BUMB v. Minnie M. Bennett, Victoria E. Bloch and Leonard Bloch, Appellants.*

Reset A A Font size: Print

District Court of Appeal, Second District, Division 2, California.

August J. BUMB, Assignee for Benefit of Creditors of B. F. Wells & Son, a copartnership composed of B. F. Wells and E.L. Wells, Plaintiff and Respondent, v. Minnie M. BENNETT et al., Defendants. Minnie M. Bennett, Victoria E. Bloch and Leonard Bloch, Appellants.*

Civ. 22999.

Decided: June 09, 1958

William Katz, Los Angeles, for appellants. Harold A. Slane, Harold A. Slane, Jr., and Sidney J. Unickel, Los Angeles, for respondent.

Appeal from judgment resolving conflict between rights arising from general assignment for benefit of creditors and subsequent attachment of certain real property included in the assignment. The court found for the plaintiff assignee. The attaching creditor and the purchaser at execution sale appeal from the judgment.

B. F. Wells & Son, a partnership engaged in the plumbing contracting business, made a general assignment for benefit of creditors to respondent Bumb, as assignee. It became effective on May 29, 1956, at 8:00 a. m. On that same day, at 12:17 p. m., appellant Bennett, as the representative of certain unsecured creditors of B. F. Wells & Son, levied an attachment upon a parcel of real property which constituted a part of the assets included in the assignment for benefit of creditors. Appellant Victoria E. Bloch later purchased this property at execution sale based upon the Bennett attachment and ensuing judgment in her favor. Appellant Leonard Bloch is the purchaser's husband.

No effort was made to comply with the sections of the Civil Code (3449–3473) governing assignments for benefit of creditors, and respondent assignee expressly disclaims any attempt to sustain his title as a statutory assignment, relying upon it as a valid common law assignment for benefit of creditors. Appellants argue that this cannot be so with respect to realty included in the assignment; that the instrument must comply with the statutory requirements so far as realty is concerned or be void as to non-consenting creditors, in which category appellant Bennett stands; that therefore the attachment has priority over the assignment. Appellants make numerous other attacks upon this assignment but it is unnecessary to discuss them because we have concluded that the assignment is void as to appellants for reasons now set forth.

Preliminarily, it is necessary to define certain terms,—general assignments and partial or special assignments for benefit of creditors,—and then throughout the discussion to bear the distinction in mind. ‘An assignment is a general assignment for the benefit of creditors where it comes within the definition, and embraces the elements, of an assignment for the benefit of creditors and transfers all, or substantially all, of the debtor's property to a trustee for the benefit of all his creditors; it is not general where it is intended to apply only to a portion of the creditors and a specified fund; it is partial where it conveys only a portion of the debtor's property and the part omitted is substantial rather than trifling; and it is special or specific where it is for the benefit of certain creditors.’ 6 C.J.S. Assignments for Benefit of Creditors § 2, p. 1221.

Title III, Part 2 of Division Fourth of the Civil Code (§§ 3449–3473) was enacted as a part of the 1872 code. A copy of § 3449 as then enacted is set forth in the margin.1 As last amended in 1895 it is in much more elaborate form, but starts as follows: ‘An insolvent debtor may in good faith execute an assignment of property in trust for the satisfaction of his creditors, in conformity to the provisions of this chapter; subject, however, to the provisions of this Code relative to trusts and fraudulent transfers, and to the restrictions imposed by law upon assignments by special partnerships, by corporations, or by other specific classes or persons. * * *’

The assignment must run to the sheriff, whose duty it is to call a meeting of creditors for the purpose of electing one or more assignees to succeed the sheriff; he assigns the property to the successor so elected. Section 3458 provides that the assignment must be in writing, subscribed by the assignor or an authorized agent; must be acknowledged or proved and certified in the same manner as a deed of conveyance and must be recorded. Section 3459: ‘Unless the provisions of the last section are complied with, an assignment for the benefit of creditors is void against every creditor of the assignor not assenting thereto.’ Within 20 days after making the assignment the assignor must file a full and true inventory (§ 3461) showing the names and addresses (so far as known) of all creditors and the amount owing each of them. Subdivisions 6 and 7 of said section require inclusion in the inventory of: ‘6. All property of the assignor at the date of the assignment, which is exempt by law from execution; and, 7. All of the assignor's property at the date of the assignment, both real and personal, of every kind, not so exempt, and the incumbrances existing thereon, and all vouchers and secutities relating thereto, and the value of such property according to the best knowledge of the assignor.’ The inventory must have attached to it the assignor's affidavit ‘to the effect that the same is in all respects just and true according to the best of such assignor's knowledge and belief.’ § 3462. The assignment must be recorded and the inventory filed with the county recorder of the county of assignor's residence, if he be a resident. § 3463. Failure to so record and file renders the assignment ‘void against creditors of the assignor and against purchasers and incumbrancers in good faith and for value.’ § 3465. Section 3466 says: ‘Where an assignment for the benefit of creditors embraces real property, it is subject to the provisions of Article 4 of the Chapter on Recording Transfers, as well as to those of this Title.’

The statement in § 3449 that an assignment for creditors shall be subject to the provisions of the code relative to trusts and fraudulent transfers incorporates as an implied exception to the generality of its language the provisions of § 3432, which says: ‘A debtor may pay one creditor in preference to another, or may give to one creditor security for the payment of his demand in preference to another.’ The counterpart of that section is found in § 3451, which contains this: ‘[N]or do the provisions of this title affect the power of a person, although insolvent, and whether residing within or without this state, to transfer property in this state, in good faith to a particular creditor, or creditors, or to some other person or persons in trust for such particular creditor or creditors for the purpose of paying or securing the whole or part of a debt owing to such creditor or creditors, whether in his or their own right or otherwise.’ The Code Commissioners' note to § 3451 of the 1872 code, says: ‘This makes Secs. 3432 and 3449 perfectly consistent, and harmonizes the authorities cited from California and other Supreme Courts.’ This seems to mean that a partial or special assignment to or for a creditor or creditors is excepted from the operation of Title III dealing with assignments for benefit of creditors. ‘By the settled rule of the common law, now expressed in our Code, ‘a debtor may pay one creditor in preference to another, or may give to one creditor security for the payment of his demand in preference to another’ (Civ.Code, § 3432); but parallel with this principle, and to be construed with it, is the rule of more recent legislative policy, that ‘an assignment for the benefit of creditors is void against any creditor of the assignor not consenting thereto, in the following case: (1) If it give a preference of one debt or class of debts over another’; etc. (Civ.Code, § 3457.) The law virtually says to the embarrassed debtor, ‘You may pay or secure any creditor, and thus give him a preference; but your preferential payment or security must not be cast in the form of an assignment for his benefit.’' Sabichi v. Chase, 108 Cal. 81, 85, 41 P. 29, 30.

Fair interpretation of Title III shows that it embraces and governs general assignments of all property for benefit of all creditors, not partial or special assignments. It does not specifically define the phrase ‘assignment of property in trust for the satisfaction of his creditors,’ but its requirements are inconsistent with anything other than a general assignment. This clearly appears from the above quoted provisions of § 3461 which require an inventory of all of assignor's real and personal property of every kind which is not exempt from execution; also, from the command of § 3462 that the inventory be supported by affidavit of the assignor. By way of contrast, § 3451 excepts from operation of Title III transfers made ‘in good faith to a particular creditor, or creditors, or to some other person or persons in trust for such particular creditor or creditors for the purpose of paying or securing the whole or part of a debt owing to such creditor or creditors.’

As early as 1886 it was held in Aylesworth v. Dean, 2 Cal.Unrep.Cas. 696, 12 P. 241 (per syllabus): ‘An assignment for the benefit of creditors, that is shown not to include all of the debtor's property, will be held void, unless it is further shown that the omitted property is exempt from execution.’ That view permeates the more recent decisions. Notwithstanding that fact, a popular misconception has pervaded the ranks of the bar, and sometimes the courts, to the effect that any assignment, general or partial, which does not conform to the statute is good as a common law assignment for creditors. That is too easy a way to dispense with an unpopular law.2 That the view is fallacious is demonstrated by the Supreme Court decisions.

Jarvis v. Webber, 196 Cal. 86, 236 P. 138, is a leading case. It ultimately turns upon the effect of § 3440, Civil Code, which deals with fraudulent transfers and, like § 3432, must be considered in connection with questions of validity of assignments for benefit of creditors. Of course § 3440 applies only to personal property3 capable of manual delivery (Shepherd v. Gamble, 95 Cal.App.2d 890, 892, 214 P.2d 403). Excepted from its operation by subdivision (e) (as amended in 1917) is: ‘The transfer, or assignment, statutory or otherwise, made for the benefit of creditors generally or by any assignee acting under an assignment for the benefit of creditors generally, or to any mortgage or chattel mortgage made for the benefit of creditors generally.’ (Emphasis added.)4

Before considering § 3440 the court in the Jarvis case, supra, had to determine whether the assignment in question was governed by § 3449 et seq. The court upheld a subsequent attachment of certain personal property in preference to an assignment for creditors. This would not have resulted had the assignment been a general one complying with § 3449 et seq. In that instance one D'Egilbert and others transferred all their real and personal property to Jarvis for the benefit of one named creditor and ‘all other creditors * * * who shall consent ot the agreement.’ 196 Cal. at pages 98–99, 236 P. at page 143. The court said in 196 Cal. at page 90, 236 P. at page 140: ‘[T]he plaintiff has appealed, presenting for our determination two main questions: (1) Whether or not the deed and the trust agreement, upon which appellant relies as vesting title in him, constitute an assignment for the benefit of creditors within the meaning of sections 3449–3473 of the Civil Code; (2) if the instruments did amount to an assignment, whether or not they were sufficient to vest title in appellant as against the attaching bank, notwithstanding the fact that they were not intended to, and did not, conform to the code sections. There is also presented the question whether or not immediate and continued change of possession was essential to the validity of appellant's claim of title as against the attaching creditor. The appellant contends that the instrument denominated a trust agreement was not a statutory assignment for the benefit of creditors, and that the transfer to Jarvis was not therefore in violation of any of the provisions of the sections of the code relating to such transactions, supra, but that it was in fact a valid, nonstatutory transfer and assignment for the benefit of creditors generally, within one of the exceptions expressed in section 3440, supra [of the Civil Code], making immediate and continued change of possession of personal property unnecessary in such cases.’

‘In order to determine the validity of a transaction purporting to be a statutory assignment for the benefit of the creditors of an assignor, we look to the provisions of the Civil Code, found in the title covering that subject. Watkins v. Wilhoit, 104 Cal. 395, 399, 38 P. 53. It is therein provided that an insolvent debtor may, in good faith, execute an assignment of property in trust for the satisfaction of his creditors (section 3449). Such assignment must conform to the provisions of the code sections.’ 196 Cal. at page 94, 236 P. at page 141. ‘There is the further requirement (section 3458) that an assignment for the benefit of creditors must be acknowledged, approved, and certified in the mode prescribed by the chapter on recording transfers of real property, and must be recorded. Unless that be done, the assignment is void against every creditor of the assignor not assenting thereto (section 3459). The trust agreement in this case did not contain a list of the creditors of the grantors, it was not made to a sheriff, and it was not recorded. Considered, therefore, as a general statutory assignment for the benefit of the creditors of D'Egilbert and the two corporations, it was void against the Commercial Bank of Durham, which did not assent thereto. Wilhoit v. Lyons, 98 Cal. 409, 412, 33 P. 325; Garn v. Thorwaldson, 40 Cal.App. 62, 66, 180 P. 9, 11.

‘Certain transfers made by insolvent debtors are not affected by the provisions of the title of the Civil Code relating to assignments for the benefit of creditors, and appellant contends that the transaction between his grantors and himself is within the exception. * * * The section bearing on the subject attempted no definition of assignments for the benefit of creditors, and the earlier decisions of the court were not always clear on the question.’ 196 Cal. at pages 94–95, 236 P. at page 141. The court then reviewed Heath v. Wilson, 139 Cal. 362, 73 P. 182, and explained Sabichi v. Chase, 108 Cal. 81, 41 P. 29, saying that Heath decided that sections 3432 and 3451 of the Civil Code expressly authorize a conveyance for the purpose of paying or securing certain creditors, and that such transfer is not invalid because it does not conform to the provisions of the code (§ 3449 et seq.) relating to assignments for the benefit of creditors generally. Reference was made to the 1903 and 1917 amendments to § 3440, and the 1905 amendment to § 3451, and the opinion continued as follows: ‘We think it must it must be conceded, therefore, that two kinds of transfers or assignments for the benefit of creditors generally are recognized in the code sections we have enumerated. One is the statutory assignment for the benefit of creditors, enabling an insolvent debtor, through his assignee, to provide for the immediate conversion of the assigned property, or the disposal thereof, and the distribution of the proceeds ratably among the creditors. Civ.Code, § 3449 et seq. If the debtor adopts this method of satisfying his creditors, it matters not whether the creditors give their consent to the transfer, If the provisions of the code are complied with, the assignment is binding on cosenting and nonconsenting creditors alike. The other form of transfer is one which, while containing certain characteristics of an assignment for the benefit of creditors, is, in effect, only a conveyance in trust by way of paying or securing certain obligations of the debtor. These transfers are not invalid because they do not conform to the provisions of the sections of the code relating to assignments for the benefit of creditors. Civ.Code, §§ 3432 and 3451; Heath v. Wilson, supra. If made for the benefit of creditors generally, such conveyances are protected in their operation as to delivery, and continued change of possession of the property transferred, by the exception contained in section 3440 of the code as amended. But in the present case we are unable to agree with appellant that the transaction whereby D'Egilbert and his allied corporation transferred the property to Jarvis resulted in an assignment for the benefit of creditors generally.’ 196 Cal. at page 98, 236 P. at page 143. Emphasis added. ‘We are unable to construe the transfer in this case as an assignment for the benefit of creditors generally. It was, therefore, not within the exception provided by section 3440, supra. The question whether or not delivery and change of possession attended the transaction thus becomes a material consideration in the case.’ 196 Cal. at page 99, 236 P. at page 143. It was then found that there had been no change of possession, that the transaction was not immunized by subdivision (e) of § 3440, and the assignment was void as to the attaching creditor, who acquired the better title.

It is to be noted that this decision supports the view that an assignment for benefit of creditors must be a general one in order to fall within the purview of Title III; that (subject to the effect of § 3440) such a general assignment must conform to the provisions of § 3449 et seq., or be held void as to nonconsenting creditors; that a partial or special assignment is valid though not conforming to § 3449 et seq.; that an assignment which embraces personal property capable of manual delivery is invalid (as to such personalty) unless accompanied by change of possession or covered by a general assignment for creditors, ‘statutory or otherwise.’ The meaning of this quoted phrase appears from the decision in Brainard v. Fitzgerald, 3 Cal.2d 157, 44 P.2d 336.

That case involved a general assignment for creditors which embraced a wholesaler's stock in trade, no realty; it preceded an attachment by a few hours. The claim of prior right in the assignee was upheld. The attaching creditor, as appellant, claimed the assignment was void because it did not comply with § 3449 et seq., and was not accompanied by change of possession. Referring to § 3440 the court said: ‘The italicized words, ‘or otherwise,’ were added to the section by an amendment thereof in 1917 (Stats.1917, p. 225) and, in our opinion, indicate a definite legislative intention to exempt from the provisions of the section not only statutory assignments for the benefit of creditors generally executed in accordance with sections 3449–3473, supra, but all other assignments, executed in good faith, for the benefit of creditors generally. To conclude otherwise would be to disregard and render meaningless the very language placed in the section by the cited amendment.' 3 Cal.2d at pages 159–160, 44 P.2d at page 338. Again, ‘[t]he assignment here under consideration, as distinguished from that involved in the cited case, was made for the benefit of creditors generally, and is not therefore hedged with the restrictions surrounding an assignment for the benefit of a limited number of creditors, as was the situation in Jarvis v. Webber, supra.

‘We also find language in Moore v. Schneider, 196 Cal. 380, 386, 238 P. 81, 83, which, contrary to appellant's contention herein, tends to recognize the existence in this state of common-law assignments for the benefit of creditors generally. In the course of the opinion it is there stated that ‘In the case of an assignment for the benefit of creditors, either statutory or nonstatutory, the estate passes as the result of some positive act or agreement on the part of the owner of the property. In the one case, the estate of the insolvent ‘devolves' upon the assignee by operation of law. In the other, the estate is ‘granted’ by the owner.' As in Jarvis v. Webber, supra, but as distinguished from the case at bar, the nonstatutory assignment in Moore v. Schneider, supra, was not made for the benefit of creditors generally.' 3 Cal.2d at page 162, 44 P.2d at page 338. The opinion concludes as follows: ‘In the absence of any conflict with or violation of our statutory law, we are not inclined to interfere with the practice developed by local boards of trade of procuring assignments, executed in good faith, for the benefit of creditors generally. Experience has shown that this practice has much to commend it.’ 3 Cal.2d at page 163, 44 P.2d at page 339.

The necessary effect of this decision is to establish as valid a general assignment of personal property (capable of manual delivery) for the benefit of creditors, even though not complying with § 3449 et seq.; this because of the words ‘statutory or otherwise’ appearing in subdivision (e) of § 3440. But the ruling goes no further. It does not purport to overrule or modify Jarvis, supra. No question of the effect of § 3440(e) upon personalty incapable of manual delivery or upon real property was suggested by the briefs nor was it before the court in any way. ‘It is elementary that the language used in any opinion is to be understood in the light of the facts and the issue then before the court.’ Porter v. Bakersfield & Kern Elec. Ry. Co., 36 Cal.2d 582, 590, 225 P.2d 223, 228. ‘But it is a familiar rule that expressions used in judicial opinions are always to be construed and limited by reference to the matters under consideration, and that they cannot be safely applied in their largest and most universal sense to dissimilar cases.’ City of Pasadena v. Stimson, 91 Cal. 238, 250, 27 P. 604, 606.

Section 3440, being confined to transfers of personal property capable of manual delivery (cf. Shepherd v. Gamble, supra, 95 Cal.App.2d 890, 892, 214 P.2d 403), the phrase ‘statutory or otherwise’ cannot affect general assignments covering other personal property or real estate. It cannot be construed as a general validation of all assignments for creditors regardless of their compliance with § 3449. Had that been the legislative intention at the time of enacting subdivision (e) of § 3440, it would undoubtedly have pursued the more direct course of repealing § 3459 which declares void as to every nonassenting creditor any assignment not complying with the requirements of § 3458. ‘An assignment of real property for the benefit of creditors is as much subject to the provisions of the Code relating to transfers of real property, and as much within the policy of the statute as any other transfer of such property.’ Moore v. Schneider, 196 Cal. 380, 392, 238 P. 81, 85.

We perceive no obstacle to holding that the assignment in question is valid as to the personalty and void as to the realty described in it (cf. Kaye v. Jacobs, 122 Cal.App. 421, 10 P.2d 186). Section 3440 (e) has saved it with respect to the personal property, but not the real estate.

The assignment at bar is a general assignment. It does not comply with the statutory requirements of § 3449 et seq. and is void so far as appellants are concerned with respect to the real property included in it. Hence that realty was subject to attachment and execution sale and the judgment to the contrary is erroneous.

The judgment is reversed with instructions to the lower court to make findings and enter judgment in favor of defendants.

FOOTNOTES

1.  § 3449. ‘An insolvent debtor may in good faith execute an assignment of property [to one or more assignees], in trust for the satisfaction of his creditors, in conformity to the provisions of this chapter; subject, however, to the provisions of this Code relative to trusts and to fraudulent transfers, and to the restrictions imposed by law upon assignments by special partnerships, by corporations, or by other specific classes or persons.’

2.  ‘It is an obsolete device, however, and for all practical purposes can be ignored. It has not been used for at least 30 years.’ California Remedies for Unsecured Creditors, p. 418. ‘[I]t should be borne in mind initially that only the common law assignment for the benefit of creditors is of practical importance in California—this is spite of the existence of detailed provisions in the Civil Code covering statutory assignments'. 25 Los Angeles Bar Bulletin, p. 109. See, also, First Nat. Bank v. Pomona Tile Mfg. Co., 82 Cal.App.2d 592, 608, 186 P.2d 693, 703, which says: ‘The basic distinction between the two is that the former complies with the statutory requirements while the latter does not.’

3.  § 3440. ‘Every transfer of personal property and every lien on personal property made by a person having at the time the possession or control of the property, and not accompanied by an immediate delivery followed by an actual and continued change of possession of the things transferred, is conclusively presumed fraudulent and void as against the transferor's creditors while he remains in possession and the successors in interest of those creditors, and as against any person on whom the transferor's estate devolves in trust for the benefit of others than the transferor and as against purchasers or encumbrancers in good faith subsequent to the transfer. * * *’

4.  Prior to 1951 the subject of bulk sales and the recording of a prescribed advance notice (now covered by § 3440.1) was within the terms of § 3440.

ASHBURN, Justice.

FOX, P. J., and HERNDON, J., concur.