Union National Bank v. Bank of Kansas City/Opinion of the Court

by Horace Gray

United States Supreme Court

136 U.S. 223

Union National Bank  v.  Bank of Kansas City

The claim of each plaintiff being for less than 5,0 00, and the amount in dispute, therefore, insufficient to give this court jurisdiction of the whole case, our jurisdiction is confined to answering the questions of law presented by the certificate of division of opinion between the judges before whom the case was heard in the circuit court. Rev. St. §§ 650, 652, 693; Act Feb. 16, 1875, c. 77, § 3, (18 St. 316;) Dow v. Johnson, 100 U.S. 158; U.S. v. Ambrose, 108 U.S. 336, 2 Sup. Ct. Rep. 682; Jewell v. Knight, 123 U.S. 426, 8 Sup. Ct. Rep. 193. The determination of these questions is governed by the law of Missouri, where the deed of trust was made, and the parties to it resided. In ascertaining the construction and effect of section 354 of the Revised Statutes of the state, of 1879, which is supposed to affect the case, it is important to bear in mind the law of Missouri as it existed before those statutes were enacted. The supreme court of Missouri, in 1852, speaking by Mr. Justice GAMBLE, said: 'It is not necessary to quote books for the purpose of showing that a debtor in failing circumstances may give a preference to one or more of his creditors to the exclusion of others, and that such disposition of his effects is not impeachable on the ground of fraud because it embraces all his property;' and accordingly upheld assignments by insolvent debtors of all their property to pay particular creditors. Murray v. Cason, 15 Mo. 378, 381; Richards v. Levin, 16 Mo. 596, 599. It was also well settled by the decisions of that court, that each partner, by virtue of the relation of partnership, and of the community of right and interest of the partners, had full power and authority to sell, pledge, or otherwise dispose of, all personal property belonging to the partnership, for any purpose within the scope of the partnership business, and might, therefore, without the concurrence of his copartners, mortgage the partnership property by deed of trust to secure the payment of a partnership debt, (Clark v. Rives, 33 Mo. 579; Keck v. Fisher, 58 Mo. 532,) although one partner, without the concurrence of his copartners, could not delegate to a stranger the right of the partnership to administer the partnership effects, and therefore could not make a general assignment of all the property of the partnership for distribution by the assignee among the partnership creditors, retaining no equity of redemption in the partnership, (Hughes v. Ellison, 5 Mo. 463; Hook v. Stone, 34 Mo. 329.)

The statutes of Missouri restricting voluntary assignments have always been construed rather strictly by the supreme court of the state. By the earliest statute upon the subject, 'in all cases in which any person shall make a voluntary assignment of his lands, tenements, goods, chattels, effects, and credits, or any part thereof, to any person, in trust for his creditors, or any of them, it shall be the duty of the assignee' to file an inventory of the as signed property in the office of the clerk of the circuit court of the county in which the assignee resides. Rev. St. Mo. 1845, c. 10, § 1, re-enacting Act Feb. 15, 1841, § 1, (Laws Mo. 1840-41, p. 13.) In the revised Statutes of 1855, c. 8, § 1, that section was re-enacted, and at the end of the chapter this section was added: 'Sec. 39. Every provision in any assignment hereafter made in this state, providing for the payment of one debt or liability in preference to another, shall be void; and all debts and liabilities within the provisions of the assignment shall be paid pro rata from the assets thereof.' The supreme court of Missouri repeatedly and uniformly held that, taking those two sections together, section 39 only prohibited preferences among the creditors designated in an assignment, either of the whole or of part of the debtor's property, but did not invalidate partial assignments for the benefit of some of the creditors of the assignor, and was so far inefficient to prevent preferences among creditors; and the court observed: 'If the legislature wish to strike at the root of the evil they must go back to an old principle of the common law which permits a debtor to prefer one creditor to another, and which privilege can be effected in a variety of modes other than those referred to in our statutes concerning assignments.' Shapleigh v. Baird, 26 Mo. 322, 326; Johnson v. McAllister, 30 Mo. 327; Many v. Logan, 31 Mo. 91; State v. Benoist, 37 Mo. 500, 516. An act of February 13, 1864, repealed section 39 of the act of 1855, and enacted that 'every assignment hereafter made in this state' under the provisions of the act of 1855 'shall be for the benefit of all creditors who shall present and prove up their claims under the provisions of said act, and all debts and liabilities so proved and allowed shall be paid pro rata from the assets thereof.' Act Feb. 13, 1864, §§ 8, 9, (Laws Mo. 1863-64, p. 6.) In 1865 this provision was re-enacted in this form: 'Every voluntary assignment of lands, tenements, goods, chattels, effects, and credits made by a debtor to any person in trust for his creditors shall be for the benefit of all the creditors of the assignor in proportion to their respective claims.' Gen. St. 1865, c. 112, § 1; 1 Wag.St. (3d Ed.) 150. In 1878 the construction and effect of this provision were drawn in judgment before the supreme court of Missouri in Crow v. Beardsley, 68 Mo. 435, where a debtor had conveyed his stock of merchandise by a deed of trust, in no respect differing from the one now before us, to secure the payment of certain of his creditors. It was contended that the provision of the statute just quoted avoided all conveyances of property which gave a preference among creditors. But it was held that, while that provision had a wider scope than section 39 of the act of 1855, and was designed to prevent any preference of creditors 'by assignment,' yet it did not avoid deeds of trust in the nature of mortgages, which were only securities for the payment of debts. The court clearly pointed out the distinction between assignments and deeds of trust in the nature of mortgages, saying: 'An assignment is more than a security for the payment of debts. It is an absolute appropriation of property to their payment. * * * The distinction is that an assignment 'is a conveyance to a trustee for the purpose of raising funds to pay a debt, while a deed of trust in the nature of a mortgage is a conveyance in trust for the purpose of securing a debt, subject to a condition of defeasance.' The deed in question here is therefore a deed of trust in the nature of a mortgage.' Id. 437, 438. Upon these reasons it was adjudged that the deed was not within the statute concerning assignments, and could not be avoided by a creditor not named in it, except for fraud. The section there construed was afterwards re-enacted in the same words in section 354 of the Revised Statutes of 1879, which were the statutes in force when the deed of trust in this case was made.

The only embarrassment in the present case has been occasioned by the course of decision in the circuit court of the United States within the state of Missouri originating in a case decided in 1882 by an opinion of Judge KREKEL With the concurrence of Judge MCCRARY. Martin v. Hausman, 14 Fed. Rep. 160. In that case the debtors assigned and transferred their whole stock in trade by a deed which declared that it was made to secure certain debts therein mentioned, but directed the assignee to proceed at once to sell the property, and out of the proceeds to pay the debts as they matured, and provided that, after they had been fully paid, 'this deed shall be released,' and reserved no right of redemption to the assignors. Upon a review of the decisions of the supreme court of Missouri, and especially Shapleigh v. Baird, State v. Benoist, and Crow v. Beardsley, above cited, it was held that, as the deed did not purport to be a security for a debt, leaving an equity of redemption in the grantors, and empowering the trustee to sell only if the debts specified should not be paid at maturity, but conveyed the property bso lutely to the trustee, to be sold for the payment of the debts named and preferred in it, it was not a mortgage security, but an assignment for the benefit of creditors; an Judge KREKEL laid down this general rule: 'A debtor in Missouri, under it legislation and adjudications thereon, may, though he be insolvent at the time, prefer one or more of his creditors by securing them; but he cannot do it by an instrument conveying the whole of his property to pay one or more creditors. Instruments of the latter class will be construed as falling within the assignment laws, and as for the benefit of all creditors, whether named in the instrument or not.' 14 Fed. Rep. 166. The rule thus laid down has since been followed by the same and other judges in the federal courts within the state of Missouri, and has been extended, in disregard of the adjudication of the supreme court of the state in Crow v. Beardsley, so as to hold a deed of trust in the nature of a mortgage of all the personal property of the debtor to be a voluntary assignment, within the meaning and effect of the Missouri statute. Dahlman v. Jacobs, 16 Fed. Rep. 614; Kellog v. Richardson, 19 Fed. Rep. 70; Clapp v. Dittman, 21 Fed. Rep. 15; Perry v. Corby, Id. 737; Kerbs v. Ewing, 22 Fed. Rep. 693; Freund v. Yaegerman, 26 Fed. Rep. 812, and 27 Fed. Rep. 248; State v. Morse, Id. 261. That rule, as thus construed and applied, has not, however, always been approved in the circuit court. In Clapp v. Dittman, above cited, Mr. Justice BREWER, then circuit judge, confessed that, if it were a new question, his own conclusion would be different, and in harmony with the decisions in Bank v. Sprague, 20 N. J. Eq. 13, 28; Farwell v. Howard, 26 Iowa, 381; Doremus v. O'Harra, 1 Ohio St. 45; Atkinson v. Tomlinson, Id. 237, and other cases,-and declared that he should follow the rule, as having been established by the course of the decisions in the courts of the United States within the state of Missouri, until there should be some authoritative construction of the statute by the supreme court of the United States, or by the supreme court of the state. 21 Fed. Rep. 17. See, also, Perry v. Corby, Id. 737; Freund v. Yaegerman, 27 Fed. Rep. 248; Watch Co. v. Meyer, 30 Fed. Rep. 659; Weil v. Polack, Id. 813.

The decision in Crow v. Beardsley has always been treated in all the courts of the state as settling the law of Missouri upon the subject. It has been followed by the St. Louis court of appeals in Holt v. Simmons, 16 Mo. App. 97, and by the Kansas City court of appeals in Sampson v. Shaw, 19 Mo. App. 274, and in Implement Co. v. Thurman, 29 Mo. App. 186; and it has been approved and acted on by the supreme court of Missouri in a very recent case, in which the court, after repeating and enforcing the reasoning upon which Crow v. Beardsley proceeded, said: 'The assignment law of Missouri is not, in letter or spirit, a bankrupt or insolvent debtor's act. A debtor, whether solvent or insolvent, may, in good faith, sell, deliver in payment, mortgage, or pledge the whole or any part of his property for the benefit of one or more of his creditors to the exclusion of others, even though such transfer may have the effect of delaying them in the collection of their debts. Its terms in no way qualify the rule by which the character of this instrument is to be determined. Reading the instrument, then, as a whole, in the light of the circumstances under which it was executed, was it intended as a security, or as an absolute, unconditional conveyance, in praesenti, to the grantee of all the grantor's interest in the property, both legal and equitable, to the exclusion of any equitable right of redemption?' And it was accordingly adjudged that the assignment law was inapplicable to a deed of trust, conveying all the debtor's property, real and personal, (except his homestead and household furniture, and a horse and buggy,) to a trustee in trust to secure the payment of part of his debts, for which he was liable either as principal or as surety, which appeared to he court, upon a view of all its provisions as applied to the facts of the case, to be, 'not an absolute, indefeasible assignment of all the grantor's title, both legal and equitable, in the property, 'in trust for his creditors,' but a deed of trust to secure the payment of debts and other liabilities, in which the grantor has an interest in the property conveyed,' for the protection of which 'equity gives him a right of redemption, though no clause of defeasance was inserted in the deed.' Hargadine v. Henderson, 97 Mo. 375, 386-389, 11 S. W. Rep. 218.

The question of the construction and effect of a statute of a state regulating assignments for the benefit of creditors is a question upon which the decisions of the highest court of the state, establishing a rule of property, are of controlling authority in the courts of the United States. Brashear v. West, 7 Pet. 608, 615; Allen v. Massey, 17 Wall. 351; Lloyd v. Fulton, 91 U.S. 479, 485; Sumner v. Hicks, 2 Black, 532, 534; Jaffray v. McGehee, 107 U.S. 361, 365, 2 Sup. Ct. Rep. 367; Peters v. Bain, 133 U.S. 670, 686, ante, 354; Jencks v. Quidnick Co., 135 U.S. , ante, 655. The decision in White v. Cotzhausen, 129 U.S. 329, 9 Sup. Ct. Rep. 309, construing a similar statute of Illinois, in accordance with the decisions of the supreme court of that state, as understood by this court, has, therefore, no bearing upon the case at bar. The fact that similar statutes are allowed different effects in different states is immaterial. As observed by Mr. Justice FIELD, speaking for this court: 'The interpretation within the jurisdiction of one state becomes a part of the law of that state, as much so as if incorporated into the body of it by the legislature. If, therefore, different interpretations are given in different states to a similar local law, that law, in effect, becomes by the interpretations, so far as it is a rule for our action, a different law in one state from what it is in the other.' Christy v. Pridgeon, 4 Wall. 196, 203. See, also, City of Detroit v. Osborne, ante, 1012, (just decided.)

In the present case, there can be no doubt that the deed of trust, conveying the personal property of the partnership to secure the payment of its debts therein named, and reserving in the clearest terms a right of redemption to the grantors, by providing that, if they shall pay those debts, the deed shall be void, as well as by authorizing the trustee to sell the property only in case of their failing to pay those debts, or any part thereof, for five days after they became payable, was, according to the settled his course of decision in the courts of the state of Missouri, a mortgage only, and not an assignment under the statute relied on, and therefore, according to the decisions in Missouri, cited at the beginning of this opinion, (no fraud being proved or suggested,) an instrument which one partner had the inherent authority to bind the partnership by, although his copartners did not join in it.

The deed of trust executed by and with the consent of two of the three partners, being a valid mortgage, and not an assignment, within the meaning of the statute, the fact that the third partner had authorized his copartners to execute an assignment, which was never executed, cannot affect the validity of the operation of the deed of trust.

Nor did the simultaneous appointment of a receiver of the partnership property at the suit of one of the partners alter the nature of the deed of trust, or transform it into a voluntary assignment, within the meaning of the statute of Missouri, as construed by the supreme court of the state. A receiver derives his authority from the act of the court appointing him, and not from the act of the parties at whose suggestion or by whose consent he is appointed; and the utmost effect of his appointment is to put the property from that time into his custody, as an officer of the court, for the benefit of the party ultimately proved to be entitled, but not to change the title, or even the right of possession, in thepro perty, Skip v. Harwood, 3 Atk. 564; Anon., 2 Atk. 15; Wiswall v. Sampson, 14 How. 52, 65, Ellis v. Railroad Co., 107 Mass. 1, 28; Maynard v. Bond, 67 Mo. 315; Heiman v. Fisher, 11 Mo. App. 275, 281. And in the present case the three banks have claimed and received payment of the full amount of their debts from Stewart as trustee under the mortgage, and not as receiver under the appointment of the court. The necessary conclusion is that each of the questions certified must be answered in the negative, and that the decree of the circuit court dismissing the bill must be affirmed.

The Chief Justice, having been of counsel, and Mr. Justice BREWER, not having been a member of the court when the case was argued, took no part in its consideration or decision.

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