US SUPREME COURT DECISIONS

An assignment made in Indian Territory on the 29th day of July, 1889, by a debtor in failing circumstances, of a portion of his property to a trustee for the benefit of several persons who had become sureties on notes of the assignor not then due, being made in good faith and for a valuable consideration, was valid as against attaching creditors of the assignor, the common law being at that time in force in the territory, and not the statutes of Arkansas which were subsequently extended and put in force in the Territory by the act of May 2, 1890, c. 182, 26 Stat. 81.

At common law a debtor in failing circumstances has a right to prefer creditors, though the fund for the payment of other creditors be lessened or absorbed thereby.

This action was originally begun September 28, 1889, by Kingman & Co., a corporation organized under the laws of Illinois, against one Duncan (whose Christian name is not given, and whose surname is sometimes spelled "Duncum" and sometimes "Duncan"), a white man, a citizen of the United States and a resident of the Indian Territory, to recover the sum of $1,994.42, with interest and exchange, being the amount of two promissory notes made by Duncan, payable to the order of the plaintiff but not then due. The complaint contained an allegation that Duncan, the defendant, had disposed of his property and had suffered it to be sold with intent to defraud his creditors and to hinder and delay them in collection of their debts, and also that he was about to remove his property, or a material part thereof, out of the Indian Territory with fraudulent intent, etc., and prayed for an attachment and for judgment. On the same day, a formal affidavit for an attachment was filed and a writ issued.

Pursuant to the attachment, the marshal seized a stock of goods as the property of Duncan, and plaintiffs in error filed an interplea setting up that the interpleaders were sureties for the defendant, Duncan, upon certain promissory notes, two chanrobles.com-red

Page 152 U. S. 528

of which were then overdue, and that on July 27, 1889, Duncan, for the purpose of saving his sureties harmless, executed and delivered to one Salters (whose Christian name is not given), as trustee, a deed of trust of his stock of goods; that immediately after the execution of such deed, Salters at the instance of the beneficiaries, took absolute possession of the property named in the deed of trust and began the discharge of his duties as trustee, advertised the property for sale, and had procured a buyer for the same at its full cash value at the time the levy was made which stopped the sale; that at the time of such levy, the trustee was in actual possession of the property; that the plaintiffs and the officers making the levy were notified of the fact, and that the notes to secure which the deed of trust was given were still unpaid, and valid claims against Duncan and his sureties; that the deed of trust is a valid lien upon the property; that the property is not worth the amount of the lien, nor more than the sum of $2,500; that a sale by the marshal would necessarily be attended with great loss, and that the trustee could sell the property at a much better advantage than the marshal. Wherefore the trustee and sureties prayed for an order restoring the property to the trustee, and for the execution of the trust.

The so-called "deed of trust" was as follows:

"State of Texas"

"County of Cooke"

"Know all men by these presents, that I, W. H. Duncan, a resident of the Indian Territory, for and in consideration of the sum of ten dollars paid by J. J. Salters, the receipt of which is hereby acknowledged, have sold, and by these presents do sell, transfer, convey, and confirm, unto the said J. J. Salters, and to his successors in this trust, the following described property, to-wit: the storehouse now owned and occupied by the said W. H. Duncan at Beef Creek, in the Indian Territory, the fixtures therein, and all goods, wares, and merchandise contained in said house, and the books, notes, and accounts of said W. H. Duncan in said business, it being

Page 152 U. S. 529

intended hereby to include all stock owned by said W. H. Duncan in his business as a general merchant at Beef Creek, I.T., also all cattle and horses owned by him at said Beef Creek, together with, all and singular, the right and appurtenances to the same in any manner belonging or appertaining, to have and to hold all and singular the property above described unto the said J. J. Salters or substitute forever. This conveyance is, however, intended as a trust for the better securing of S. M. Huntley, Samuel Paul, S. M. White, and James Rennie against the payment of three promissory notes on which I am principal, and which, as hereafter shown, they signed as sureties, which said notes are as follows."

"[Here follow copies of three notes, one by Duncan, White, and Rennie, for $1,550, one by Duncan, Paul, and Rennie, for $2,500, and one by Duncan and Huntley, for $5,165; the first two were due August 1, 1889, the last, June 1, 1890.]"

"Upon payment of which said promissory notes according to their face and tenor being well and truly made, then in such case this conveyance is to become null and void and shall be released at cost of said W. H. Duncan. But in case of failure or default of payment of said notes when they shall respectively become due, or of either of them, then the other of said notes shall be deemed due and payable, and in such event the said J. J. Salters is by these presents fully authorized and empowered, and it is made his special duty, upon request of either or all the aforesaid beneficiaries herein at any time made after default as aforesaid, to sell the above-described property to the highest bidder for cash in hand, selling at public or private sale, in bulk or retail, with or without advertisement, as may seem to said trustee or his substitute best, and after said sale shall make the necessary conveyance of the property so sold, and the proceeds of said sale shall pay to the aforesaid beneficiaries herein in proportion to the respective amounts for which each may be surety at the time of said sale, as evidenced by the above notes, and the payments that may be made thereon, in which notes all signing are sureties, except W. H. Duncan, and shall pay the expenses of this trust, including a commission of 5% to the trustee acting

Page 152 U. S. 530

hereunder, holding the remainder subject to the order of the said W. H. Duncan. It is hereby especially provided that should the trustee named herein, from any cause whatever, fail or refuse to act or become disqualified from acting as such trustee, then the beneficiaries aforesaid, S. M. Huntley, S. M. White, Samuel Paul, and James Rennie, shall have full power to appoint a substitute in writing who shall have the same power as trustee hereinbefore named, and I, by these presents, ratify and confirm any and all acts which said trustee or substitute may do hereunder."

"Witness my hand this 27th of July, 1889."

"W. H. Duncan"

Kingman & Co. subsequently filed an answer to this interplea averring that the notes secured by the deed of trust were void for usury and for want of consideration; denied that the interpleaders were accommodation endorsers or sureties, or that the trust deed was valid or gave to the interpleaders any right of property, and alleged that the instrument was made by Duncan for the purpose of placing his property beyond the reach of his creditors, and for the purpose of hindering and delaying them in the collection of their debts; denied that Salters was acting for the beneficiaries named, and averred that he was a clerk of Duncan's, and was assisting him in fraudulently disposing of his property, and that he took possession for the purpose of protecting the property from Duncan's creditors.

The case was tried upon the issues joined between Kingman & Co. and the interpleaders. Upon the trial, the court instructed the jury that the deed of trust under which the interpleaders claimed the property was fraudulent on its face, that the same was sufficient for plaintiff's attachment, and that the jury should return a verdict in its favor, which was accordingly done. The defendants in the proceeding sued out this writ of error. chanrobles.com-red

Page 152 U. S. 531