to secure the firm of Boothe, Rice & Carleton, who were sureties upon his note, held by the Bank of Sardis, for $1,000, due on the first of December, 1882. This deed was to be void if the note was paid at maturity; otherwise the trustee was, on the written request of the sureties, to take possession of and sell the property at public auction, after due notice, and apply the proceeds to its payment. Any surplus was to be returned to the grantor. It the property should at any time "become endangered" as a security, the trustee was at liberty to take possession of and hold it until the debt was discharged by payment or by sale of the property, but until demanded by the trustee, the grantor was to hold the same subject to the deed of trust. This deed was also recorded on the same day, and a few minutes before the assignment.
At the same time, Gunter transferred and delivered to several of his clerks and employees certain notes and accounts in payment of his indebtedness to them. It was also in proof that Gunter was hopelessly insolvent; that for twelve days before he made the assignment he knew of his condition, and contemplated making the assignment; that during this time he gave to his wife the sum of $900 in payment of an alleged indebtedness to her, and she was permitted to take money from the drawer of the store, and that more goods than usual were carried from the store to his house.
Soon after the assignment and deed of trust were recorded, the defendants Bickham & Moore, who were also creditors of Gunter, sued out an attachment against him in the Circuit Court of United States for the Northern District of Mississippi, which was levied on the property assigned by Gunter to Spain, as trustee. This attachment was followed by attachments of other creditors, and the property was seized by the marshal. Spain, the assignee, thereupon renounced his trust chanroblesvirtualawlibrary
and refused further to act. Thereupon the complainants, Estes & Doan, who were much the largest creditors of Gunter, filed their bill against Bickham & Moore and other attaching creditors, setting forth the assignment of Gunter to Spain, his debt to them, the several attachments levied, and the refusal of Spain, the assignee, to act, and praying the court to appoint a trustee in his place, to direct the enforcement of the trust, and to enjoin the attaching creditors from further proceeding with their suits. Bickham & Moore and other defendants answered, charging that the assignment was fraudulent and void but admitting that Spain refused to act as trustee or assignee. Proofs were taken, and upon the hearing, the court held that the assignment was fraudulent and void, and accordingly entered a decree dismissing the bill with costs. From this decree the complainants have appealed to this Court. chanroblesvirtualawlibrary
MR. JUSTICE FIELD, after stating the case as above, delivered the opinion of the Court as follows:
It appears from its opinion in the record that the court below held the assignment of Gunter for the benefit of his creditors to be fraudulent and void on these grounds: 1. because of the execution of the trust deed to Hall to secure the sureties on his note held by the Bank of Sardis; 2. because of the payment of the $900 to his wife, shortly before the assignment, for a debt which he claims to have owed to her; 3. because he permitted her to take money from the cash-drawer, and 4. because more supplies than usual were taken from the store to his house shortly before the assignment.
The answer to these objections is readily given, and it appears to us conclusive. The laws of Mississippi allow an insolvent debtor to make a general assignment of his property, in which one or more of his creditors may be preferred to others. chanroblesvirtualawlibrary
The assignment is not invalid, therefore, because of the preferences given. In Eldridge v. Phillipson, the supreme court of that state said:
"The right to make a preference results from the dominion which the owner has over his property; it is a part of his proprietorship. The law has not said he shall divide his estate ratably among his creditors. It has left to him the discretion to act as he will, provided only he acts with the honest intent to pay a valid debt, and does not, under cover of such a disposition, stipulate for a benefit to himself."
58 Miss. 270, 280.
Nor did the deed to Hall to secure the sureties on the assignor's note affect the validity of the assignment, though made in contemplation of it. Such security might have been provided in the assignment itself. The assignor had a right to use his property to protect parties who had become his sureties, as well as to pay existing debts. Until the assignment, he could dispose of his property in any way he may have thought proper, so that he did not thereby defraud any of his creditors.
The court below seems to have concluded that the two instruments, the assignment and the deed to Hall, should be considered together, and, as the deed contained a proviso that the grantor was to remain in possession of the property until the note matured, and the sureties should request the trustee to take possession of the same, there was such a reservation for the benefit of the grantor as rendered the assignment invalid. The deed was in fact a mortgage of the property to secure against a prospective liability, and in such cases it is usual for the grantor or mortgagor to remain in possession of the property until the maturity of the obligation and a sale of the premises. Standing by itself, the deed was not open to any serious objection. And even that reservation was defeated by the assignment, which included the property in question with other property of the assignor, and provided that the assignee should take possession of the same and sell and dispose of it with all convenient diligence. The assignment was subsequent to the deed, and carried all that could in any way be considered as a benefit secured by the deed to the assignor. chanroblesvirtualawlibrary
The creditors were not, therefore, in any way hindered or defrauded by the alleged reservation.
There is nothing in Gunter's payment to his wife of the $900 which can affect the validity of the assignment. Gunter's testimony is all that there was on the subject, and he testifies that she received the money from her grandfather, and that he borrowed it from her, and used it. His statement is not contradicted. Under these circumstances, he was not blameworthy in paying to his wife the amount he had used belonging to her. But, as counsel well observes, if that payment were fraudulent, it would not vitiate a subsequent assignment. A fraudulent disposition of property does not of itself impair a subsequent general assignment. The assignee may sue for its recovery, and if successful, it will be for the benefit of the creditors precisely as if it had been included in the assignment. Wilson v. Berg, 88 Penn.St. 167; Reinhard v. Bank of Kentucky, 6 B.Mon. 252.
The same observation may be made as to the alleged taking of money by Mrs. Gunter from the cash drawer and of his sending supplies from the store to his house. She was a clerk in the store, and took the money from the drawer in the course of business, and supplies for Gunter's house were generally taken from the store. It was quite natural, therefore, that he should take needed supplies before the assignment was executed. There is no evidence that the supplies were excessive or unreasonable, but even if they were, that fact would constitute no ground for setting the subsequent assignment aside.
From a consideration of the whole case, we are clear there is no just ground shown by the record for disturbing the assignment. If follows that the decree below must be
Reversed and the cause remanded for further proceedings in accordance with this opinion, and it is so ordered.