Beans v. Bullitt & Fairthorne

1. To constitute an assignment for the benefit of creditors within the Act of March 24th 1818, there must be a transfer of the property to another; more than a transmission of its custody and management. The form is not material. There must be a trust created for the creditors which is enforceable in equity. 2. An avowed purpose of a borrower of money to apply it in a certain way is not an application of it. 3. An agent directed to pay money generally, without specification of amount or of the person of the payee as distinguished from others, has never been held tojie a trustee for any other than the principal. 4. An assignment construed and held to be a pledge.

Error to the District Court of Philadelphia: No. 142, to January Term 1868. On the 2d of November 1864 Thomas J. Beans recovered judgment for $9108.50 against William H. Lawson, surviving partner of Lawson & Yerkes. On the same day an attachment execution was issued on this judgment, in which, amongst others, John C. Bullitt and Frederick Fairthorne, partners, under the firm of Bullitt & Fairthorne, were g'arnishees. Interrogatories to the garnishees were filed. The 5th, 7th and 9th with their answers were, in substance, as follows:— 5. Whether the garnishees had in their possession or control any property of any kind belonging to the defendant or in which he was interested. The answer was, that Fairthorne, by virtue of an agreement set forth in the answer to the 7th interrogatory (to which they refer for a more full answer to this interrogatory), had under his control effects of defendant valued at $6000, but is bound to account for them not to the defendant, but according to that agreement. 7. “Did Lawson & Yerkes assign.to you for the benefit of the creditors, or for some other purpose, and what, certain property, &c. ? set forth when the said assignment was made, whether the same was in writing or otherwise, and if in writing, annex a copy, &c.; state whether said writing has been recorded, and when, and where. Annex a schedule of the property so transferred and an account of your dealings and transactions in respect- of said property, and what money or proceeds you have received or collected from the sale of said property, or collections of said claims, and what of the said property or claims now are and were in your hands at the time of the service of the writ of attachment on you.” The answer was, “ the defendants did assign to Frederick Fairthorne certain effects and property; said assignment was made by an agreement dated July 10th i860, a copy of which is hereto annexed, marked A. Its object was to secure certain advances of money Avhich he agreed to make to said Lawson & Yerkes, as is shoAvn by said agreement.” On the 25th day of July 1860, the firm of Lawson & Yerkes was dissolved by mutual consent, to take effect on the 31st day of July, 1860, and in order to Avind up the business of the firm, a further agreement was entered into between them and Fairthorne, whereby he was constituted the attorney in fact of the firm, and authorized to wind up the business. A copy of said agreement is also annexed, marked B. Neither of said instruments AAras ever recorded. At that time, and for many months afterwards, Lawson & Yerkes were believed to be entirely solvent. The agreement of July 25th 1860, was made only because they'desired to procure the services of Fairthorne to wind up the business, as they disagreed between themselves. In September 1861, but before enough had been collected by Fairthorne to repay the advances made by him, Lawson & Yerkes executed the transfer, a copy of which is hereto annexed, marked C. Subsequently Fairthorne received a notice from the persons to whom the transfer had been made, of which a copy is hereto annexed, marked D. Fairthorne avers that since the repayment of his advances out of the collections of said estate, he has held the said effects as the attorney and representative of the persons named in the said transfer. Before the attachment was issued Edward Yerkes, one of the defendants, died. Bullitt has no funds in his hands received from said defendants, except as Fairthorne has kept the funds collected by him in the accounts of Bullitt & Fairthorne. * Garnishees aver that they are not bound to make any further answers in reference to these transactions. By the agreement (Exhibit A.) Lawson & Yerkes assigned to Fairthorne all their claims, assets, &c., except stock of liquors on hand and real estate, to be “ held, sold, collected and assigned by him in such manner as may seem bestthey bound themselves to execute to him bonds and mortgages to the value of their firm real estate and to give him security for the value of the stock, all payable at such dates as he should require. Fairthorne to hold the property and securities for such advances as he should make to pay their debts, the amount he was to advance to be sufficient to pay $18,962.37 borrowed money, and not to exceed $4000 bills payable in July 1860: this was to be the full amount of his advances. He to have the right to use the assigned property and securities to pledge for the purpose of raising money to make advances, &c. There were further provisions for his compensation ■and expenses. By the agreement (Exhibit B.) the partnership was dissolved, the stock of goods was to be appraised and divided equally between Lawson and Yerkes, each to give his notes to Fairthorne with security, the notes payable as specified. All the notes, bills, book accounts, claims and effects of the firm, and also their real and personal estate (except the stock of goods which had been disposed of as above stated), were thereby placed in the hands of Fairthorne as the attorney in fact of Lawson & Yerkes, upon the terms and for the uses and purposes thereinafter mentioned. Lawson & Yerkes to execute the necessary instruments to pass the title of the assigned estate and effects to Fairthorne, he to hold all the estate, &c., for the purpose of converting them into money, with as full power, as their attorney in fact, as they personally could have, except that if he should have an offer for any of the property less than it was appraised at, he was to consult them; if they should differ in opinion, he to decide, and if he should determine to accept the offer, the one who objected to have an opportunity for forty-eight hours of taking the property at the offer. The proceeds were to be applied to pay the debts of the firm as they should become due, first paying Eairthorne’s advances and all expenses. A list of debts was annexed to this agreement, and it was provided that if the assets should not realize sufficient to pay those debts, Eairthorne might call on Lawson & Yerkes to pay their notes given for the stock, &c. After payment of all the firm debts, the balance to be divided equally between Lawson and Yerkes; the name of the firm to be used when necessary, and each partner to sign the firm name when requested by Eairthorne. “ This power of attorney is given to Fairthorne to enable him to wind up the business of the firm of Lawson & Yerkes, and is only intended to constitute him the attorney in fact of the firm. This power of attorney is also subject to the terms of an agreement heretofore made between the parties hereto, dated July 10th 1860.” The transfer (Exhibit C., dated September 25th 1861), assigned to Thomas Beans and fifteen other creditors, naming them, all the property of every kind of Lawson & Yerkes in the hands of Eairthorne, subject to the lien for money due him, then amounting to $12,846.78, and to so much as he might thereafter advance, to secure to the named creditors certain specified amounts stated in the transfer to be due to them respectively, and when collected to pay their debtspro raid. The notice (Exhibit D), signed by fourteen creditors, not including Thomas Beans, was:— “E. Eairthorne, Esq. Dear Sir: — We have received from Messrs. Lawson & Yerkes the transfer of which the enclosed is a copy. You will please take notice of the same, and account to us for the property and assets referred to therein, when you have been paid the amount due to you.” 9. “ What sums had been collected by the garnishees since filing answers to the previous interrogatories?” The answer was, that by an account theretofore filed coming down to January 25th 1865, Eairthorne had in his hands $4081.42, and had since made disbursements, acting as agent and attorney in fact for the creditors under the transfer of September 25th 1861, and that it will probably be necessary to make further outlays, &c. The garnishees also pleaded nulla Iona. On the trial the above answers and exhibits were given in evidence by the plaintiffs; they offered no other evidence: — the garnishees submitted no evidence. The court charged: — “ That the exhibits referred to in the answers of the garnishees, and thereto attached, did not constitute an assignment for the benefit of the creditors of the defendant in the attachment, that the amount in the hands of the garnishees was not subject to said attachment, and the jury should find for the garnishees.” The verdict was for the garnishees. On a motion for a new trial, the court below (Sharswood, P. J.) delivered the following opinion:— “ This is an attachment execution. All the evidence in the case consists of the answers of the garnishee. The possession of a sufficient fund to meet the claim of the plaintiff is admitted; but the answers show that this fund is held under three different instruments, all of which, taken together, the plaintiff contends amount to an assignment for the benefit of creditors, and are void — not having been recorded in pursuance of the Act of Assembly. The jury were directed to find a verdict for the garnishees, and this direction we are now called on to review. “The first of these instruments is dated July 10th 1860. It assigns to Frederick Fairthorne all the claims, debts, demands, book accounts, assets and effects of Lawson & Yerkes, the defendants in the attachment (except their real estate and stock of liquors on hand), to be held by him as security for such advances as he may make to pay the debts of the said firm. The amount to be advanced by said Fairthorne is to be sufficient to pay $18,962.87, borrowed money, and not to exceed $4000 bills payable in July 1860. There are some other provisions, which are not material to the question. It cannot be contended, and indeed it has not been seriously pressed, that this instrument, standing alone, is an assignment for the benefit of creditors. It is a mere mortgage to secure future advances, and it is entirely immaterial for what purpose the advances were to be made. That they were expressed to be for the payment of debts, gave the creditors no interest in them. Such mortgages have been distinctly held not to be within the Act of 24th of March 1818: Ridgway v. Stewart, 4 W. & S. 383; Manufacturers’ and Mechanics’ Bank v. Bank of Pennsylvania, 7 Id. 343; Griffin v. Rogers, 2 Wright 382. By repaying to Mr. Fairthorne his advances, charges and commissions, according to the terms of the paper, the grantors Could at any time have demanded and enforced, in equity, a reassignment to them of the securities. This mortgage was a lien on the assets transferred, not from its date, but from the date of his advances on the principle settled in Terhoven v. Kerns, 2 Barr 96; The Bank of Montgomery County’s Appeal, 12 Casey 170; so that an attachment by any creditor would have had a claim upon the fund which might come to be in his hands before any advances subsequently made by him. “ It is the second instrument upon which the difficulty is supposed to arise. It is dated July 25th 1860. It provides for the dissolution of the firm of Lawson & Yerkes. The stock is to be appraised, and then equally to be divided. Each partner is to give his note to Eairthorne for the amount received, payable in certain instalments. All the other estate of the firm is placed in the hands of Eairthorne, as attorney in fact of Lawson & Yerkes, who receives it for the purpose of collecting, selling and converting the same into money, and then to apply the proceeds to the payment of all the debts of the firm when and as the same shall become due and payable — first paying the said Eairthorne his advances, charges and expenses. Eairthorne is authorized to use the name of the firm, and other provisions are made in regard to the manner in which the business is to be done, which need not be here referred to. Under this instrument money was collected by Eairthorne, but not enough to repay the advances made by him. “It is supposed that the case of Watson v. Bagaley, 2 Jones 164, decides that such power of attorney is an assignment for the benefit of creditors. In that case the power authorized the collection of the debts of the grantor, and directed the attorney, from the proceeds, to pay certain creditors named, and to apply the residue pro raid among all the creditors. It was held, and properly held, that it was a binding appropriation, good against an attachment within the cases of The United States v. Vaughan, 3 Binn. 400, and Sharpless v. Welsh, 4 Dali. 280; and that, therefore, it was a virtual assignment. But there is nothing like that in the case before us — no appropriation to any particular creditors. Whatever Eairthorne received beyond his advances secured by the previous mortgage, would have been subject to the attachment of any creditor, and it is plain that for all assets not included in the mortgage, the debtors themselves could have been garnished or the property levied on by execution, for the title was still in Lawson & Yerkes. It is nothing more than a party constituting an attorney to wind up his business, pay his debts, and return thé residue, if any, to him. It is a part of the case that such was the object of this paper — Lawson & Yerkes supposing themselves to be perfectly solvent. The troubles of the country, however, interfered with the collection of the assets, and, finding themselves unable to pay their debts in full, as they had anticipated, they executed the last paper in the series, which is dated September 25th 1861. It is a transfer to their creditors, directly and by name, of all the assets in the hands of Eairthorne (under and subject to the terms of the previous papers, and to the lien of the said Eairthorne for. advances then amounting to $12,546.78, and also to such sums of money as he may hereafter advance under the said agreements), to secure to them their respective debts, specifying the amount in each case, with full power to collect and convert them into money, and apply the same, when and as collected and converted, to the payment, satisfaction and discharge of the said debts pro raid — the same being thereby transferred as collateral security for said debts. After the transfer, Mr. Fairthorne received notice thereof, signed by all the creditors named in the instrument, except the plaintiff, and one other creditor whose claim is of small amount. It has not been pretended that this transfer is an assignment for the benefit of creditors, as it stands by itself. The decisions of the Supreme Court have expressly settled the contrary: Chaffees v. Risk, 12 Harris 432; Henderson’s Appeal, 7 Casey 502. Now, if the transfer of July 10th 1860, was a mortgage, and therefore valid without recording, and the paper of July 25th 1860, a mere power to wind up as agent or attorney, and after these instruments the assets remained liable to execution and attachment, though subject to the mortgage, and if the transfer of September 25th 1865, is confessedly not an assignment requiring to be recorded, it is difficult to see how the three together can be so. The plaintiff’s attachment was not laid until after the last transfer had been made and accepted, and the funds in the hands of the garnishee at that time undoubtedly belonged, both at law and in equity, not to Lawson & Yerkes the defendants, but to the creditors to whom they had been assigned. We think, then, upon the whole, that the direction of the judge to the jury was correct. “ Rule discharged.” Beans took a writ of error and assigned the charge of the court for error.