Chafee v. Fourth National Bank , 71 Me. 514 ( 1880 )

Walton, J.

The A. & W. Sprague Manufacturing Company (a corporation created by the laws of Rhode Island), finding itself unable to meet its indebtedness as fast as it matured, on the first day of November, 1873, mortgaged its property, real and personal, to a trustee to secure such of its creditors as should extend the time for the payment of their demands for the term of three years; and afterward, on the sixth day of April, 1874, by another instrument, made the conveyance absolute, and gave the trustee authority to sell the property and apply the proceeds to the declared purposes of the trust. Creditors whose debts amounted to over eight millions of dollars accepted the security thus offered them and agreed to the desired extension. Among the creditors wdio agreed to the extension was the Fourth National Bank of the city of New York, the defendant in this suit. A portion of the property conveyed to the trustee was situated in this State. The three years having expired, and its debt not having been paid, the bank above mentioned commenced a suit in this State and attached real estate, and propose to levy upon a portion of the real estate, conveyed to the trustee, to satisfy their demand. This suit is a bill in equity by the trustee asking the court to enjoin the bank from levying upon the real estate conveyed to him, as such a levy would create a cloud upon his title and embarrass Mm in the discharge of his duties. He avers in his bill that such of the creditors as accepted the security created by the conveyances to him are estopped to deny the validity of his title. The bank, in its answer, says that the two instruments mentioned in the plaintiff’s bill were general assignments by an insolvent debtor for the benefit of creditors, and being made in the State of Rhode Island, as to real estate in Maine, were inoperative and void; and that the bank is not estopped from levying upon it.

Assuming that the defendant bank is • right in saying that the two conveyances referred to were in effect general assignments for the benefit of creditors, we have the important question presented whether such an assignment, made in another State, is valid here, so far as to protect the assigned real estate here situated from attachment by a non-resident creditor who has assented to the assignment and received in part the benefits thereby secured to him.

The question has been ably argued, and we have given to it the consideration which its great importance and the magnitude of the interests involved seemed to require, and the conclusion to which we have arrived is that the question must be answered in the affirmative.

The ground is taken in defense that all assignments for the benefit of creditors, whether made within or without the state, which are not conformable to our statute, are repugnant to it, and must therefore be regarded as inoperative and void so far as property within this State is concerned. We think this is untenable ground. Our statute does not.apply to foreign assignments, — it applies only to domestic assignments, as its terms clearly imply, —leaving the former to be governed by those principles of comity which have heretofore been recognized as existing in this State, and ought to prevail in all the states of the American Union.

In Ockerman v. Cross, 54 N. Y., 29, the court held that the statute law of New York regulating assignments for the benefit of creditors did not apply to foreign assignments; that such assignments, if valid by the law of the place where made, although not conformable to the law of New York, would protect the property assigned from attachment.

In Bentley v. Whittemore, 19 N. J. Eq. 462, the question was very fully considered, and the court held that a voluntary assignment for the benefit of creditors made by a non-resident debtor, which was valid by the law of the place where it was made, could not be impeached in that State, with regard to property there situated, in behalf óf a non-resident creditor, although the assignment was not conformable to the statute of assignments in force in that State.

In Bholen v. Cleveland, 5 Mason, 174, the court held that an assignment for the benefit of creditors, made in Pennsylvania, passed propei’ty in Massachusetts, as against a creditor who did not reside in Massachusetts.

And such is the recognized doctrine in this State.

In Fox v. Adams, 5 Maine, 245, the court held that an assignment made by an insolvent debtor in another jurisdiction would not operate upon property in this State, "so as to defeat the attachment of a creditor residing here.1” But the court did not decide that such an assignment would not defeat the attachment of a creditor who did not reside here. On the contrary, the doctrine is stated as an exception to the general rule. It is an exception in favor of domestic creditors only. Tbe language of the court clearly implies this. " Comity between states is not thus to be extended, to the prejudice of our own citizens.” Such is the language of the court; and we think it clearly implies that while a foreign assignment will not be permitted to defeat the attachment of a domestic creditor, it will have that effect upon foreign creditors. The reason of the rule clearly implies this. It is the supposed duty of every government to protect its own citizens, a duty which it does not owe to foreigners.

In Todd v. Bucknam, 11 Maine, 41, the court expressly stated that the doctrine which had been previously established in favor of resident creditors, could not be extended to non-residents. The assignment in that case, (although actually executed within the limits of this State,) was made by a non-resident debtor to a non-resident trustee, and the suit in which property found in this State was attached was commenced in the name of a resident of this State, and the rule in favor of domestic creditors was invoked in support of the attachment; but the jury having found that the real owners of the demand sued were nonresidents, the court held that the rule did not apply. Although the court might, perhaps, have given some other answer to the argument of the plaintiff’s counsel, the only one which it in fact gave, was that the real creditors claiming under the attachment, were non-residents, and therefore the rule in favor of domestic creditors did not apply. This point, though actually raised, argued, and decided by the court, does not appear in the head notes of the reporter.

It is claimed, however, that in a more recent case (South Boston Iron Co. v. Boston Locomotive Works, 51 Maine, 585,) the doctrine in favor of domestic creditors was extended to nonresident creditors. A careful examination of that case will show that this claim is not well founded. The court there held that an attachment by a non-resident creditor would not be defeated by an assignment subsequently made in another State ; but the court did not hold that an attachment by a non-resident creditor ■would not be defeated by such an assignment previously made. On the contrary, it is expressly stated in the opinion of Chief Justice Tenney, on page 589, that such would be tbe effect. He says: "But by tbe rule of comity referred to, tbe assignment would be upheld here, and an attachment made after tbe assignment and notice thereof to tbe creditor, would be invalid.”

See also Fetch v. Bugbee, 48 Maine, 9, whore tbe rule, and its limitation to domestic creditors, are accurately stated.

We think it is clear that tbe recognized rule in this State is to uphold foreign assignments, except as against our own citizens. There is certainly force in the objection that such a discrimination is in conflict with that provision of the federal constitution which declares that the citizens of each State shall be entitled to all privileges and immunities of citizens of the several States. But there are many cases in which such a discrimination has been sustained, and we are aware of none in which this objection has prevailed. Chancellor Kent, although himself opposed to such a discrimination, concedes that it is the prevailing doctrine in this country, and he does not express a doubt of its constitutionality. Nor does Judge Story in his elaborate examination of this and kindred questions, in his Conflict of Laws. That provision of the federal constitution has heretofore been regarded as applying only to such privileges and immunities as are in their nature fundamental and universal, and not to special privileges enjoyed by the citizens of a State by virtue of its local laws ; and it does not apply to corporations at all. Paul v. Virginia, 8 Wall. 168.

Besides, if the objection were well founded, we think the better remedy would be to abolish the rule in favor of our own citizens, not to extend it to the citizens of other States. But we do not think the discrimination is unconstitutional.

But there is another and an independent ground on which it is claimed that the assignment should be upheld. Creditors, whose debts amount to more than eight millions of dollars, have assented to the assignment and received payments thereby secured to them. Among these creditors are those who have attempted to attach the property assigned. Can these assenting creditors now repudiate the assignment ? Wo think nof. It is a general rule that those who assent to an assignment cannot repudiate it. xVnd knowingly receiving payments or dividends thereby secured to them, is conclusive evidence of assent. These creditors have done both. They not only assented to the assignment, but they have since received payment in part of the large interest thereby secured to them. The Fourth National Bank alone has received over fifty thousand dollars. We think they are thereby estopped to treat the assignment as invalid.

We say such is the general rule. An exception to it is where an assignment is declared void by the law of the place where it is made. If declared absolutely void by the law of the place where made, no assent or ratification of the creditors can make it valid. But if not absolutely void, — if it is only void at the election of such creditors as choose to avoid it, — and they assent to it, or afterwards ratify it by accepting payments or dividends thereby secured to them, then, as to such assenting or ratifying creditors, the assignment will be sustained. The assignment now under consideration is of the latter class. It was valid by the law of the place where made. It is not absolutely void in this State. Non-resident creditors are here bound by it. Itesident creditors may here avoid it if they choose so to do. But if, instead of electing to avoid it, they actually assent to it, and accept payments thereby secured to them, then the general rule applies, and ivc think their right to treat the assignment as void is extinguished.

In Clay v. Smith, 3 Peters, 411, the court held that a creditor, who is a citizen of one State, by voluntarily making himself a party to proceedings under the insolvent laws of another State, thereby becomes bound by the proceedings to the same extent as the citizens of the State where the proceedings are had; and, if the debtor obtains a discharge, that the creditor’s debt will be thereby discharged.

In Bodley v. Goodrich, 7 Howard, 276, the assignment contained conditions which rendered it void upon its face as against a non-assenting creditor, but the court said that if the creditor had assented to the assignment there could have been no objection to it.

In Adlum v. Yard, 1 Rawle, 163, the court said that the creditor might originally have repudiated the assignment, hut having taken a dividend under it, be should no longer question its validity.

In Rapalee v. Stewart, 27 N. Y. 310, tbe court held that it would be a fraud upon all the other creditors to allow one who had assented to the assignment to repudiate it, and thereby gain a preference and secure his entire debt.

Personal privileges may undoubtedly be waived, although secured by the positive provisions of a statute; and when a creditor, to whom the law secures the right to avoid an assignment made by his insolvent debtor, assents to the assignment, or knowingly, avails himself of the benefits thereby secured to him,, we think he thereby waives his right to treat the assignment as void. This rule, as already stated, does not apply to assignments which the law declares absolutely void. It applies only to such as are avoidable at the election of creditors. The assignment now under consideration we regard as of the latter class. We hold that all creditors who became parties to it, or knowingly accepted any of its benefits, thereby waived the right to afterward treat it as invalid.

We do not deny that the lex loci rei sitae is to govern in this case. But we hold 'that the lex loci rei sitae is as here declared. Not that such is the law of this State applicable to domestic assignments, but that such is the law of this State governing foreign assignments when they are brought into litigation here with respect to property here situated. Our statute, as its provisions clearly show, applies only to domestic assignments. No statute can have any extra-territorial force. Our statute cannot govern assignments made in other jurisdictions. The latter, when brought into litigation here, must be governed by the rules of comity already referred to.

It is urged in argument by the defendants’ counsel that, for the' purpose of applying the Maine assignment act to the Sprague Manufacturing Company, the latter may be regarded as having a residence at Augusta, in this State, -where it owned property and where it was doing business. We think this proposition cannot be sustained. A corporation can exist only within the soverignty which created it, although, by comity, it may be allowed to do business in other jurisdictions, through its agents. It can have but one legal residence, and that must be within the State or sovereignty creating it. Bank of Augusta v. Earle, 13 Peters, 519; Runyon v. Coster, 14 Peters, 122; Tombigbee Railroad Co. v. Kneeland, 4 Howard, 16; Ex Parte Shellabarger, 5 Otto, 379.

It is also urged that the assignment was made for the purpose of defrauding creditors. It is a sufficient answer to this argument to say that, in our judgment, the evidence does not support it. The assignment appears to have been made openly, upon consultation with the creditors, and upon their recommendation; and we think it may well be doubted whether a better arrangement for the creditors could now be made if the work should be gone over with again. If the trustee does not perform his duty faithfully, the remedy is to have him removed and a better man put in his place.

But a single question remains for consideration, and that is the question of jurisdiction. Is it competent for the court to grant the relief prayed for? We think it is. It is a rule of equity jurisprudence, too well settled to require the citation of authorities in support of it, that a court of equity has jurisdiction to remove a cloud from one’s title to real estate. We think there is still stronger reason for taking jurisdiction to prevent a cloud being placed upon one’s title. As recently said by this court, it is better to prevent the creation of a fictitious title than to compel its cancellation, or release, after it has been created. Gerry v. Stimson, 60 Maine, 186.

Bill sustained. Decree as grayed for.

Appleton, C. J., Virgin, Peters and Symoxds, JJ., concurred.