Opinion
Argued October 2, 1879
Decided November 11, 1879
M.W. Divine, for appellants. C. Bainbridge Smith, for respondent.
There is much force in the argument that the fourteenth section of the statute of New Jersey is in the nature of a bankrupt law. It enables a debtor to coerce his creditors to discharge him from his debts on receiving a rateable dividend of his existing assets; the only alternative being to relinquish or abandon all claim upon those assets.
Assuming therefore that this provision is in the nature of a bankrupt law, and that the exercise by Congress of the power to establish "uniform laws on the subject of bankruptcies throughout the United States," ipso facto suspended the operation of the provision above referred to, the question arises whether the residue of the New Jersey statute was affected, or whether it continued operative.
The object of the statute as expressed in its title was "to secure to creditors an equal and just division of the estates of debtors who convey to assignees for the benefit of creditors." It prohibits preferences, requires an inventory of the debtor's property and a list of his creditors to be annexed; requires the assignee to give security for the faithful performance of his trust, and prescribes his duties in giving notice of the assignment, advertising for claims, declaring dividends, etc., etc.
To these provisions is superadded the fourteenth section, which relates wholly to the effect upon the debtor's claim, of accepting a dividend. We are of opinion that there is no such necessary connection between this section and the other provisions of the act, as to require that they should fall because of that section becoming inoperative. The act does not create the right to make voluntary assignments, but is restrictive of a previously existing right to make them, and throws salutary safe guards around the exercise of that right, and in those respects is intended for the protection of creditors. None of those provisions come in any way in conflict with the power conferred upon Congress, nor with the bankrupt law, and they are complete in themselves and in no way dependent upon the fourteenth section, which attempts to provide for the discharge of the debtor from his debts. The fourteenth section is a distinct and independent provision for the benefit of the debtor. If this provision was superseded by the bankrupt law, the consequence was that an insolvent debtor who, during the existence of that law, sought a discharge from his debts, must for the purpose of attaining that object, have had recourse to proceedings in bankruptcy. But a debtor who sought simply to obtain an equal distribution of his property among his creditors, was at liberty to do so by means of a voluntary assignment. The right to make such assignments was not affected by the bankrupt law, but continued in full force, as well in States where there were statutory regulations on the subject, as in States where there were none.
Even if the whole of the New Jersey statute had been suspended, the right to make a voluntary assignment would still have existed; but we do not think that there was any suspension, unless it be of the fourteenth section, and that after the passage of the bankrupt law, a debtor making an assignment in New Jersey was still bound to observe the conditions imposed by that act. If the right to make the assignment had been created by the act, different considerations might enter into the question, and it might be argued that the fourteenth section was an essential part of the system and scheme of the act, the destruction of which would invalidate the whole act. It is by no means clear that even in the case supposed this argument could be maintained. But such not being the case, the suspension of the fourteenth section affords no ground for holding that the restrictions and safe guards thrown by the body of the act around the right of debtors to make voluntary assignments, should be dispensed with, and debtors left at liberty to exercise that right without restriction or regulation.
If, in the assignment now in question, no reference had been made to the New Jersey statute, it could hardly be pretended that the assignment was assailable. It would stand as valid at common law, even if there were no such statute. But it is claimed that the words of the trust "to distribute the proceeds to and among the creditors of the said William H. Locke in proportion to their several just demands pursuant to the statute in such case made and provided" indicate that the assignment was made under the statute, and that the statute being suspended the assignment must fall.
This has already been answered by our conclusion that the whole statute was not suspended, and that those parts of it which regulate the form of the assignment and the conduct of the assignee, remained in force. The reference to the statute was therefore appropriate. But it is further claimed, and held in the opinion at Special Term, that this reference to the statute shows that the assignor presumed that he would be entitled to the benefit of the provisions of the fourteenth section, and being mistaken in that, the deed is void.
It does not appear that the assignor has ever claimed to avoid the assignment on that ground, and we apprehend that it would be his right, and not that of third parties, to do so. But we do not think the ground tenable by any one. If the 14th section was inoperative, it was by reason of the provisions of the Constitution of the United States and of the act of Congress, and of these every citizen is bound to take notice. The legal presumption is, not that the assignor executed the instrument in ignorance of the law, but that knowing the law, and knowing that he would not be discharged, and desiring simply to secure an equal distribution of his property and to prevent any creditor from obtaining an unjust preference, he elected to effect this end by means of a voluntary assignment, by which his property would be distributed by an assignee of his own selection, under the State law, rather than to have it administered by a court of bankruptcy. That he had the right so to do, has been adjudged both by this court and by the Supreme Court of the United States. ( Thrasher v. Bentley, 59 N.Y., 649; Haas v. O'Brien, 66 id., 597; Mayer v. Hellman, 91 U.S. 496.)
The judgment of the Special and General Terms should be reversed, and a new trial ordered, costs to abide the event.
All concur.
Judgment reversed.