Forbes v. Scannell , 1 Cal. Dist. Ct. 132 ( 1857 )

Hager, J.

The parties, by stipulation in writing, have agreed upon and admitted the principal facts, and I shall therefore not refer to them except so far as it may be necessary to explain my conclusion upon some of the points raised upon the argument.

Upon the 11th day of March, 1855, the mercantile house of Eye Brothers & Co., doing business at Canton, China, became insolvent, and Gideon Eye, Jr., the only member of the firm then in Canton, for himself and his firm, before the U. S. Consul at that place, made and executed a written assignment of his personal, and also the partnership property, to the plaintiffs, residents of the same place, “ in trust and for the benefit of all the creditors of said Gideon Eye, Jr., and the said commercial house of Eye Brothers & Co.”

The assignees accepted the trust, entered upon the duties of- their office, and with the acquiescence and co-operation of the creditors reading in China, took the possession and control of the insolvents property, and proceeded to convert it into money.

This action is brought by plaintiffs, as assignees, against the defendant, Sheriff of this County, to recover the value (admitted to be $50,000) of a quantity of teas belonging to the insolvent’s estate, shipped and consigned by plaintiffs to a mercantile house in San Francisco, for sale, and there seized by defendant under an execution issued upon a judgment for $200,000, obtained by Frederick Huth & Co., of London, Great Britain, before the arrival of the goods in this State.

The principal question to be determined is whether the assignment made at Canton, by the one partner, Gideon Eye, Jr., is valid and binding upon the- firm of Eye Brothers & Co., and sufficient to vest the property in question in the assignees, as against the judgment creditors named, and prevent its being seized by them upon execution.

In considering the question it is necessary in the first place to determine the law that is applicable to and should govern in testing the validity of the assignment, and of the rights of property.

1. It was urged upon the argument that the property being now within the territory of this State, the validity of plaintiffs’ title, and the assignment, must he tested by the lex fori.

For many purposes personal property is deemed to have no situs except that of the domicil of the owner, yet this being but a legal fiction it yields whenever it is necessary, for the purposes of justice, that the actual situs should be inquired into. At the time of the assignment the property belonged to Hye Brothers & Co., and was then upon the high seas; owing to stress of weather the ship put back to Canton, where the property w'as taken possession of by plaintiffs, under the assignment, and by them forwarded to this port.

This State, in point of sovereignty and jurisdiction, has the same dominion over personal that it has over real property actually situated within its territory; it may by law regulate its transfer, subject it to process and execution, and control its disposition to the same extent it may exert in its authority over real estate ; hut this should not he done in violation of the rules of law as fixed by comity.

According to the authorities in the United States there is a recognized distinction between assignments in invitum, or under the bankrupt laws, and voluntary assignments made by the owner of properly while residing in a foreign country; in the one case the transfer is by the operation of the law of the foreign country, in the other it is by the act of the party. In the absence of all proof that this assignment was made by compulsion of law, or under bankrupt or insolvent laws, it must be regarded as a voluntary assignment. Such assignment, if made according to the law of the domicil, will generally pass personal property, whatever may be its locality, abroad as well as at home. Story C. L., §410-411.

How in this State, by our insolvent laws, as construed by the Supreme Court, all voluntary assignments by insolvent debtors for th® benefit of creditors, are declared void. If, therefore, at the time of the assignment, this State had been the situs of the property, or if there had been no delivery in China to the assignees, and the property had arrived here as the property of the insolvents, the lex loci rei si&B would have prevailed over the law of the domicil, and the questions involved herein would have been determined by the laws of this State. But the assignment, and the delivery of the property under it, having been made and completed in China, and our statute law having no ex-trarterritorial force, the assignees, if the assignment is in other respects valid and sufficient to pass the property, became lege loci the legal owners, and entitled to be protected in their possession of the property. United States vs. U. S. Bank, 8 Rob. (La.) R., 262.

2. At the time of the failure and assignment Gideon Nye, Jr., resided, and the place- of business of their house was at the “ Factories,” as it is called—an inclosed place, isolated and consisting of a few acres —outside of the walls of Canton, where the foreigners had their habitations, and were only permitted to reside and do business at that port. By the treaty of July 3d, 1844 (see treaty, U. S. Statutes at Large, 592) between the United States and China, five ports, of which Kwang Chow (Canton) is one, were opened to American commerce, and our government is authorized to appoint Consuls, and our citizens are permitted to reside there.

This treaty also provides for the examination and decision of controversies between citizens of the United States and subjects of China. Also that all questions with regard to rights of property or person, between citizens of the United States, shall be subject to the jurisdiction and regulated by the authorities of the government of the United States. And that controversies between the citizens of the United States, and the subject of any other government, shall be regulated by the United States and those governments, without any interference on the part of China.

By the Act of Congress of August 11th, 1846, (9 Stat. at Large, 276,) the Commissioner and Consuls of the United States, appointed to reside in China, are vested with judicial authority in civil and criminal cases ; the -laws of the United States are extended over citizens of the United States in China, and where they are deficient the common law is extended in like manner; and where they are both deficient the Commissioner shall, by decrees and regulations, which shall have the force and effect of law, supply such defects and deficiencies.

By the testimony it seems neither Europeans nor Americans resort to the Chinese Courts for the adjudication of questions involving rights of property, or for any other purpose, but each in such cases apply for relief, and transact legal business before their respective consuls.

What the prevailing Chinese law is does not appear, nor do I think it material, for if the provisions of the treaty are observed the laws of that country cannot prevail, and their tribunals, even if competent, have not the power to give relief when a controversy occurs between citizens of the United States and the subjects of any other government, although there may be no regulations by treaty on the subject between the respective governments.

The members of the firm of Nye Brothers & Co. and the plaintiffs are American citizens, and as such, under the treaty, and the subsequent legislation of Congress, are entitled to the protection of that system of jurisprudence known in this country and England as the common law. This same law prevails here and is the rule of decision in this State.

According to the principles, of the common law the effect and validity of the instrument of assignment must be tested by the lex loci of the assignment; that is, the particular law applicable to Americans residing in China, and not the general law prevailing in the Chinese Empire for the government of an unenlightened people, unused to the customs and civilization of Christian nations. Even if we should hold that the general Chinese law must control, in the absence of all proof of what it is, by the law of this State the common law would be regarded as the lex loci of the assignment.

Adopting the principles of the common law for our guide, I will proceed to notice and consider some of the objections made against the validity and form of the assignment.

I. One member of a partnership firm cannot alone make a valid assignment of the whole partnership effects for the benefit of creditors.

In the absence of bankrupt laws prohibiting it, debtors have an absolute legal right, in good faith, to make a general assignment of their property in trust for the benefit of their creditors ; this power rests, as an incident to the right of property itself, on the same foundation with that to acquire and enjoy..

In cases of copartnership, each partner being the authorised agent of the firm, in ordinary cases, and in the absence of fraud on the part of the purchaser, has the complete jus disponendi of the whole partnership property. But in regard to the power of one partner to make an assignment of the partnership effects for the benefit of creditors. there is some conflict in the authorities, and the law, in some respects, is not conclusively settled.

The principles deducible, as settled by the weight of authority, appear to be these:

1. That one partner may assign a portion or the whole of the partnership efleets directly to creditors, in payment of partnership debts.

2. That an assignment made by one partner in the name of the firm, and with the consent of his copartners, is of the same effect as if made by all.

3. That one partner cannot make a general assignment to trustees for the benefit of creditors, against the consent or without the concurrence of his copartners, the latter being present and capable of acting in the matter.

The numerous authorities upon these points may be found referred to and collated in Burrill on Assignments, pp. 18, note (4), 86-89; 3 Kent’s Com. (7th ed.), 44, and notes (a) and (1) ; Collyer on Part., §395 and notes.

I have not met with a case where it has been decided for or against the precise proposition—whether or no. at common law one partner can make a general assignment of the partnership property, to trustees, for the benefit of creditors, without giving preferences, when Ms copartner is absent and cannot be consulted. The cases bearing most directly upon the question have mostly grown out of controversies between partners themselves—for instance where one not joining in the assignment brings suit to set it aside—and the decisions have been based on the ground that such assignments work a dissolution of the partnersMp; are out of the course of trade; not within the implied powers incident to the partnership relation; and are in fraud of the rights of the other partners. In some instances, too, the decisions have been influenced or controlled by local insolvent laws or statutes regulating these assignments.

After reviewing all the authorities, a general conclusion, wMch appears to me to be reasonable, has been announced as inferable from the decisions pertinent and analagous in principle, to this effect: that where a partner is absent, so that he cannot be consulted, an assignment by the copartner of the partnersMp property, in trust for creditors, without-preferences, if made in good faith, for sufficient cause and for the benefit of the firm, is valid and should he sustained. Burrill, §6-57 ; 1 Amer. L. Cases, 444.

To these principles of law let us apply the facte.

It is alleged that the firm of Eye Brothers k Co. consisted of Gideon Eye, Jr., Clement D. Eye, and Charles $L Tuckerman. By the proofs it is shown that Clement D. Eye, at the time" of the failure, was residing and doing business at Shanghae, about nine hundred miles from Canton, and that it required from ten to fifteen days to make a trip and return between the two places. Tuckerman was a salaried partner, not sharing in the profits and losses, and at the time of the assignment was absent from China, on a trip to Calcutta. Subsequent to the assignment Clement D. Eye denied that he was a partner at the time of the failure, asserting at the same time that he had withdrawn from the house in August previous thereto. By the proceedings had before the United States Consul, as contained in the stipulation, it seems he held that the assignment received the assent and adoption of the copartners.

The immediate cause of the assignment was the arrival of the European mail, with the return of protested bills drawn by the firm upon London. It does not appear that either of the alleged partners have made objection or dissented to the assignment, but on the contrary, from the facts disclosed, the presumption is the assignment was fairly made and acquiesced in by them ; that it is beneficial to the interests of the copartnership, and the absent partner must be considered as having vested in Gideon Eye, Jr., implied authority to act in all matters for the benefit of the firm.

II. Another objection is, the assignment is defective inform.

In assignments of this character the law requires no particular form to be observed. They may be by the debtor to the assignees in the form of a deedpoli, without making the latter a party ; or bipartite, between the debtor and assignee, the latter executing it as a formal party; or tripartite, between the aságnor, assignee, and creditors, all executing it as formal parties.

It is sufficient if the creditor unconditionally and unreservedly transfers the whole of his property to one or more assignees for the benefit of all his creditors. By such an assignment a trust is created both at law and in equity, for all the creditors, rateably, and a court would enforce and sustain it for their benefit. This assignment is substantially in conformity with the requirements of law. It is an absolute transfer of the whole property, without reservation, to the assignees in trust for the benefit of each and all the creditors. The assignees received the assignment upon this express condition, and having accepted it, and entered upon the performance of their duties, by intendment and operation of law there is an implied trust which they are as much bound faithfully to execute as if they had expressly covenanted to do so. They might have declined to act, but not doing so, by merely accepting the assignment without executing it, they become the trustees of the creditors, and a court, upon application, would compel the faithful execution of the trust for their benefit. This rule of law is not altered although the assignees are named as Messrs. Russel & Co., and James Purdon & Co., but is applicable to all or any of the parties named who have accepted. Neither is it necessary to the validity of the instrument that it should contain an express power to sell; this is necessarily implied by every conveyance for the payment of debts. Burrill, 228-229, 263, 281, 451; 2 Story’s Eq. J., §1045, and authorities cited.

Neither is the omission to annex the usual schedules sufficient to avoid the assignment. If it contains a provision, as is the fact here, that schedules are to be made out, (which by the proof appears to have been done in this case,) any inference of fraud from this circumstance is repelled. Such a provision is not a condition precedent to the operation of the assignment. Burrill, 255.

Nor do I think it a material or valid objection that the assignment is made for the benefit of the creditors of the assignor, and those of Nye Brothers & Co. The instrument itself creates no priorities, gives no preferences; nor are the different classes of creditors by express terms placed upon an equality, or entitled to pro rata payments ; the assignment does not specify how or to whom the payments shall be made, but simply declares it is for the benefit of "each and all.” The payment of the private and firm creditors must therefore be made according to the ordinary rules of law applicable thereto, as established b) the law of partnerships ; or as a court of competent jurisdiction may direct.

Is. this connection it may be remarked, by the stipulation it appears the validity of this assignment has been sustained by a judicial decision of the U. S. Consul, at Canton, which, if not conclusive, should at least be received as some evidence of the lex loci of the assignment.

III. A further objection is, the assignment has not been assented to or executed by all the assignees or by the creditors.

In addition to what has been said it may be stated it appears that the assignees are proper and suitable persons for the position: that some of them have accepted, and it is not in proof that any have declined to act. Acceptance is presumed until the contrary is shown, even where the trustee is absent; and an acceptance by one or more of several assignees, where two or more are appointed, is operative as to the assenting trustee, unless the instrument of assignment contain a condition to the contrary. Burrill, 281-282; 2 Rt., 533 and note (6).

In this country it is authoritatively settled by the Supreme Court of the United States, as well as by most of the State Courts, that assignments directly to creditors are not valid without their consent, but if made to trustees for their benefit, it does not require their assent, or that they shall be formal parties, to render them valid and operative, unless the assignment is drawn with reference to the creditors becoming parties, or is made upon the express condition that they or a portion of them shall sanction it. If they are made in good faith by the debtor, and assented to by the assignee, the assent of the creditors will be presumed, and it will be deemed a valid conveyance, founded upon a valuable consideration, and good against creditors proceeding adversely by attachment, or seizure upon execution, of the property conveyed thereby, unless all the creditors for whose benefit the assignment is made repudiate it. 2 Story’s Eq. J., §1036, a, and note (3) ; 2 Kt., 533, and notes (a) and (Z>) ; Burrill, 84, 307-316, and cases referred to.

In England the same rule has not been so uniformly adopted, and in some of the cases it has been held that the assent or privity of creditors to an assignment is essential to render it operative in their behalf. By reason of their bankrupt and insolvent laws these kinds of voluntary assignments have been discouraged by the Courts of that country, and how far the adverse decisions may have been influenced by their local laws and the use of the tripartite instrument of assignment, which it seems is there most commonly used, I have not sufficiently examined; but I feel unwilling to depart from the course of American adjudications, and adopt a rule which I consider less sound in principle.

The creditors in China, according to the proof, representing about two-thirds of the whole indebtedness of the firm, held several meetings with the assignees ; took measures to carry out the assignment; assists ed and gave instructions td the assignees about the property. This would be sufficient assent and privity on the part of the creditors resident in China, within the American or English rule, especially as a> verbal assent is sufficient. Burrill, 817.

IY. The last objection that I shall notice is: That the assignment is fraudulent and void.

Excepting the absence of schedules, which has heretofore been referred to, there are none of the usual indicia of fraud appearing upon the face of the assignment itself: It is general in its terms and contains no unusual proviáons or clauses, or any reservations in behalf of the assignors Those of an extrinsic character referred to in the argument, and relied upon as sufficient to invalidate the assignment are as follows :

1. That the assignees have mismanaged the property, allowed the assignor to retain the possession of a portion, and to assist them in the performance of their duties as to the residue.

It is in evidence that at a meeting of the creditors at Canton, it was decided that the. assignees should allow the wife of Gideon Bye, Jr., $2,000 worth of furniture belonging to his estate ; and also that the assignees employed Bye himself to assist them in the estate, at the rate of one hundred dollars per month.

In determining whether or no an assignment is fraudulent as against creditors, the question is not whether fraud may he committed by the parties to it, hut whether the instrument itself is fraudulent in its operation. Subsequent events do not generally affect the character of the assignment. If it is valid in its creation, it is not invalidated by subsequent fraudulent or illegal acts of the parties. If the assignees, without sufficient authority, suffer the property to become lost to the estate, or diminished in value, they are not discharged from liability. If the estate sustains a loss on account of their shipping a portion of the goods to this market for sale, (not a reasonable probability,) they may render themselves personally liable for the deficiency; but their acts alone, if illegal or fraudulent, cannot vitiate the assignment. Even If Gideon Bye, Jr., had withheld the furniture without any consent of the assignees or creditors, the validity of the assignment would not have been impaired. Burrill, 304, 400-401.

Nor can the fact that the assignees employed the assignor as their agent or clerk, and as such he was in the possession of the property,, be regarded as evidence of an original fraudulent latent. This, from want of necessary information, many times becomes essential to a, proper execution of the trust; and the assignee is held responsible for Ms acts the same as any other agent or employee engaged about the business. Burrill, 303, 429-430.

2. That the assignment being void in part, because it conveys and personal property, and is not under seal, is therefore void as a whole.

There are many exceptions to the rule that an assignment cannot be void in part without being void in toto ; and one of these Is that it may be valid as to the personal property and void as to the real. Rodgers vs. Forrest, 7 Paige’s Ch. R., 272; Burrill, 401-406.

This in controversy is personal property, and the instrument of assignment, as a simple contract, is sufficiently well executed to transfer the title to that kind of property.

There is no evidence that the assignors owned or possessed any real estate, and it is unnecessary to consider the validity of the assignment to convey that kind of property.

I have not noted all the cases from which my conclusions have chiefly been derived, but by consulting the text books as I have indicated, reference can bé had to those not cited.

The validity of the assignment, and plaintiffs’ title to the property at the time of the seizure, is sustained.

Judgment should he awarded in their favor for the value of the property, and a finding may be drawn accordingly.