Holcomb's Ex'rs v. The President and Managers of the New Hope Delaware Bridge Company, it was said by Chancellor Williamson, that the object of this section was to prevent companies actually insolvent, or whose embarrassments were such as must inevitably lead to insolvency, from doing what it is lawful for an individual debtor to do— make a preference in favor of any one or more of its creditors.

In Ohio, it is provided by the banking act of March 21, 1851,2 that "all transfers of notes, bonds, bills of exchange, and other evidences of debt, owing to any banking company, or of deposits to its credit; all assignments or mort gages, or other securities on real estate, or of judgments or decrees in its favor; all deposits of money, bullion, or other valuable thing for its use, or for the use of any of its stockholders or creditors; all payments of money to either, made after the commission of an act of insolvency, or in contemplation thereof, with a view to prevent the application of its assets in the manner prescribed by the act, or with a view to the preference of one creditor to another, except in payment of its circulating notes, shall be held utterly null and void.

In Louisiana, every assignment, transfer, conveyance, or sale of property or assets, made by a banking company after the protest of any of its notes, is declared by statute null and void.3

In Connecticut, corporations are expressly included in the provisions of the act of 1853, "for the relief of insolvent debtors, and for the more equal distribution of their effects among their creditors." 4

1

1 Stock. 457, 459. But the effect of the provision has since been declared to be, to prohibit assignments by corporations, whether conferring preferences or not. Am. Ice Machine Co. v. Paterson St. Fire Eng. & Mach. Co. 22 N. J. Eq. 72. Rev. Stat. of Ohio (S. & C.), p. 172, § 28; R. S. of Ohio (1880), p. 1884; see Rossman v. McFarland, 9 Ohio St. 369.

2

Rev. Stat. (ed. 1870), p. 63, § 295.

Gen. Stat. (Rev. of 1875), p. 378.

§ 175. III. Subjects of Preferences in Assignments.— In those States where preferences are not prohibited by statute, it is well settled that not only actual creditors, but sureties and indorsers may be preferred by debtors, in making assignments of their property.1 Drawers and indorsers of what is termed "accommodation paper," being considered entitled to peculiar favor, are frequently provided for in this way. A debtor is also allowed to secure a creditor for future advances and responsibilities, as well as for existing claims and engagements, by an assignment of property to him, in preference to other creditors. Sureties liable on existing, or even future responsibilities, are as much entitled to indemnity and preference as creditors in the more strict sense of that term.3 And a deed of assignment for the security of indorsers is valid, although no payments have been made by them at the time of its execution.* It seems that a wife's claim for dower may be preferred.5

§ 176. A preference also may not only be personal, but may be extended so as to cover particular demands, whoever may be the holder. Thus, where, among the preferred demands contained in a schedule, annexed to an indenture of assignment, was "S. & T.'s draft (accepted by the debtors), for which they hold a mortgage of B. W." &c., it was held that the trust was not personal to S. & T., but that the holders of the draft, to whom it had been indorsed before the making of the indenture, were entitled to the benefit of the trust. 6

A debtor making an assignment may also include among

1 Hendricks v. Robinson, 2 Johns. Ch. 283; affirmed on error, 17 Johns. 438; Cunningham v. Freeborn, 11 Wend. 240; Lansing v. Woodworth, 1 Sandf. Ch. 43; Duval v. Raisin, 7 Mo. 449.

Hendricks v. Robinson, 2 Johns. Ch. 283; see Barnum v. Hempstead, 7 Paige, 568; ante, pp. 155, 156.

3

* Cunningham v.Freeborn, 11 Wend. 240.

1 Duvall v. Raisin, 7 Mo. 449.

Miller v. Crawford, 32 Gratt. 277; Reiff v. Horst, 55 Ind. 42; see Reiff v. Eshleman, 52 Id. 582.

Ward v. Lewis, 4 Pick. 518. The court in this case say, "The parties were designating the demands which were to be paid in full, and not the persons to whom payment was to be made;" and cite Heilner v. Imbrie, 6 Serg. & R. 401.

preferred debts, such as have been previously secured by either judgment or mortgage; and a provision for their payment will not render the assignment fraudulent and void.1 But the creditors thus doubly secured, are held bound in equity to resort to their previous security first, so as to give the other creditors provided for, the benefit of the assigned fund.2

§ 177. IV. Modes of giving Preferences in Assignments.-Preferences may be given to creditors in a variety of forms: as, by simply directing certain named creditors, or designated debts, to be first paid in full out of the proceeds of the assigned property, and the balance to be applied for the benefit of all the other creditors without distinction; or by formally dividing the creditors into numbered or designated classes, arranged in a certain order, and directing each class to be paid, to the extent of the proceeds applicable for that purpose, before the one immediately fol lowing.

§ 178. Again, preferences may be given either absolutely, as by directing certain named creditors to be first paid, at all events; or upon condition, as by preferring such creditors as shall comply with certain requisitions named in the assignment. In regard to the latter species of preferences, it has been said that a debtor having an unquestionable power of preference, of which he is the absolute master, may set his price upon it, provided it be not a reservation of part of the effects for himself, or anything that would carry his power beyond mere preference; and that a debtor may deprive the creditor who refuses to accede to his terms, of his preference, and postpone him to all other creditors.1 A

1

3

Strong v. Skinner, 4 Barb. 546; Kruse v. Prindle, 8 Oregon, 158.

2 Besley v. Lawrence, 11 Paige, 581.

Gibson, C. J., in Thomas v. Jenks, 5 Rawle, 221; and see Layson v. Rowan,

7 Rob. (La.) 1; but see Jackson v. Cornell, 1 Sandf. Ch. 348, 354.

Kent's Com. [534] 694; see Bellows v. Patridge, 19 Barb. 176. In this case, the assignment preferred, in the third class of creditors, two notes made to one H. upon condition that H. accounted for certain collaterals. If he did not account for them, however, no portion of the assigned property was to be applied on those notes until all the residuary creditors were paid except B. The notes

condition of preference frequently inserted in assignments, is that which requires the creditors to exhibit their demands to the assignee within a specified period; and a condition of this kind has been sustained in New York.1 Another condition of constant occurrence has been that which requires the creditors to release, or agree to release, their claims against the debtor, by becoming parties to the assignment itself, where it contains a release, or by the execution of a separate instrument to that effect. Assignments containing both these species of condition, have been adjudged to be valid in Rhode Island.2 But the coercive power which such a condition obviously gives to the debtor has subjected it to much question, and where it is not regarded as illegal, it is now usually viewed with disfavor. A vision in an assignment postponing the payment of those creditors who should have made any cost or expense upon their claims until all the other creditors should be paid in full, has been held to be fraudulent and void. And as to conditions of preference generally, the inclination of the courts in most of the States is against them, as has already been shown in this chapter.

A pro

were then to be paid, and B.'s claim was to follow. In any event, B. was to be paid last. It was held by the court that these provisions were nothing more than the exercise of the assignor's undoubted right to direct preferences, and to prescribe the order in which his debts should be paid, and did not render the assignment void. In the case of Spaulding v. Strong (37 N. Y. 135; s. c. 38 N. Y. 9), preferences were given to such of the creditors as had already executed a conditional release on receiving 50 per cent. of their claims. If the preference had been conditioned on the release, the assignment would have been invalid under the decisions in Grover v. Wakeman (11 Wend. 201); Hyslop v. Clarke (14 Johns. 458). See also, to the same effect, Low v. Graydon, 50 Barb. 414; Powers v. Graydon, 10 Bosw. (N. Y.) 630; see Palmer v. Giles, 5 Jones' Eq. (N. Ca.) 75. In the case of Grant v. Chapman (38 N. Y. 293), a provision preferring the amount found due in certain attachment proceedings, provided they were sustained and were a lien, was not regarded as rendering the assignment invalid, as being conditional or giving an illegal preference. See Haydock v. Coope, 53 N. Y. 68, 74. 1 Ward v. Tingley, 4 Sandf. Ch. 476.

1

Pearce v. Jackson, 2 R. I. 35; see Nightingale v. Harris, 6 R. I. 321; Sadlier v. Fallon, 4 Id. 490; Allen v. Gardner, 7 Id. 22.

' In Pennsylvania, by the act of April 16, 1849, a condition in an assignment for the payment of those creditors only who shall execute a release, is declared to be a preference in favor of creditors, and to be void. Laws of 1849, p. 664; Purdon's Dig. p. 22, pl. 3. The subject of stipulations for a lease, as a general condition in assignments, will be more fully considered in Chapter XI.

§ 179. It is a further rule on the subject of preferences, that the debtor must declare such preferences in the assignment at the time of executing it, and he cannot reserve to himself or transfer to his assignee the right to declare future preferences, or to change the order of the preferences already given, or to give preferences at the assignee's discretion.1 Assignments containing provisions to this effect have been repeatedly held fraudulent and void. Thus, where an assignment contained a provision giving to the assignee a discretionary power to pay off or discharge a certain class of claims against the assignor, or certain small debts due from the latter, in preference to other debts provided for in the assignment, it was held void as against the creditors of the assignor, as being calculated to injure, delay and hinder creditors in the collection of their just debts. So, where a debtor in failing circumstances made an assignment of all his property to trustees in trust, to apply the proceeds to the payment of certain preferred creditors, so far as should be necessary, and to apply the residue of the proceeds to the payment of his other creditors, in such order of priority as the trustees should think proper, and if the fund was insufficient to pay all such debts, then to apply the same in payment of such part of such debts as the trustees should judge most just and equitable; it was held that the assignor could not legally delegate to the trustees the power to give preferences at their discretion, and that the assignment was fraudulent and void as to creditors who did not assent to the same. So where an assignment providing for the payment of the debts of the assignor, according to several

1 Sutherland, J., in Grover v. Wakeman, 11 Wend. 187; Boardman v. Halliday, 10 Paige, 223, 228; Sandford, A. V. C., in Van Nest v. Roe, 1 Sandf. Ch. 4; 2 Kent's Com. [532] 691, note; Van Vorst, J., in Kercheis v. Schloss, 49 How. 288.

2 Barnum v. Hempstead, 7 Paige, 568; Boardman v. Halliday, 10 Id. 223; Sheldon v. Dodge, 4 Den. 217; Strong v. Skinner, 4 Barb. S. C. 546; Averill v. Loucks, 6 Id. 470; Mitchell v. Stiles, 13 Penn. St. 306; Gazzam v. Poyntz, 4 Ala. 374.

4

3 Barnum v. Hempstead, 7 Paige, 568, 571; see Morse v. Slason, 13 Vt. 296. Boardman v. Halliday, 10 Paige, 223.