McConnell v. . Sherwood

84 N.Y. 522, 61 How. Pr. 67, 1881 N.Y. LEXIS 426

• Court: New York Court of Appeals
• Decided: March 15, 1881
• Status: Published

Opinion

Danforth, J.

Where, upon the face of an asssignment or by proof aliunde, it appears to have been made with intent to hinder or delay creditors, it affords no protection to the assignee against a sheriff who seeks to enforce by execution a judgment against the debtor. This rule was applied at the Circuit and the General Term, but with different result. The trial judge held the instrument valid upon its face, and the jury found that it was made in good faith and without intention to hinder or defraud the creditors of the assignor. The General Term so construed its provisions as to imply an illegal purpose, and the correctness of this conclusion is the question here. It turns upon certain language in the habendum clause, where, after describing the property, the assignor declares the conveyance to be in trust; first, to sell and dispose of his personal property and estate, and “ collect the notes, accounts and choses in action, and the tahmg a pa/rt of the whole when the party of the second part” (the assignee) “ shall deem it expedient to so do ” ; and second, prescribes the distribution and payment of the proceeds to all the creditors of the assignor for all debts and liabilities which he may be owing, or, if insufficient for that purpose, “in proportion to their respective demands,” but fui ther declares that the assignee “ may have the right to compromise with,’’" those creditors, if in his opinion “ it would be advantageous ” to them and to the assignor. Upon these provisions the contention hinges.

The first condition, taken literally, means only that the assignee may receive payment by installments or from time to time. He is to collect the notes, etc., but he may take a “ part of the whole when he deems it expedient to do so.” There is no direction to compromise, none to make abatement, none to give a discharge of the whole on receiving a part. It is not that a part may be taken for the whole, but of the whole. A debtor cannot insist on paying his debt by portions, nor is a creditor required to receive it in that manner. ISTor is payment and' acceptance of a part satisfaction of the debt. The clause in question confers authority to receive fractional payments, but none to give satisfaction. If there is doubt as to its meaning, it should be solved in such a manner as to uphold rather than destroy the instrument. It was construed at General Term, however, and by the respondent here as if it conferred upon the assignee power to compromise or compound debts due the assignor by accepting part for the whole. This is not expressed, but if such is the effect, it would be no stronger than the case made in Coyne v. Weaver, * where to similar words was added an express “ right to compound for the said chose in action,” and jet the assignment was upheld. Therefore the provision in question does not taint the assignment.

A different result follows from the clause, permitting the assignee to compromise with the creditors of the assignor. To that must be applied the rule declared in Grover v. Wakemam, (4 Paige, 23 ; 11 Wend. 181), and adopted in many later cases, either in words or effect, as the only safe • one, and which regards every assignment operating to delay creditors, for any reason not distinctly calculated to promote their interests, as contrary to the statute of frauds and therefore void. But within that limitation a failing debtor may, however, uselessly amplify the words which transfer his estate and appropriate it to the payment of his debts; for although he may thus excite suspicion and provoke litigation, and so bring his deed to judgment, they will not, unless inconsistent with the rights pf creditors, invalidate his act. And first, it is in favor of this instrument that it provides for a surrender of all the debtor’s property and its equal division. Such is the desire of the assignor, as expressed in words: “ To convey all his property for the benefit of all his creditors, without any preference or priority.” These are the premises. The declaration of trust,, or direction for distribution of the proceeds of this property, is in furtherance of this desire. It goes to all creditors, for all debts; and if not enough to pay in full, then pro rata. These are valid provisions, and if the assignor had gone no further, the object of the trust would have been carried out as one to the advantage of the beneficiaries. The debtor would have given up all that he had, to be applied without reserve to the payment of his debts! But then camés the succeeding clause, and this we cannot help seeing is a provision which at once nullifies all that has been commended. Without this it is such an instrument as is favorably regarded by a court of equity. With it the assignment comes within the principle of many cases where trusts have been “ subverted as illegal,” because the assignee was invested with some absolute or discretionary power beyond the direct appropriation of the assets to the payment of debts ; or the assignor reserved to himself a power over the future direction of the trust fund, or an interest in it, to be taken care of for him by the assignee. If the assignment is valid, the trust to compromise is to be observed and regarded by the courts, and delay for that purpose in the disposition of the property or the distribution of the avails could be justified by the assignee, although required by a creditor to hasten the conversion of assets or pay over its avails. Bo too in negotiation for or arranging a compromise, the interest of the debtor is to be regarded and kept in view by the assignee, for it is permitted only when in his opinion such proceeding would be advantageous to the assignor. It therefore cannot be said that the assignor has devoted his property absolutely and unconditionally to the payment of his debts. If under the preceding clauses a creditor should insist that the assignor had so directed, the assignee could say there is also given an express power to compromise, i. e., procure concessions from creditors, before parting with the property. If all the creditors should say, we will compromise; give us the whole property, and we will discharge the debts, the assignee could say, that would not be advantageous to the assignor, and in either case could uphold his conduct by the very words of the instrument. But suppose the assignment did not contain this clause. The assignee could neither delay the execution of the assignment by an effort to compromise, nor consider the interest of the assignor in determining the time or manner of the execution of his trust. As it is, while placing his property beyond the reach of process, the assignor retains an interest to be provided for, delays its application to the payment of his debts by investing his trustee with power which requires time for its execution, and then prohibits its exercise, unless it is advantageous to himself. I am inclined to construe this clause as requiring a compromise if at all, with all the creditors, not permitting it with any one, or any number less than all; but this does not meet the difficulty. There is the power to compromise; and this must be construed in the sense of compound, or to discharge the debts by paying only a part; its accomplishment requires the consent of the creditors and the assignee; a payment of part by the assignee and a discharge upon its acceptance by the creditors. The imposition, then, of terms and conditions, and in devising these the interest or advantage of the debtor must be considered. This is a plain departure from the power to convert and the duty to pay over the proceeds of the property when converted, without regard to the debtor, and with no inquiry save as to the existence of the debt and its amount. It is said that this compromise cannot be made unless each creditor consents; neither can it unless the assignee consents for the assignor, that, is, deems it for his advantage also. But without this there may be delay justified; an effort to make a compromise would require it; and until it had been tried, if the assignee saw fit to make the effort, the court could not require him to act under the other trusts. The legal duty of the assignee under a valid trust is as plain and simple as that of an officer holding an attachment or charged with the duty of enforcing judgment by execution. However great the apparent sacrifice, and however disadvantageous to the debtor, the law permits no wish or interest of his to come between the creditor and the' satisfaction of his debt, and it requires from the appointee of the debtor equal celerity and the same indifference. Here compromise, or an attempt at compromise, may precede payment, and with either is delay. It seems evident, therefore, that the intent was to delay the payment of the debts and create a trust for the use of the assignor; and either of these intents, both by the common law and 'the statute (2 R. S. 135, § 1; id. 137, § 1), is a fraud, in face of which the assignment cannot stand.

The cases cited by the appellant’s counsel, and referred to in his interesting and impressive argument, raise no doubt as to the necessity of this conclusion. Jewett v. Woodward (1 Edw. Ch. 195) was most insisted upon. But there the question did not arise. The assignment was not attacked, but acquiesced, in, and the bill was filed against the assignees for an account and payment of the money to which the creditors were entitled under it. Hone v. Henriquez (13 Wend. 240), where it was held that one who had become a party to the assignment by a. formal assent thereto could not be heard to say that it was void; and so doubtless an assignment, however objectionable, if executed by consent of all the creditors, would be deemed valid and not void. But neither these cases, nor the reasons on which they stand, aid the plaintiff. The creditors did not consent, and one objection to the assignment is that under its provisions the .assignee could delay the execution of the other trusts until he ascertained whether they would compromise. Power to compromise restrains the creditors until the attempt is made. Thus they would be hindered, and a delay in the conversion of property or the payment of debts, even for a single day, would be fatal to the. assignment; and whether the delay is directed by the instrument,, or justified by its provisions, or made necessary for their execution — except so far as that delay is incident to the conversion of assets and payment of debts can make no difference. (Nicholson v. Leavitt, 6 N. Y. 510; Bingham v. Tillinghast, 13 id. 215.) This illegal delay is provided for by the clause in question.

It is also urged by the appellant that the jury found by their verdict “ that the assignment was not made by the assignor with the intent or for the purpose of coercing creditors into compromising the debts he owed them.” This is so. But it was after the court had held the clause in question did not vitiate the assignment, and under a charge that it was not evidence of an attempt "on the part of the assignor to coerce them. It was withdrawn from their consideration. •

We think the learned trial judge erred in his construction of this clause of the assignment, and that the judgment given upon the verdict was properly reversed by the General Term. The order of that court should therefore be affirmed and judgment absolute rendered for the defendant, according to the stipulation upon which this appeal was taken.

All concur, except Bapallo, J., absent.

Order affirmed, and judgment accordingly. •

* Ante, p. 386.