Merillat v. Hensey

Background

A creditor challenged a transfer by Melville Hensey of his pending lawsuit against the Mercantile Trust Company. Hensey formally assigned the claim to two creditors, Frederick Mertens and Park Agnew, and separately gave those assignees a secret written promise to return any surplus after they were paid. The assignment was filed with the court clerk, but the separate agreement about the surplus was not. A judgment ultimately went to Hensey, and his creditors sued, saying the assignment was made to hinder, delay, or defraud them. The trial court and the Court of Appeals rejected that claim, and this appeal followed.

Reasoning

The central question was whether the private agreement to return any surplus made the assignment fraudulent as a matter of law. The Court explained that the thing assigned was a claim (a lawsuit), which could not be recorded to give public notice, and that the debt the assignees sought to secure was honest. The Court reviewed earlier cases and the local law treating intent as a factual question, and it emphasized that a reservation to return a surplus may reflect what the law would have implied anyway. Because the assignment’s value was uncertain, the debt legitimate, and two lower courts found no bad faith, the Court concluded the facts did not prove constructive fraud as a matter of law and affirmed.

Real world impact

This decision means a private agreement to return surplus after an assignment does not automatically void the transfer. Creditors who claim fraud must show bad faith or other clear evidence. Assignments of unrecordable claims remain subject to equitable inquiry rather than being treated as fraudulent by operation of law.