Lentilhon v. Moffat

1 Edw. Ch. 451, 1833 N.Y. LEXIS 221, 1833 N.Y. Misc. LEXIS 20

• Court: New York Court of Chancery
• Decided: January 28, 1833
• Status: Published

Opinion

The Vice-Ciianceleob.

Before I proceed to examine thé* question, whether the assignment can be supported against the dissenting creditors, I must notice an objection which is started in the answer of the defendant Moffat and been urged on-the argument of the motion, namely, that creditors who have separate and distinct judgments cannot unite in filing a bill of the description now before the court—inasmuch as they have' no joint or common interest in the judgments.

This objection, which goes to the frame of the bill, is clearly not well taken. Although the complainants have no such joint' interest, yet they have acquired similar rights with respect to the property of their debtor. The return of nulla bona to their several executions, for the causes stated in the bill, gave each of them a right to come into this court; and as this right ac-' Crued to them simultaneously, it was fit and proper they should unite in availing themselves of it. Whenever there are creditors or other persons having demands, which are cognizable in equity and of equal standing, upon a common fund or estate, and out of which they claim to be paid, the proper course is for them to unite in one bill or for one or more to file a bill in behalf of all. It prevents a multiplied litigation and savexs expense, while justice is equally as well and even better adniinistered through this form than by having a variety of suits before the court and all for the same object. Such a bill is npt multifarious. It relates to but one subject matter j the discovery. of the property or fund to be applied to the payment of the debts and the manner- of its distribution.

In the Tradesman's Bank v. Merritt, 1 Paige's C. R. 302, the objection of misjoinder of complainants was overruled, although, perhaps, the cause was not then in a situation in which the defendant could be permitted to raise the objection successfully: it being unon a motion to dissolve the injunction upon the bill itself and wherein the defendant had. been charged with gross fraud.

Each creditor, whose remedy at law is exhausted, may, undoubtedly, file a bill for himself; although it is true, that if several bills are filed against the same defendant, there is to be hut one receiver for all: the court taking care to protect and preserve the several legal and equitable puofities (Rule 103.) Nor do I see any difficulty in permitting such creditors to join In filing a bill, setting forth their several judgments and all the facts necessary to give the court jurisdiction as to each. The ■only matter of consequence, perhaps, which could arise, if the facts as to one of the judgments were denied and not sustained by proof might be a dismissal of the bill as to all the complainants. Nevertheless, I give no opinion on this point. In the present case, the recovery of the two judgments and-the return of executions unsatisfied" at law are admitted or proved.

We now come to the question as to the validity of the assignment.

The-minor objections raised against it are founded upon the clause allowing the assignees to retain a reasonable amount to defray the expenses of a suit concerning the shares in the North American Coal Company; and the expenses of prosecuting ihe suit in Kentucky. These relate to parts of the assigned property; and it appears to have been intended, that, as the assignees were to have all the benefit, therefore the trust property in .their hands should be chargeable with the expenses of these -suits. There is, certainly, nothing fatal to the assignment in thus providing for contingencies. The suits might terminate unfavorably; and, as the costs would be in the nature of a debt, it was not unlawful to- provide for the payment of these .expenses, in order to exonerate the assignor personally, and, at the same time, protect the assignees from personal -liability, in case the suits should progress after the making of the assign-» ment under any express or implied authority from them.

The next, and by far the most objectionable features of the assignment, are the condition annexed to the creditors receiving a dividend from the assigned property ; and, the power of appointment reserved to the assignor.

It is true, that, in the event of a non-compliance on the pari of the creditors, no trust results to the assignor, nor is there any provision made, out of the property assigned,-for the bene» fit of himself or his family, until he shall have received a discharge from his creditors. In one or the other of these particulars, the case differs frem those in which assignments have been adjudged, fraudulent; and it is left to depend upon the question, whether the attempt to coerce the creditors, as indicated by the terms of the instrument, connected with the circumstance that the property assigned would pay but a small part of their debts and did not include the whole of the debt- or’s estate, is sufficient to bring it within the statute, as being an act intended to hinder, delay or defraud the creditors of their lawful suits, debts or demands ?

. In Hi/s/op v. Clark, 14 Johns. 11. 458, it was one of the objections, (amongst others, perhaps, more glaring) that the debt- or attempted |o coerce the creditors into an acceptance of his terms, by offering to them the benefit of the property assigned? provided they would 3'elease their debts ; while, the assignors reserved to themselves, in case of a refusal, the power to dispose of and give it to such creditors as they might prefer at some future period. The supi’eme court considered this was going' further than the legitimate purposes of a voluntary assignment would justify ; and was a power assumed by the debtor over the creditors which the law would not tolerate—a though it does not appear to have been, by any means, the sole ground upon which the assignment was held to be void.

There is also another distinction between Hyslop v. Clark and the present case, in regal’d to the point we are considering. There, if any one of the creditors refused to accede to the conditions of the assignment, the trust was to cease as to all. It is not so in the case before the court, since it is only the shares of those who decline the conditions of the assignment upon which the power .of appointment is declared to operate;for it leaves those who choose to accept the terms at liberty to receive their proportions or dividends notwithstanding the refusal of others.

In Austin v. Bell, 30 Johns. R 442, the assignment provided, that in case any of the creditors should not, within the time limited in the deed (which deed contained a release of the assignors) become parties to it, the shares or proportions of those ’ae'decting or refusing to execute it should be paid by the trus1- % , T, , , , „ , „ , tee to the assignors themselves. It was held to be a traudulent assignment; because, to use the language of Chief Justice Spencer,'it was not only an attempt to coerce creditors and place the property beyond their reach on execution, but it was a reserving of property for the use of the assignors which ■ought to have been devoted to the payment of their debts. The present case only differs in this particular: instead of reserving the proportions of the refusing creditors to be paid to the assignor, the latter is to exercise a power of appointment over so much of the property and direct to whom, among his 1 on a fide creditors, the same shall be paid to the exclusion of •others.

1 he deed which came in question in Seaving v. Brinckerhoff, 5 Johns. Ch. R. 329, contained a similar clause, declaring that each creditor to whom payments should be made upon distribution of the trust property, should give a lull discharge of their debts to the grantor. There was no particular trust declared in the event ol a refusal ; - but the deed contained a covenant, that the trustee would account to the grantor for the over-plus moneys. The chancellor considered the deed as void for fraud: because it imposed a condition upon the creditors which, lie pronounced, was rigorous, coercive and unjust—it not appearing to have been a conveyance of all the debtor’s property, but only a specified part; and -also, because of the trust which necessarily resulted to the grantor, if the creditors refused to comply with the terms of the conveyance.

None of these cases are exactly like the one under consideration. The main difference consists in this : instead of a trust, either express or implied, in favor of the assignor, by which the property or its proceeds would come back to him, in the event of the creditors’ refusal to accept of it upon the terms prescribed, the assignor, in the present assignment, reserves to himself, in such an event, the power of disposing of it, by a separate instrument of appointment, among such and so many creditors as he may designate. In other respects, it corresponds; fur there is the clause requiring the creditors to release, and it locks up the property in the haMs of the assignee beyond the reach of executions at law, not only during ths time allowed for the creditors to come in, but, indefinitely—since no time is fixed when he should make the new appointment. j

Under these circumstances, it remains to be seen, whether there are rules, established in relation to assignments of this description or decisions w hich I am bound to regard as settling the law, broader or of more extensive application than are to be found in the cases to which we have adverted.

The recent opinion of the chancellor in the case of Wakeman v. Grover and Gunn is relied upon as developing more fully, the principles which govern. The assignment there classified the creditors; those in class No. J, were first to be paid in fullj those named in class No. 2, who should* within three months, agree in writing under their hands and seals to receive, in full discharge of their debts, such proportions thereof as could be paid out of the surplus, after paving the preferred creditors, were next to be paid; and then, the residue was to be applied to the payment of the creditors named in class No. 3, and of all other debts of the assignors—with power to the assignees to compound with all or any of the creditors in such manner and upon such terms as they should deem proper, but not so as to interfere with the order of preference declared by the assignment.

It was a question, upon the construction of the instrument* whether the debitors in the second class who might choose not to accept its terms, would be excluded from any-participatian in the ei-tate, or whether they might not come in as creditors under the third trust and possibly receive a dividend. The chancellor thought, according to the true consti uction* they were excluded entirely. But whether so or not, there was a preference declared and which the assignor had a right jo give. However, in the use and exercise of such right, his honor considered, that if the sole view was to secure a future benefit to the debtor himself, either by obtaining a general discharge from his debts or otherwise, it was an unconscientious exercise of a legal right. And he observes: if, upon the face of the assignment, the debtor avows his intention to make the benefit, which he may derive to himself, the sole ground foi* .giving the preference, and thus compel the whple or any poi*•iion of his creditors to submit to his terms, such an unconscientious exercise of power ought not to be sustained in a court of equity. The chancellor did not, however, think the case before him turned upon that point; and, after referring to the cases decided in the courts of the state, he evidently placed his decision upon the broad ground, that the laws of this state do not recognize a right on the part of a debtor, being insolvent, to impose any terms upon his creditors which would require from them an absolute discharge from all his debts, although he should fairly devote his property to their use and direct an equitable or rateable distribution of it among them ; and much less do they recognize the right, where he singles out favorite creditors to be first paid in full—leaving others, from whom he seeks a discharge, to receive a diminished proportion of their demands. Upon the effect of the condition in the second clause, as well as for other causes, he decreed against the assignment.

An able opinion on the same subject has likewise recently been pronounced by Judge Ware, of the district court of Maine; and in which the correct doctrine is very clearly and forcibly stated : George v. The Brig Watchman, see American Jurist, Vol. 8, p. 284. There, an assignment of a vessel came in question. It was made in trust for such creditors as should become parties and release their debts; and, after paying such creditors, in trust to pay over the surplus to the assignor.

The learned judge examined all the American cases, and found, that, according to the New York decisions, such a condition rendered the assignment void; in Pennsylvania, it had been held otherwise, and in some of the states, it was still an open question. He, therefore, referred to general and acknowledged princij les of law for the basis of his decision.

Those principles may be summed up in this: a conveyance made for the purpose of hindering, delaying or defrauding creditors in the recovery of their debts is void at common law as well as by statute (which is merely declaratory or in ■affirmance of the pre-existing law,) and, any attempt on the part of the debtor to lock up his property from his creditors so that they can never reach and enforce payment out of it, ex* cept on terms which he chooses to prescribe, is manifestly an effort to defraud them. In other words, a conveyance to trustees which should place the property beyond the reach of creditors for a definite period, or, in effect, delay their remedy against his estate for an indefinite period, unless they acceded to such terms in favor of himself as he might choose to dictate, or unless they consented to accept less than their whole debts and give a discharge, would be a conveyance made to delay or. defraud them. The object is to coerce the creditor into a discharge of the debtor upon terms different from those of the contract and without the debtor’s fulfilling his obligations. “ The debtor,” in the language of Judge Ware “ may prefer .« one creditor to another, without assigning any other reason “ than his own pleasure ; and his preference will be sustained. “ But, lie cannot prefer himself to a creditor, nor can he com- “ pel a creditor to receive in satisfaction of his debt any thing « short of the full amount due. Any act of the debtor, of which “ this would be the effect, if it were carried into execution ac- “ cording to its intent, is unlawful.” And upon these principles, he held, in the case before him, the assignment of the vessel to be void.

Judge Story took the same view of the law in Halsey v. Whitney, 4 Mason 206, so far as he was at liberty to examine it upon general principles; but, feeling himself bound by local decisions, he does not appear to have acted upon this doctrine. It is, however, upon this rule that the several adjudications in our own courts, and to which I have referred, have partially, if not entirely proceeded—especially the late one before Chancellor Walworth. I am, consequently, bound, to regard it as the law of the state in relation to assignments by an insolvent or failing debtor.

In the case of Armstrong v. Byrne, lately before me, (see page 79, ante,) I had occasion to apply these principles, to an assignment which contained a condition requiring the creditors to release; and this, under the circumstances, I held invalidated the instrument.

It remains to be seen how far the present case is brought Within the scope of these principles; and to what extent the assignment is affected by them.

# __ In the first place: it does not purport to assign or convey the whole of the debtor’s estate to the trustees. Indeed, the fact is admitted it did not. The .instrument contains the condition, that, upon payment of their dividends, the creditors shall execute a full and complete release of their demands against the assignor; and, unless all the creditors accept of the assignment in payment of their debts within sixty days, the shares or proportions of those who shall not have accepted, may be 'imposed of under the power of appointment reserved by the assignor.

Now, this is clearly an attempt to place the property beyond the reach of his creditors, unless they agree to accept of it upon the terms proposed ; and it is impossible not to perceive how ihe design of these provisions is to induce the creditors, by a species of coercion, to agree to the debtor’s terms and discharge him from their debts, however deficient the property may prove towards satisfying the amounts due.

If the creditors should all refuse, the effect of the assignment would be to lock up the property or its proceeds, if not for ever, at least for an indefinite period, even as to those who might be favored by the subsequent appointment. No one can bo benefitted under the deed of assignment itself, without complying with its condition. Each individual creditor, on this account, must comply : for, otherwise, the property as to him is for ever locked up. He can never reach it by execution; and, with respect to the disposition of the proceeds, in the event of a non-compliance, no paiticular creditor can be certain of the property’s being applied to the payment of any part of his debt; the debtor having the sole power to direct to whom, among all his creditors, to how many, and in what proportion the proceeds shall be paid.

Besides—the time for exercising the power of appointment, by which some of the creditors may be benefited, is indefinite. The deed or instrument appointing the creditors who are to be thus benefited, may be executed before the expiration of sixty days, although it cannot take effect until such time hm elapsed, unless it is sooner ascertained that all the creditor^ refuse. But, the assignor is at liberty to defer the appointment for any length of time after the sixty days. • Nay more, he is not obliged, by any thing contained in the assignment, to make the appointment at all. He might neglect it altogether and there would be no way of compelling him to do it, either on behalf of the assignees or the creditors. It is not a matter of covenant on his part, but merely a power or privilege reserved to himself; and until he chooses to exercise it, the property remains locked up, by the assignment, beyond the reach of any execution at law. The creditors, by this, arpgjpndered and delayed in their legal rights and remedies; and the assignment is consequently void.

I do not wish to be understood as saying, that the law will not, in any case or under any circumstances, permit the debtor to hold out, in an assignment, an inducement to the creditors to accept of his property and give him a discharge. So long as it allows of preferences; there may be no objection that the honest but unfortunate debtor, while he fairly devotes the whole of his property to the benefit of his creditors, should provide that all those who, within a reasonable time, agree to accept their amounts in full and give a discharge, be first paid, leaving those to be postponed, who do not choose to come in and release, with a liberty to receive their rateable proportions of the remaining property and hold their claims against him unimpaired for the balance of their debts. Such a provision in an assignment may be regarded as a mode of giving a lawful preference merely and not as an attempt at coercion for the sole purpose of benefiting himself: for, at all events, he thus appropriates the property to the creditors and reserves no future controul, disposition or resulting interest to himself Perhaps such a provision may be regarded in the light of a -composition offered to the creditors, which any one of them would be at liberty to reject, without prejudice to his legal arid equitable rights and remedies against the debtor or his future estate. But the present is not such a case,

I have thus far considered the assignment by itself, without reference to the subsequent deed of appointment. The complainants executions were in the hands of the Sheriff when the latter instrument was executed. This took place one or iwo days before the return day ; and, of course, before their right to file a bill accrued. It is contended, that the particular creditors, in whose favor it was made, have acquired rights which cannot be disturbed. But, the difficulty is, how to uphold and give effect to the appointment, if the assignment itself is void ? The trusts are created in the latter, and, under them, the assignees and these creditors, as cestui.s qua trust, derive title; while, the deed of appointment is intended to carry these trusts into effect. It is true, that this appointment gives rights to these creditors more extensive than they before individually possessed ; but, still, they are rights founded upon and connected with the assignment and without,which they cannot exist—and, if that instrument is against law and void as to any of the creditors, it is void in tota. Such is the principle of all the cases. The deed of appointment cannot he supported or carried into effect, while the assignment is to be set aside; nor can it help to make that good which was created In fraud of the law and against the rights of the creditors.

Another consideration arises as to the effect which a decree would have, if one were now to be made which should set aside the assignment.

Are there any creditors who, by agreeing to accept its provisions before the filing of the hill, have acquired a privilege go an amount equal to what would be their dividends? It appears, that several creditors agreed in writing, before the complainants filed their hill, to come in under the assignment and release the assignor. Still, none of them have executed any release—not even those few who are named in the deed of appointment. They have, consequently, all their original rights and remedies unimpaired against the debtor and his property | and the latter of which still remains as his, in the hands of the assignees. The title has never been fairly changed ; and, if two or three of the creditors have now, by their legal diligence, obtained liens, and are entitled to be satisfied their debts in full to the prejudice of others, it is because the law aids those who are vigilant.

As the assignees have made no distribution, nor paid over any part of the proceeds of the assigned property to the assenting creditors, they will be protected in accounting for and paying over the same to a receiver; and also, in holding the same themselves,'as receivers, in case they should be appointed under the order of this court.

The result of my opinion is, that the assignment is invalid, and the property is still to be regarded as belonging to the assignor. As the complainants have acquired a lien to the amount of their judgments, they are entitled to have a receiver appointed and to be paid out of the assets.