Dana v. Stanfords

Field J., delivered the opinion of the Court Terry, C. J., concurring.

The question presented for consideration in this case, relates to the validity of the mortgage executed by Deitz to Stanford Brothers, to secure his indebtedness to them, and to protect them from liablities incurred by their endorsements of his paper. Deitz was at the time insolvent, and the mortgage embraced his entire property. It is insisted, by the appellant, that the instrument, though a mortgage in form, is in fact an assignment for the benefit of certain creditors, in contravention of the statute, which prohibits assignments by insolvent debtors, and is therefore void. The object of the statute was, undoubtedly, to do away with all voluntary assignments by a debtor in failing circumstances, for the benefit of his creditors. Such assignments were generally made to some friend, who often held the property for the real benefit of the assignor, whilst ostensibly holding it for the benefit of the creditors. Debtors in failing circumstances resorted to this mode of placing their property beyond the reach of attachments, whilst, in fact, they reserved its use through the instrumentality of a convenient assignee. The difficulty of making the assignees, even when responsible, account to the creditors, was so great as to be seldom attempted; and, of course, when they were not responsible, the attempt was never made. These assignments thus became a fruitful source [275]of fraud, and it was against the evils thus jDroduced that the statute of this State was leveled. It was never intended to prevent an insolvent debtor from transferring his property directly to his creditor, either absolutely, in payment of his debts, or as security, by way of mortgage. An assignment, in the sense of the statute, must embrace a trust for others than the assignee. Without the creation of such trust, the conveyance directly to the creditor, with authority to him to sell the property transferred, and to apply the proceeds in discharge of the indebtedness to himself and the liabilities he has incurred, is only a mortgage, whatever its form, and is not within the letter or spirit of the statute. The assignee acquires only a specific lien upon the property. A trust, it is true, as to the surplus, results in favor of the assignor; but that arises from the nature of the transaction, as one of security. Such trust results in all cases of mortgage, but is not the object of their execution.

The authorities which sustain the validity of transfers, like the one under consideration, are numerous and decisive. In Vermont, there is a statute which prohibits all general assignments by debtors for the benefit of creditors, and yet, in Peck v. Merrill, (26 Ver., 686,) the Supreme Court of that State held that a transfer, by a debtor, of all his property directly to his creditors, to secure an indebtedness to them and liabilities incurred by them as sureties, was not in violation of the statute “It is evident from the authorities,” says the Court, “ that the transfer by a debtor of all his property does not, of itself, make what is termed a general assignment; but it must also be conveyed to trustees, to be held by them in trust for other creditors. If it is conveyed directly to creditors or sureties, for their benefit, and no trust is created for others, the transfer is then to be treated as a mortgage or pledge of personal property. In such case, there is no more impropriety in taking a lien on the whole of the debtor’s property than upon a part, provided there is not an unreasonable disproportion between the value of the property and the amount of the debt.”