From the agreed statements of facts on which this case was submitted in the court below it appears that G-. A. Clark and C. H. Humphreys, partners, engaged in business at the city of Los Angeles under the firm name of Clark & Humphreys, being in failing circumstances, both as individuals and as a partnership, entered into a written contract of date December 15,1892, with the plaintiffs Sabichi, Minor and Holt, as trustees, and ten named creditors of Clark & Humphreys, by the terms of which contract Clark and Humphreys agreed to convey all their property, partnership and individual, to said trustees," in trust to be collected, sold, and disposed of, and converted into money, and divided ratably” among said designated creditors, the surplus, if any, to be returned to Clark and Humphreys. By the terms of this agreement it was also stipulated
Accordingly, on December 17, 1892, Clark and Humphreys, individually and as copartners, executed a conveyance (styled on its face a deed of trust) of all their property, real and personal, to said trustees, the plaintiffs here. Such conveyance recited the said contract of December 15th, and purported to be made in consideration thereof, and to transfer the property described “in trust in accordance with ” such contract; the deed was recorded in the recorder’s office of Los Angeles county December 19, 1892. The plaintiffs accepted the trust and took possession of all, or the greater part, of the property conveyed.
Defendant Chase held the promissory note of Clark and Humphreys secured by mortgage on land in Los Angeles county, a parcel of that conveyed to said trustees, which mortgage was of record in said recorder’s office at the time of the transactions above stated; the note fell due August 15, 1893, and was not paid. The holder instituted an action to enforce payment and for the foreclosure of the mortgage; she obtained judgment and caused the mortgaged land to be sold for the satisfaction thereof; the proceeds of the sale were insufficient for that purpose, and on January 15,1894, judgment
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, sec. 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 cases: 1. If it give a preference of one debt or class of debts over another,” etc. (Civ. Code, sec. 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 thó form of an assignment for his benefit.’ The question for decision, therefore, is whether the said instruments of December, 1892, constituted an assignment for the benefit of creditors within the meaning which the law attaches to those terms; if so, then plaintiffs concede that it was invalid because violative of the statutory
It has been several times assumed in this court that such a trust indicates an assignment of that nature. (Dana v. Stanford, 10 Cal. 269; Wellington v. Sedgwick, 12 Cal. 469; Saunderson v. Broadwell, 82 Cal. 132, 133.) The provision that a surplus of proceeds remaining after satisfaction of the claims of the creditors named should be returned to the grantors does not, as supposed by appellants, distinguish the contract as one of security only. (Hall v. Denison, 17 Vt. 318; Lochte v. Blum, Tex. Civ. App., April 10, 1895; 30 S. W. Rep. 925.) The reservation of an interest in the possible surplus— not in the property itself—marks the transaction more clearly as an assignment for the benefit of creditors. (Kenefick v. Perry, 61 N. H. 364.)
Appellants argue that defendant ought not to be considered a creditor having the right to object to the assignment, for the reason that at the date thereof her demand against the assignors was not yet susceptible of enforcement against them personally, she being required to first foreclose the mortgage. But the statute renders void such transfers “ against any creditor of the assignor not assenting thereto.” (Civ. Code, sec. 3457.) No exception of creditors secured by mortgage is expressed, nor does the reason assigned warrant the implication of one.
The judgment should be affirmed.
Vanclief, C., and Haynes, C., concurred.
McFarland, J., Temple, J., Henshaw, J.
Hearing in Bank denied.