U.S. Supreme Court Wilbur v. Almy, 53 U.S. 12 How. 180 180 (1851)
Wilbur v. Almy
53 U.S. (12 How.) 180
APPEAL FROM THE CIRCUIT COURT OF THE UNITED
STATES FOR THE DISTRICT OF RHODE ISLAND
Where there were two trustees of the property of insolvents, and one of them made an assignment, but the other neither joined in it nor assented to it afterwards, the assignment was void.
And in the present case also the assignee appears to have received an assignment of the property only as security, until its profits should pay a debt due to him by the insolvents. That debt being extinguished, he has no right, as owner, to claim an account of further profits from the holder of the property.
The facts in the case are stated in the opinion of the Court, to which the reader is referred.
MR. JUSTICE CURTIS delivered the opinion of the Court.
Samson Almy filed his bill in the Circuit Court of the United States for the District of Rhode Island, stating that one Christopher Lippitt, on 7 March, 1828, entered into a contract in writing with Hazard & Co. the effect of which was to create an equitable mortgage on certain machinery for the price thereof advanced by Hazard & Co., who were to supply Lippitt with cotton, receive and sell the cloth, allow him three and a half cents per yard for manufacturing, and credit half the profits towards paying for the machinery, retaining the other
half for their own services and the interest on the cost of the machinery. The bill further states that in May, 1829, Hazard & Co. failed in business and transferred all their property to Thomas R. Hazard and Charles Low in trust for the benefit of their creditors, and that on 9 March, 1830, the complainant purchased of the assignees their interest under the contract with Lippitt, by a written instrument of sale of that date, a copy or which, annexed to the bill, is as follows:
"The assignees of R. G. Hazard & Co. hereby sell and convey to Samson Almy the right, title, and interest which they have to a certain contract with Christopher Lippitt, bearing date March (3d mo.) 7, 1828 a copy of which is hereto annexed, together with the balance due from said Lippitt on account of payment for machinery, as expressed in said contract; also their right, title, and interest, to the machinery held as collateral security for the said balance due from said C. Lippitt agreeable to the aforesaid contract, a schedule of which is hereto annexed, for which Samson Almy agrees to pay them the said assignees or account with them for the sum of five thousand dollars, and it is further agreed that if Low and Fenner should redeem their one-half of the aforesaid contract by the payment of the drafts drawn upon them by R. G. Hazard & Co. on account thereof, and to return one-half of the aforesaid five thousand dollars to said Samson Almy, he relinquishing to said Low and Fenner all claims upon the aforesaid one-half part of the said contract."
"Providence, 3d month 9th, 1830."
"For assignees of R. G. Hazard & Co."
"R. G. HAZARD"
"R. G. HAZARD & CO."
"Witness: A. E. Forbush"
"Whereas R. G. Hazard, for the assignees of R. G. Hazard & Co., has made an agreement with Samson Almy, bearing date 3d month 9th, 1830, relative to contract existing between Christopher Lippitt and R. G. Hazard & Co., dated March 7th, 1828, and of the machinery held by them as collateral security, by debts due from Christopher Lippitt and drafts drawn on Low and Fenner, I hereby ratify and confirm the above agreements the same as if made by myself as assignee of R. G. Hazard & Co."
"South Kingston, 3d month 10th, 1839"
"THOMAS R. HAZARD, Assignee "
"Witness: Robert Rathbone"
The bill further states that from the time of the failure of Hazard & Co. till his purchase from the assignees, the complainant supplied Lippitt with cotton pursuant to the original contract
between Hazard and Co. and Lippitt, having agreed with the assignees so to do; that after his purchase from the assignees, he continued to supply cotton to Lippitt till September, 1832, when Lippitt refused to receive more; that in August, 1831, he also furnished to Lippitt a speeder, which cost five hundred and fifty dollars; that in September, 1832, when Lippitt ceased to receive cotton from him, there was due upon the mortgage the sum of five thousand four hundred and five dollars 87/100, for which sum he then had a lien on the machinery; that Lippitt transferred the machinery to Wilbur, the defendant, with notice of the complainant's rights, and after the complainant had demanded the machinery of Wilbur, the latter sold it and refuses to account. The bill prays for an account of the value of the machinery, and that Wilbur may be decreed to pay to the complainant, out of the sum found to be its value, the money due upon the mortgage, including the amount of the advance made by the complainant to purchase the speeder.
The cause was heard in the circuit court on the bill, answer, and evidence, and a final decree made in favor of the complainant, and thereupon the respondent appealed to this Court.
The title of the complainant as a purchaser from the assignees of Hazard & Co. not being admitted in the answer, it is obvious that proof of the assignment to him is indispensable. The bill alleges it to have been made by the written instrument, a copy of which has been given. By reference thereto, it appears to have been executed by R. G. Hazard, for the assignees. R. G. Hazard is examined as a witness by the complainant, but does not state that he had any authority from the assignees to act for them in this behalf, nor is there any evidence of such authority in the record.
His act is ratified in writing by Thomas R. Hazard, one of the assignees. This is not sufficient. Trustees must unite to pass any title to property jointly held by them. Ex Parte Rigby, 19 Ves. 463; Sinclair v. Jackson, 8 Cow. 543, 583; Kirby v. Turner, 1 Hopk. 309; 2 Story Eq., § 1280; Willis on Trustees 136. The previous authority or subsequent assent of Low must be shown.
It is urged that, though Low, the other assignee, did not sign the paper nor ratify Hazard's act by any writing, he did by acts in pais.
There are reasons why very clear proof of such ratification should be required in this case. The first is that the bill itself states no such ratification. It relies on the written paper alone, and does not suggest that after the execution of the paper, one of the assignees ratified the transfer by acts in pais. But another and more important reason is that this transaction
between Almy and R. G. Hazard, who undertook to act for the assignees, was not in accordance with the trusts, on which the assignees held the property. The nominal consideration of the transfer to Almy was five thousand dollars; the real consideration was a debt due to Almy from Hazard & Co. at the time they became insolvent, and the purpose of the transfer to Almy was to prefer that debt. This neither Hazard & Co. nor the assignees had a right to do. And the proof should be very clear to induce the court to declare that a trustee has ratified or acquiesced in a breach of his trust amounting to a fraud on the other creditors of Hazard & Co., whose rights he was bound to protect. We do not find such proof in the record. There is no evidence tending to show that Low was ever informed of the true nature of the transaction between R. G. Hazard and Almy, or had knowledge that the purpose of those parties was to give a preference to Almy's claim. And consequently, if he had acquiesced in or even expressly ratified the transfer while ignorant of its real character, it would have been open to him afterwards to have disaffirmed it. But it is not shown that Low did acquiesce in or ratify the act of R. G. Hazard. The complainant put in evidence certain letters from Low to Lippitt which have an important bearing on this part of the case. They are as follows:
"PROVIDENCE, 6 February, 1832"
"DEAR SIR: Yours dated four days since is just at hand. Contents noted. With regard to the contract, I am as desirous to have it adjusted as you, and am ready to attend to it at any time you may name. It will be necessary for you to take an account of what cotton, yarn, cloth &c.;, you have on hand. You stated that Mr. Hazard informed you that he had purchased the contract of the assignees. That is not the case. I have made no disposition of it."
"CHARLES LOW, Assignee "
"PROVIDENCE, October 26, 1832."
"Mr. Christopher Lippitt, Sir: Having been notified by you that you wish to close up the contract under which you have been manufacturing, and to take the machinery, you paying the deficiency of your half of the profits, you are hereby authorized and requested not to receive any more cotton from Samson Almy to manufacture under said contract, and to manufacture what cotton you have on hand as soon as practicable. You are requested also to render your accounts as soon as practicable, and we will have the accounts of the profits prepared as soon as practicable, with a view to a prompt and final settlement of the whole business. "
"Mr. Almy was never authorized to supply you with cotton under the contract for his own account."
"Respectfully, your obedient servant,"
"CHARLES LOW, for self and "
" T.R. Hazard, assignee for R. G. Hazard & Co. "
"PROVIDENCE, Nov. 13, 1832"
"DEAR SIR: I should like to know if you are furnishing yourself with cotton and not receiving it from Mr. Almy, as you have been heretofore. As for Rowland Hazard's being my agent for settling the business, he cannot produce anything to show that I ever empowered him to act for me in any one instance. I shall call upon Mr. Almy within a few days and ask him for a settlement."
"CHARLES LOW, Assignee for "
" R. G. Hazard & Co. "
In these letters, Low not only denies R. G. Hazard's agency but Almy's right to supply cotton on his own account, and declares in so many words that he has made no disposition of the contract which created the mortgage, and Mr. Lippitt testifies that Low always told him R. G. Hazard never was appointed the agent of the assignees, and had nothing to do with their business. It does not appear that up to the time when he wrote the last of these letters, he was aware that Almy was supplying cotton to Lippitt by reason of an assignment of the contract to him. It does not appear that he knew Lippitt received cotton from Almy under the contract, but this he had done for nearly a year before Almy took the assignment of the contract, by virtue of an arrangement between Almy, Lippitt, and the assignees of Hazard & Co. as the bill itself states, and notice of the discontinuance of that arrangement is not brought home to Low until after Almy had ceased to supply cotton to Lippitt. The acquiescence by Low in Almy's acts of furnishing cotton under the contract is not, therefore, referable to an assignment of the contract to Almy, and still less does it amount to a ratification of such an assignment as the assignees were not able to make without a breach of trust.
If it were necessary, therefore, to decide the case upon this point, we must hold that Almy has failed to show a valid title from the assignees. But we are of opinion that, independent of this defect in his title, the bill cannot be maintained.
It has already been stated that Almy did not purchase this mortgage, but took an assignment of it for the purpose of obtaining payment of a debt which Hazard & Co. owed him at the time of their failure. This is proved, and at the same time
it is shown that when he ceased to furnish cotton to Lippitt in September, 1832, his debt was paid. Christopher H. Lippitt testifies:
"I did converse with Samson Almy, at different times while he was stocking the mill, in relation to the interest he had in doing so. He said the only interest he had in furnishing stock for the mill was to get a debt to him from R. G. Hazard & Co.; that he did not care to continue the business after said debt was paid, and that after that, it made no difference to him who stocked the mill, whether my father or anybody else. I told Mr. Almy that if it would be any damage to him for my father to stop receiving stock from him, that he might still continue to furnish the mill. Mr. Almy replied that it would be no damage to him, and that my father had better stock the mill himself, as he, Mr. Almy, had got his debt, and more too. Subsequent to my father's furnishing the mill, Mr. Almy gave him a letter of recommendation to a house in New York for the purpose of aiding him in purchasing cotton. He did state that he had no further interest in having the mill run for him, as he had secured his debt as I stated in my answer to the previous cross-interrogatory. He said it was a matter of indifference to him whether the mill and machinery was run any longer for him or not, but that he would run it for my father's benefit if so desired."
Christopher Lippitt also testifies:
"At the time I stopped manufacturing for Mr. Almy, we had some conversation about furnishing cotton. Mr. Almy says that, if I were in your place, I wouldn't manufacture for them any longer, they are all bankrupt, you don't know who you are manufacturing for. I observed to Mr. Almy that if I stopped receiving cotton from you, won't it be an injury to you? He said, no, not in the least, for I think I've got my pay, and more too. I then observed to him that probably I might stand in need of some assistance from him if I commenced on my own account; he promised to render me all the assistance that he well could, give me some recommendations and introductions, where I might buy cotton. Afterwards, sometime in the year 1834, he gave me introductions to go to New York to buy cotton. I stopped by the advice and consent of Mr. Almy. The letter he gave was addressed to Messrs. Jenkins, Merrick & Co., New York; I was also advised by Mr. Almy to send my goods to them for sale, and I did send most of my goods to them in future, accordingly. I never heard him say that he had any lien or claim on the machinery whatever. He said the contract between me and R. G. Hazard & Co. was placed in his hands by them for the purpose of getting a debt that R. G. Hazard & Co. owed him, or that he had become obliged or bound to pay for them. "
There is nothing to control this evidence except the testimony of R. G. Hazard. He said,
"S. Almy, the only probable purchaser to whom it seemed safe to sell, objected on account of apprehension of difficulty with Low and Fenner, but by promising my personal services in the subsequent management of the business and obligating myself by some other conditions, I prevailed upon him to make the purchase."
This is far too vague an account of the consideration and terms of the sale to be relied on to control the explicit declarations of Almy and the inferences to which his conduct gives rise.
This conduct tends to show he had only a conditional interest in the property and that his interest had terminated. He not only ceased to supply cotton in 1832, declaring at the same time that his debt was paid and he had no longer any interest in the matter, but he suffered Lippitt to run the machinery, and treat it as his own until his failure in December, 1835, when Lippitt conveyed it to Wilbur and others. It rested in their hands until November, 1836, when Almy demanded it of Wilbur. Nothing more appears to have been done or said by him in reference to the property, till October, 1840, when he wrote the following letter:
"PROVIDENCE, 10th month 23d, 1840"
"Respected Friend: I have consulted counsel respecting the claim I have against thee, and have made up my mind to commence a suit immediately unless there is a settlement. If thee would like to see Mr. Hazard, he will be in town on the 26th instant."
Two years more elapsed, making ten years from the time when he ceased to have anything to do with the machinery. This bill was then filed, and R. G. Hazard is very active in the management of the suit, as he says, by reason of an understanding between Almy and himself when the assignment was made. This understanding must have been included by him in that part of his testimony where he speaks of promising his "personal services in the subsequent management of the business, and obligating himself by other conditions," and if one of those conditions was that Almy took the transfer by way of security, and his debt had been paid, it is quite consistent with Almy's real relation to this property that he should lie by ten years, and when he moved that R. G. Hazard should be active also.
But we find another piece of evidence in the record to which it is proper to advert. It is the examination of Almy before the master upon the subject of his title, in which he has undertaken to give what he calls "the history of the whole matter." It is as follows:
"In reply, I must give you the history of the whole matter. In 1829, I think, I made arrangement with Rowland G. Hazard, Low & Fenner, and Christopher Lippitt, to furnish stock to Christopher Lippitt under the contract made by R. G. Hazard & Co., and Christopher Lippitt, they agreeing to give me one-half of the profits for doing the business. We went on in that way, until I made the purchase of the machinery, after which I became sole owner and went on under the contract. At the time of R. G. Hazard & Co.'s failure, they owed me five or six thousand dollars, due by note, and the consideration of the contract or bill of sale was those notes, so far as they were required -- that is, the agreement was that that bill of sale, so far as it went, should go to cancel these notes. The notes thus cancelled, it is my impression, were surrendered to R. G. Hazard, as agent for the assignees. I can't say that Mr. Hazard acted as agent of the assignees when I surrendered the notes to him; he did when the contract was made. I can't remember when I surrendered the notes to Mr. H., nor how many of them there were. I could ascertain if time were allowed."
This is perfectly explicit except on one point, and that is whether the transfer to him was an absolute sale, extinguishing the notes, or by way of collateral security for the notes. A close examination of his statement will tend to show it to have been the latter.
"the consideration of the contract or bill of sale was those notes, so far as they were required -- that is, the agreement was that that bill of sale, so far as it went, should go to cancel those notes."
But if the consideration of the sale was the extinguishment of the notes, what is meant by its extinguishing them, so far as it went? This language is intelligible if the agreement was that he should work out his debt through this contract with Lippitt. In such case, the bill of sale might be said to extinguish the notes so far as it went -- that is, so far as it should prove to be effectual for that purpose. And this construction is much strengthened by the fact that he does not profess to have surrendered any of the notes at or about the time when the transfer was made to him, and there is no reason to believe he did so before his debt was paid. Taking this statement of Almy, in connection with his repeated declarations to the Lippitts and his conduct in reference to this property, we cannot doubt that the transfer
was made solely to enable him to obtain payment of these notes by means of the contract with Lippitt, and that payment was thus obtained.
Other questions have been made in the case which we have not found it necessary to decide. Our opinion is that the decree of the circuit court should be reversed and the bill dismissed with costs.
This cause came on to be heard on the transcript of the record from the Circuit Court of the United States for the District of Rhode Island and was argued by counsel. On consideration whereof it is now here ordered, adjudged, and decreed by this Court that the decree of the said circuit court in this cause be and the same is hereby reversed with costs, and that this cause be and the same is hereby remanded to the said circuit court with directions to dismiss the bill of complaint with costs.