Rapalee v. . Stewart

27 N.Y. 310

Opinions

Marvin, J.

Action by plaintiff, a judgment creditor of the defendants, Stewart & Tunnicliff, to set aside an assignment made by the debtors to the other defendants, Morgan & Smith. The assignment is attacked for fraud appearing in it, and for frauds not so appearing. The assignment bears date October 21, 1850. This action was commenced in January, 1853, upon a judgment recovered October 1, 1852. The defendants, among other things, denied that there is any sum justly, equitably and actually due to the plaintiff upon the judgment, because they say that Steeart & Tunnicliff, October 21, 1850, made a general assignment of, &c., for the benefit of their creditors, to the other defendants, and that the plaintiff was one of a class.of creditors preferred, whose debts amounted to more than $30,000, and that the plaintiff, knowing the facts, about December 21, 1850, entered into a written contract with the debtors and others; creditors, some of whom were of the same class of preferred creditors, the contract'being dated November 13, 1850. The contract is fully set out, and its substance, after reciting that S. & T. had made an assignment, and that their statement shows a large amount- of property, consisting of real estate, canal boats, &c., and expressing the belief that a settlement of said estate in .the ordinary way by the assignees would result in a great sacrifice of property, alike injurious to the interest of debtors and creditors, and also reciting that the New York creditors, who were not to be paid under the assignment, until after the parties to the agreement were paid had named B. W. Franklin and Spencer Booth, with Nelson Tunnicliff, one of the debtor firm, to act in conjunction with the assignees, in converting and disposing of the property to pay the creditors, in the order of preference mentioned in the assignment; the parties to the agreement consented and agreed that' the assignees, Tunnicliff, Franklin and Booth, should convert and dispose of the property to pay the creditors in the order of preference mentioned in the assignment, and to compromise with any or all of the creditors who might he preferred in the assignment, before the parties to the agreement, in such manner and on such terms as Morgan, Smith, Franklin and Booth should deem for the interest of all parties; and when the property should be disposed of and the proceeds fully paid to the parties to the agreement, to be in full of their claims against the firm. It was averred that Morgan, Smith, Tunnicliff, Franklin and Booth accepted and entered upon the trust.

Upon motion, at a special term, all this was stricken out, except the denial that there was anything equitably due upon the judgment, and such order was affirmed, on appeal to the general term.

An order was made, with the consent of the parties, that the action be referred to Charles Gr. Judd, to take -and state . the accounts of. the assignees, and to take testimony in the action, but not to decide the case. The referee made a report of the testimony taken by him, and the exhibits proved. They are very voluminous, occupying between 800 and 900 folios. He did not state the account as directed.

The cause was brought to argument at a special term, and the court found the judgment and execution and assignment as stated, and that the latter contained a power authorizing the. assignees to dispose of the assigned property upon credit, if they could do so with more advantage to the parties interested. And that the assignees, when this action was commenced, had in their hands money enough, the proceeds of the assigned property, to pay the plaintiff’s judgment and the costs’of the action, and upon these findings adjudged the assignment fraudulent and void', as to the plaintiff, “because it authorized a sale upon credit; ” and also that the assignees pay the plaintiff his judgment, with interest, besides the costs of the action. The.defendants filed exceptions, and appealed to the general term, where the judgment was affirmed.

It thus appears that the Supreme Court have made two “ actual determinations ” in this action, one, the order to strike out portions of the answer, and the other adjudging the assign ment void, as to the plaintiff, upon the ground, exclusively, that it contained a power authorizing the assignees to dispose of the assigned property upon credit, if they could do so with more advantage to the parties interested.

The defendants attack the order to strike out. The counsel for the respondents supposes that this question cannot be made in this court. He refers to one of the exceptions, filed after the trial, alleging an affirmance and ratification of the assignment by the plaintiff and others; and alleges that such exception is unfounded in fact, and not available here. This is undoubtedly so. But the question here does not arise upon any exception. It arises upon an express provision of the Code, declaring that “upon an appeal from a judgment, the court may review any intermediate order involving the merits and necessarily affecting the judgment.” (§ 329.)

If the facts, pleaded by the defendants, involved the merits and necessarily affected the judgment, the order striking them out, is reviewable by this court, upon this appeal from the judgment. And if the matter thus striken out would have constituted a good defence to the action, it involved the merits, and the striking it out necessarily affected the judgment, as such matter was not available to the defendants unless pleaded as “new matter.” Would the new matter pleaded by the defendants, have constituted a good defence?

The statute declares an assignment, made with intent to hinder, delay or defraud creditors, void, as to the persons so hindered, delayed or defrauded. (2 R. S., 137, § 1.) Why is such an assignment void ? It is because the effect of it is to delay or defeat creditors in the collection of their debts, and when made with such intent, it is void. But if the creditors consent to the assignment, how can it be said that they are defrauded ? One cannot predicate a fraud of facts having his assent, upon a full knowledge of them. There can be no fraud, when all the parties interested are equally informed of all the facts, and mutually assent to them. It is true, in this case, the plaintiff was not consulted, at the time the assignment was made, but on being advised of its provisions, he acquiesced in them, and entered into an agreement with other creditors, showing an assent to and a ratification of the assignment; by which agreement the parties to it consented and agreed that certain other persons, one of them being the assignor debtor, should be joined with.the assignees, and should convert and dispose of the property, and pay the creditors in the order of preference mentioned in the assignment. Here is not only a waiver of any right to attack the assignment for fraud, but a ratification of it, by coming in and taking action, by agreement with other creditors, designed to prevent a sacrifice of the assigned property, by a disposal of it in the ordinary way, by the assignees; and by the agreement authorizing further delays and compromises, &c., &c. It would be a fraud upon all the other creditors to this agreement, if the plaintiff should be permitted to maintain this action, and by setting aside the assignment, gain a preference above them and secure the payment of his entire'debt. I think that the plaintiff was concluded, by his acts in reference to the assignment, from' attacking it upon the ground of fraud as to creditors.

I think the case much stronger than Hone v. Henriquez (13 Wend., 240), decided by the unanimous vote of the Court for the Correction of Errors. In that case, Hone had assented to the assignment. He was an auctioneer, and some of the assigned goods had been placed in his hands by‘the assignee, for sale, and he had sold them-; and as the assignment had been declared void, at the suit of other creditors, he claimed to hold the proceeds of the sales made by him, by virtue of a lien for the satisfaction of his debts. His claim was negatived, upon the ground that he was concluded by his assent to the assignment; that, as to him, he having assented^ to the assignment, it was not void, and he could not assert his lien as an auctioneer for the payment of the debt owing to him by the assignors.

If we should pass this question, arising upon the order, can the judgment stand upon the ground upon which it is placed by the court?

The assignment was in trust, that the property assigned “be converted into-cash, or otherwise disposed of to the best advantage, by the said party of the second part, to pay, first, the expenses of the trust hereby created, and the debts and demands mentioned and described in schedule A, hereto annexed, according to the directions and upon the conditions and contingencies stated in said schedule,” and which are constituted the first class to be paid in full. This provision was construed as containing a power authorizing the assignees to sell the property on credit, and for this sole reason the assignment was declared void, as to creditors.

The language is, '“ to be converted into cash, or otherwise disposed of to the best advantage,” &c., to pay expenses and these debts. It is a cardinal rule of construction, to ascertain the intention of parties to written instruments. Another rule is, that if an. instrument may fairly be construed in two ways, one of which will invalidate it and the other make it valid, the latter construction is to be adopted. The law does not suppose that parties intend to make an illegal and inoperative instrument or contract. The statute condemns sales and assignments made with intent to hinder or delay creditors. A voluntary assignment for the benefit of creditors may, and generally does, occasion some hindrance to, and delay of, the creditor; yet they are upheld, if no hindrance or delay,'other than such as'is ,incident to a.faithful execution of the legal trust, is interposed. The debtor must not require or authorize delay.

An authority to sell the assigned property upon a credit, is an authorization of delay, and renders the assignment void. Is such authority expressed, or does it appear by necessary implication, in the assignment in this case ? The debtors say to the assignees: Convert the property into cash, or otherwise dispose of it to the best advantage, to pay expenses and debts. Here is authority to dispose of the property otherwise than for cash, or otherwise than by converting it into cash; and the authority is broad and general, the only limitation being, that it shall be “ to the best advantage,” to pay expenses and debts. Who is to judge what disposition will be to the best advantage? It must be the assignees. The discretion is conferred upon them of converting the property into cash, or of disposing of it in some other way which, in their judgment, will be more advantageous. This is a discretion not controllable by the law relating" to the general duties of trustees in such cases. In Jessup v. Hulse (21 N. Y., 168), the authority was, “to sell, dispose of, and convey,” &c., “ at such time or times, and in such manner, as shall be most conducive to the interests of the creditors,” &c., “and convert the same into money.as soon as may be consistent with the interests of said creditors.” This language was construed as not vesting in the assignee an absolute discretion, but as only stating, unnecessarily, what the law would give him, subject"to the control of the courts. Judge Selden says: “ The assignee is virtually directed to perform his duty, according to the rules and requirements of the law.” He adds: “If the clause in question púrported, in terms, to invest the assignee with any discretion, as coming directly from the assignor himself, it would be fatal to the assignment; as, if it had authorized the" assignee to dispose of the property at such time and in such manner as, in his judgment, would be most conducive to the interests of the creditors, or as he should deem expedient and best calculated to promote their interests.” I think that kind of discretion here condemned, is found in the present case, viz., to dispose of the property, otherwise than for cash, to the best advantage. The power of disposition is express, limited only in its exercise, to the best advantage; and as to what kind of disposition Will be to the best advantage, is left, necessarily, to the judgment and discretion of the assignees. The assignees are not required to convert the property into money, eventually. They may, under the power, for aught I see, sell the real estate on long credit, and take bonds .and mortgages, believing that they can use them, in paying debts, '.to the best advantage ; and all this might turn out so. But the law does not sanction such a trust, in a voluntary assignment to pay creditors.

In Woodburn v. Mosher (9 Barb., 255), the authority to the assignees was to convert the property into money “ within such convenient time as to them should seem best.” Here the convenient time of conversion into money was left to the discretion of the assignees. It was a discretion not controllable by the court. It was held that the assignment was void upon its face.

In Kellogg v. Slauson (1 Kern., 302), the trust was to sell and dispose of the property “ upon such terms and conditions as, in their (assignees) judgment, may appear best and wisest for the interests of the parties concerned, and convert the same into money.” This was construed as not conferring authority to sell on credit; that the language was consistent with an interpretation making the assignment legal and valid. The words “ terms and conditions ” were construed and limited to the manner of selling and disposing, as at public or private sales, in large or small quantities, &c. A broader construction, authorizing a sale on credit, it was said, would equally author- ■ any and every illegal act, such as disposing of the pro- . y by lottery or at a raffle; that such construction was not c ’d for. It may be remarked, in that case the property was to jo converted into money. In the case under consideration I do not think we can limit the words “ otherwise dispose of to the best advantage,” to the manner of the sale or disposition intended to produce money. Here the words are used in contradistinction to the words “ converted into cash,” thus' confering an express authority to dispose of the property in a way not producing cash, and this authority is general, limited only by the judgment of the assignees, whether such disposition, otherwise than for cash,' will be to the best advantage. The argument that this power and discretion may find sufficient scope in making use of the property, by arranging with preferred creditors to take it in payment of debts, and that it may be so limited, is not satisfactory.

Upon the whole, I think the judgment of the Supreme Court upon this question, was right, and the judgment should be affirmed, but for the erroneous order; and for this cause I think the judgment and the order must be reversed.

Denio, Ch. J., Davies, Rosekrans and Balcom, Js., concurred.