Creditor’s Rights – Fraudulent Conveyances – Security Assignment of Contract Payments Void if Assignor Retains Control

An insolvent debtor, who owed some $3,500 on plaintiff’s partially-collected judgment, executed an instrument assigning to another creditor, a bank, all moneys due and to become due to the debtor under an existing contract, expressly as security for payment of the debtor’s present and future indebtedness to the bank. The contract obligor was notified of the assignment, and thereafter the bank collected the amounts periodically accruing under the contract. The bank applied part of these collected amounts to the balance that the debtor owed the bank. The rest was either handed over to the debtor or credited to his general account, upon which he was allowed to draw at will. In execution of his judgment, plaintiff garnished some $3,000 in the contract obligor’s possession which had accrued on the contract but had not yet been paid over to the bank pursuant to the assignment. When the obligor resisted garnishment by pleading the prior assignment, plaintiff sought to set aside the assignment as fraudulent, and the bank intervened. The trial court upheld the assignment and gave the bank priority to the extent of the amount the debtor owed it at the time of trial, allocating any surplus to the payment of plaintiff’s judgment. On appeal, held, reversed. Since the debtor never lost control of the money purportedly assigned to the bank, the assignment was fraudulent in law as to the plaintiff, and the entire fund held by the obligor is payable to him. Dupree v. Quinn, (Tex. Civ. App. 1956) 290 S.W. (2d) 329.