decided: May 19, 1890.
UNION BANK OF CHICAGO
KANSAS CITY BANK
APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE WESTERN DISTRICT OF MISSOURI.
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MR. JUSTICE GRAY, after stating the case as above, delivered the opinion of the court.
The claim of each plaintiff being for less than $5000, 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. Stat. §§ 650, 652, 693; Act of February 16, 1875, c. 77, § 3, 18 Stat. 316; Dow v. Johnson, 100 U.S. 158; United States v. Ambrose, 108 U.S. 336; Jewell v. Knight, 123 U.S. 426.
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 hpheld assignments by insolvent debtors of all their property to pay particular creditors. Cason v. Murray, 15 Missouri, 378, 381; Richards v. Levin, 16 Missouri, 596, 599.
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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 co-partners, mortgage the partnership property by deed of trust, to secure the payment of a partnership debt; Clark v. Rives, 33 Missouri, 579; Keck v. Fisher, 58 Missouri, 532; although one partner, without the concurrence of his co-partners, 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 Missouri, 463; Hook v. Stone, 34 Missouri, 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 assigned property in the office of the clerk of the Circuit Court of the county in which the assignee resides. Missouri Rev. Stat. of 1845, c. 10, § 1; reenacting Act of February 15, 1841, § 1, Missouri Laws of 1840-41, p. 13.
In the Revised Statutes of 1855, c. 8, § 1, that section was reenacted, and at the end of the chapter this section was added: "§ 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, § 39 only prohibited
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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 Missouri, 322, 326; Johnson v. McAllister, 30 Missouri, 327; Many v. Logan, 31 Missouri, 91; State v. Benoist, 37 Missouri, 500, 516.
An act of February 13, 1864, repealed § 39 of the act of 1S55, 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 of February 13, 1864, §§ 8, 9, Missouri Laws of 1863-64, p. 6.
In 1865 this provision was reenacted 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. Stat. of 1865, c. 112, § 1; 1 Wagner's Stat. (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 Missouri, 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 § 39 of the act of 1855, and was designed to prevent any preference of creditors "by assignment," yet it did not avoid deeds of
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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." 68 Missouri, 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 reenacted, in the same words, in § 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 our 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
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at maturity, but conveyed the property absolutely 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; and Judge Krekel laid down this general rule: "A debtor in Missouri, under its 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 assignment 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, 16 Fed. Rep. 70; Clapp v. Dittman, 21 Fed. Rep. 15; Perry v. Corby, 21 Fed. Rep. 737; Kerbs v. Ewing, 22 Fed. Rep. 693; Freund v. Yaegerman, 26 Fed. Rep. 812, and 27 Fed. Rep. 248; State v. Morse, 27 Fed. Rep. 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 National Bank v. Sprague, 3 C. E. Green, 13, 28; Farwell v. Howard, 26 Iowa, 281; Doremus v. O'Hara, 1 Ohio St. 45; Atkinson v. Tomlinson, 1 Ohio St. 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 authoritive construction of the statute by the Supreme Court of the United States, or by the Supreme Court
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of the State. 21 Fed. Rep. 17. See also Perry v. Corby, 21 Fed. Rep. 737; Freund v. Yaegerman, 27 Fed. Rep. 248; Elgin Co. v. Meyer, 30 Fed. Rep. 659; Weil v. Polack, 30 Fed. Rep. 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 Smith & Keating 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 the 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
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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 Missouri, 375, 386, 387, 389.
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; Peters v. Bain, 133 U.S. 670, 686; Randolph's Executor v. Quidnick Co., 135 U.S. 457.The decision in White v. Cotzhausen, 129 U.S. 329, 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 Detroit v. Osborne, 135 U.S. 492.
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 become payable, was, according to the settled course of decision in the courts of the State
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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 co-partners 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 co-partners to execute an assignment, which was never executed, cannot affect the validity or 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 the property. Skip v. Harwood, 3 Atk. 564; Anon. 2 Atk. 15; Wiswall v. Sampson, 14 How. 52, 65; Ellis v. Boston, Hartford & Erie Railroad, 107 Mass. 1, 28; Maynard v. Bond, 67 Missouri, 315; Herman 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
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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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