allowed in general assignments, they will not be sustained in transfers for the benefit of creditors of less than the entire estate.1

§ 158. Priority to United States.-Partial assignments are not within the provisions of the act of Congress of March 2, 1799, giving priority of payment to the United States, in cases of insolvency; nor are they within those of the act of March 3, 1797, giving similar priority of payment out of the property of an insolvent who had made a voluntary assignment for the benefit of his creditors; such priority existing only in cases of general assignments by debtors. But if only a trifling portion of the assignor's estate be reserved, especially for the purpose of evading the law, such reservation will not make the assignment a partial one. And a party cannot, by assigning all his property by different acts, defeat the priority of the United States, under the pretext of the assignments being partial.*

'See post, Chap. X.

2

'United States v. Hooe, 3 Cranch, 73; Conard v. Atlantic Ins. Co. 1 Pet. 386; Story, J., Id. 439; United States v. Clark, 1 Paine, 629; United States v. McLellan, 3 Sumn. 345; United States v. Bank of the United States, 8 Rob. (La.) 262.

'United States v. Hooe, 3 Cranch, 91; United States v. McLellan, 3 Sumn. 345; see Dias v. Bouchaud, 10 Paige, 435, 448, 461.

'United States v. Bank of the United States, 8 Rob. (La.) 262. In United States v. Griswold (8 Fed Reptr. 496), it was held that a debtor of the United States may assign his property, within the meaning of the statute, by means of judgments confessed in favor of various persons, for amounts equal in the aggregate to the value thereof, and the priority of the United States will thereupon attach to the property and prevail against the judgments, but subject to all prior liens thereon.

CHAPTER X.

ASSIGNMENTS WITH PREFERENCES.

§ 159. Assignments in trust for the benefit of creditors, giving preferences to certain creditors, or certain classes of creditors, over others, though here treated, for the sake of convenience, as exceptional forms, have in fact constituted, until recently, one of the most common descriptions of this species of transfer in use in this country. They present the form which an assignment seems, in most instances, to have naturally taken, wherever a debtor has been allowed to be the distributor of his property among his creditors, as distinguished from the equal distribution provided by law, through the medium of systems of bankruptcy and insolvency; but they have always been a subject of criticism, objection, or open condemnation, as founded on an unjust and erroneous principle. In the courts, where their principle, policy, and practical operation have been daily investigated and discussed, they have been viewed, especially of late, with a growing sentiment of jealousy and disfavor; and the continued use of them has finally led to most of the legislative interposition by which an insolvent debtor's power of assignment has been controlled, and its exercise regulated by specific provisions.1

It will be most convenient to consider the subject of this chapter under the following heads: I. The right to prefer. II. Restrictions on the right. III. Subjects of preference. IV. Modes of giving preferences. V. Illegal and fraudulent preferences.

'While the bankrupt act remains in force, assignments with preferences will be unfrequent, but as they may still be made, and are occasionally brought before the courts for review, this chapter is retained, with brief citations of the cases reported since the previous edition. See Chap. III for questions arising under the bankrupt act, relating to preferences in assignments.

§ 160. I. Right of a Debtor to Prefer a Creditor.-It has long been a settled rule in England and American law (subject to qualifications which will be considered), that a debtor in failing circumstances,1 may not only dispose of his property in trust for the use and benefit of his creditors generally, but may, by such a conveyance, give a preference, in payment, to one creditor before another, or to one class of creditors before another class.2

This rule may be viewed as the result of a gradual expansion of the acknowledged principle, that a debtor owing several creditors, and not having the means of paying them all, may pay one in preference to another, or some in pref erence to others; in other words, that he has the right of selection in this mode of satisfying their demands; and that a payment thus made to one creditor, in good faith, cannot be questioned or interfered with by another.

1 See ante, p. 23.

2

This principle

2 Kent's Com. [532] 689; 1 Tucker's Com. [335] 325; 2 Id. [443] 432. Marshall, C. J., in Brashear v. West, 7 Pet. 608, 614; Mackie v. Cairns, 1 Hopk. 273; Sutherland, J., in Grover v. Wakeman, 11 Wend. 187, 194; Gaston, J., in Hafner v. Irwin, 1 Ired. L. 490, 496; Harris, J., in Webb v. Daggett, 2 Barb. 9, 11; Gamble, J., in Richards v. Levin, 16 Mo. 596, 598, 599; Totten v. Brady, 54 Md. 170; Hanscom v. Buffum, 66 Me. 246.

3

' Sandford, C., in Mackie v. Cairns, 1 Hopk. Ch. 373, 406; Curtis, J., in Stewart v. Spenser, 1 Curt. 161, 162.

4

In the case of Tillou v. Britton, in the Supreme Court of New Jersey (4 Halst. 120, 136), Mr. Justice Ford, in delivering his opinion, observed as follows: "The law contains no such principle as that a man in failing circumstances may not pay any just debt first, which will best relieve his circumstances. If, while a man retains his property in his own hands, the right of giving preferences should be denied, he would so far lose the dominion over his own, that he could not pay anybody, because whoever he paid would receive a preference. He could only pay ratably, which is never incumbent till after he has taken the benefit of the insolvent laws, or has assigned his property to trustees for the benefit of creditors, and so put the dominion over it into other hands. Accordingly, it was decided by this court, in the case of Hendricks v. Mount, 2 South. 743, that the making of such preferences was every day done, was every day sustained in our courts of justice, and is legal." In the case of Blakey's Appeal, in the Supreme Court of Pennsylvania (7 Barr, 449, 451), Coulter, J., observed; "It is only when a man loses dominion over his property, and transfers that dominion to another, that the right of creditors to a pro rata dividend attaches. Whilst a man retains dominion of his property, he may encumber and convey it as he pleases, if not directly forbidden by law, and prefer such creditors by payment or transfer as he chooses. And if it were not so, an individual could not get along in his business." And see Uhler v. Maulfair, 23 Penn. St. 481; Hopkins v. Beebe, 26 Id. 85. "It is settled," says Walworth, Chancellor, in Wakeman v. Grover (4 Paige, 23, 36), "that the insolvent has the right, while his property remains in his own hands, to apply the same to the payment of one creditor in preference to another, not

has been admitted in England, even under the stringent system of the bankrupt law;1 and it has been broadly laid down by the Supreme Court of the United States, that a debtor may prefer one creditor, pay him fully, and exhaust his whole property, leaving nothing for others equally meritorious. The same principle has been affirmed by the State courts. Even in Massachusetts, where a system of insolv

withstanding the principle of this court, that equality among creditors is equity." See the observations of Nelson, J., in Cunningham v. Freeborn, 11 Wend. 256; of Wright, J., in Atkinson v. Jordan, 5 Ohio, 178; and of Wheeler, J., in Edrington v. Rogers, 15 Tex. 188; and see Kuykendall v. McDonald, 15 Mo. 416; Gas. sett v. Wilson, 3 Fla. 235. In Surget v. Boyd (57 Miss. 485), it was held that a deed of trust made by a debtor against whom a suit for a large amount is pending, just before judgment, to secure pre-existing debts due his relatives and friends, is valid. Unless such security is a sham never to be enforced, other creditors can vacate it only by showing that the secured debts are simulated, or that some benefit is reserved to the grantor.

'In the early case of Hopkins v. Gray (7 Mod. 139), it was held by Lord Holt, that if a banker or goldsmith who has many peoples' money refuse payment, yet keep his shop open, and as often as he is arrested give bail, he may by that means give preference of payment to his friends; and when he has done, if he runs away, yet such payment shall stand against a commission of bankruptcy; and his lordship cited the case of Sheppard the banker in confirmation of this doctrine. In the case of Cock v. Goodfellow (10 Mod. 489, 497), Lord Chancellor Parker said: "A man that knows he must be a bankrupt, may by law pay off any of his creditors." The modern English cases establish the principle, that a preference given to a creditor by payment is not fraudulent, unless it appears to have been voluntary, without pressure by the creditor, and with the view of giving a fraudulent preference in contemplation of bankruptcy. Cook v. Pritchard, 6 Scott N. R. 34; 5 Mann. & Gr. 329; Green v. Bradfield, 1 Carr. & K. 449; Ogden v. Stone, 11 Mees. & W. 494; Kynaston v. Crouch, 14 Id. 266; Brown v. Kempton, 19 L. J. C. P. (N. S.) 169; Hale v. Allnutt, 36 Eng. L. & Eq. 383. But see the bankrupt act 1869, 32 & 33 Vict. c. 71. Fraudulent preference has now for the first time been defined by the legislature. The whole law of bankruptcy is to be found in the bankruptcy act 1869, and the whole law of fraudulent preferences in § 92 of that statute. See Ex parte Mathew in re Cherry, 19 W. R. 1005; s. c. on appeal; Ex parte Boland, L. R. 7 Ch. Ap. 24; Ex parte Craven, L. R. 10 Eq. 648; s. c. on appeal; Ex parte Tempest, L. R. 5 Ch. Ap. 70. So it has been held, under the United States bankrupt law of 1800, that if a person on the eve and even in contemplation of bankruptcy pay money, give security, or assign property to a creditor, it will be valid if the effect of measures taken by the creditor, or if done at the creditor's instance and on his application. But if done voluntarily, without solicitation or compulsion, and merely to prefer one creditor to another, it will be fraudulent and void. Ogden v. Jackson, 1 Johns. 370, 373; Phoenix v. Ingraham's Assignees, 5 Id. 412; and see, under the act of 1841, Ex parte Garwood and Ex parte Potts, Crabbe, 516; Atkinson v. The Farmers' Bank, Id. 529. As to what will constitute a fraudulent preference under the act of 1867, see Bump on Bank. (8th ed.) pp. 792 et seq. and cases cited; see Mays v. Fritten, 20 Wall. 414; Wilson v. City Bank, 17 Wall. 473.

2 Clark v. White, 12 Pet. 178; see Tompkins v. Wheeler, 16 Id. 106.

3 Buffum v. Green, 5 N. H. 71; Tillou v. Britton, 4 Hals. 120; Stover v. Herrington, 7 Ala. 142; Ford v. Williams, 3 B. Mon. 550; Ex parte Conway, 4 Ark.

ency has been established, partaking of the character of a bankrupt law, a payment in money by an insolvent debtor, of a debt due a particular creditor, has been held valid.1 And in Louisiana, where the fundamental law of the State declares all the property of the debtor to be the common pledge of his creditors, and the courts have always been jealous of any conveyance or transaction calculated to defraud creditors, or give an unjust preference to one class

302; Powles v. Dilley, 2 Md. Ch. Dec. 119; Edrington v. Rogers, 15 Tex. 188, 195; Sibley v. Hood, 3 Mo. [206] 290; Richards v. Levin, 16 Id. 596; Sedgwick, J., in Hatch v. Smith, 5 Mass. 42, 49; Parsons, C. J., in Widgery v. Haskell, Id. 144, 157; Wilde, J., in Johnson v. Whitwell, 7 Pick. 71, 73; Dewey, J., in Nostrand v. Atwood, 19 Id. 281, 284; Wing, P. J., in Hollister v. Loud, 2 Mich. 309, 315; Hauselt v. Vilmar, 43 N. Y. Super. Ct. 574; s. c. 2 Abb. N. C. 222; affi'd 76 N. Y. 630. Where a debtor owes two parties, one of them may accept payment of his debt in anything of value he can get, though he knows that the debtor owes the other party and cannot pay both. Hopkins v. Beebe, 26 Penn. St. 85; Archer v. O'Brien, 7 Hun, 146; Lampson v. Arnold, 19 Iowa, 480; The York County Bank v. Carter, 38 Penn. St. 446.

'Wall v. Lakin, 13 Metc. 167. The decision in this place was placed on the ground that the case of payment, in money, of an existing debt, by an insolvent debtor, is not among the cases embraced within the provisions of § 3 of the statute of 1841, c. 124. Such a case would have been within the statute of 1838, c. 163, § 10, but is thought by the court to have been designedly omitted in the statute of 1841. The following remarks of Mr. Justice Dewey have an important bearing on the principle considered in the text: "It was strongly urged upon us, at the argument, that it was against the whole policy of the insolvent laws thus to allow a payment to an individual creditor to be retained by him to his own use. If we look merely at the principle of equitable distribution of the whole assets among all the creditors pro rata, it would seem to be in derogation of that principle. But there are other considerations favoring the construction we have given. A different rule might be found to operate with great practical inconvenience in its application to payments made in the usual course of business. Many cases occur of traders and other persons who do business while there is a strong public impression that if their debts were at once all demanded there might not be assets sufficient to pay them, yet who continue to pay such debts as are most strongly pressed, hoping to survive their embarrassments, and by better success in business eventually to discharge their entire indebtedness. Whether it would be sound policy to disturb such payments may certainly be somewhat questionable." 13 Metc. 171, 172. It has since been provided by statute, that any payment made by a debtor, being insolvent or in contemplation of insolvency, within six months before the filing of the petition in insolvency by or against him, with a view, directly or indirectly, to give a preference to any pre-existing creditor, or to any person having any pre-existing claim or demand against him, or to any person liable as indorser, guarantor, or surety for him, shali be, as to the other creditors, void; and the assignees in insolvency may recover from the person so preferred the money so paid, with interest, provided such person, when accepting such preference, had reasonable cause to believe such debtor insolvent. Act of June 9, 1756, § 25; Stat. of 1856, c. 284; Gen. Stat. of Mass. c. 118, § 89; Pub. Stat. (1882), p. 894. But the act does not apply to any payment (not exceeding twenty-five dollars in amount) upon any debt contracted for necessaries furnished to the debtor or his family. Id. Ibid.