Case ID: ny-st-rep_42/html/0265-01.html
Source: Caselaw Access Project
Author: {"author": "Peckham, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Frederick Booss et al., Resp’ts, v. Margaret A. Marion et al., App’lts.
    
      (Court of Appeals,
    
    
      Filed January 20, 1892.)
    
    
      1. Assignment for creditors—Individual debts of partners.
    An assignment for creditors executed by members of a firm, directed that after paying expenses, wages of employees and preferred debts the assignee should pay and discharge in full, if the residue of said proceeds was sufficient, all the debts and liabilities due from the assignors “together or respectively,” and if not sufficient to pay them in full then to apply the residue of said proceeds to the payment of said debts and liabilities ratably and in proportion. There were individual debts. Feld, that the assignment was fraudulent and void as its effect was in one contingency to devote a part of the partnership property to the payment of individual debts before payment in full of partnership debts.
    2. Same.
    The failure of assets to pay preferred creditors did not make the assignment valid, as there still remained the illegal intent to devote the property to an unlawful use.
    
      Appeal from judgment of the supreme court, general term, fifth department, affirming judgment for plaintiffs, entered on the findings and decision of the court at special term.
    
      Edward F. Wellington, for app’lts ; David N. Salisbury, for resp’ts.
   Peckham, J.

We think this judgment should be affirmed for the reasons stated in the opinion given at the general term. We-will add but a few words which are suggested by the argument of the counsel for the appellant before us. The construction which the supreme court gave to the language used in the assignment is we think, the only one permissible.

The effect of the assignment is in one contingency to devote a part of the partnership property to the payment of individual debts before payment in full of partnership debts, and there is an express finding that there were such individual debts of one of the partners. There is evidence sufficient to justify it. In Crook v. Rindskopf, 105 N. Y., 476; 8 St. Rep., 66, the members of the firm executed the assignment for the benefit of their creditors and devoted all their property to the payment of the co-partnership debts, and after such payment, if there should be any residue, it, was to be applied to the payment of the individual debts of the assignors or either of them. One member of the firm owned individual assets of the value of $30 and the other of the value of $10, and their individual indebtedness was of an unequal amount. It was thought hardly worthy of attention on account of the smallness of these amounts; but the construction of the assignment was. nevertheless entered upon and it was held that the language did not provide for the creation of a fund in the surplus after payment, of firm debts to be used indiscriminately in the payment pro rata of the individual debts of the members of the firm, but that if there were a surplus the share of each partner therein was to be applied to the individual debts of such partner. The language-used here does not permit of this construction. The payment of the firm debts is not provided for in full before any payment can-be made the individual creditors, but the contrary is the fact in a contingency provided for in' the assignment. If there are not. enough assets to pay the preferred firm creditors, no sufficient, answer to the charge of fraud arises from that fact.

If an insolvent firm appropriates by an assignment partnership property to the payment of the individual debts of one partner, the assignment is fraudulent and void. Wilson v. Robertson, 21 N. Y., 587.

In case of such an assignment it has been held, Hurlbert v. Dean, 2 Keyes, 97, if it be shown and found as a fact that there are no-individual debts thus provided for, the presumption of fraud may be repelled and the assignment upheld. But in this case the finding is exactly contrary. And in Crook v. Rindskopf supra, the-assignment having provided first for the full payment of firm creditors, such creditors, it was said, were not aggrieved, for the intention could not have been to defraud them by providing for the-payment of individual creditors thereafter even though the individual partners owned unequal amounts of individual property which might be affected by a provision to pay debts with the surplus pro rata. It never has been held that in a case where partnership assets have been by the assignment devoted in certain contingencies to the payment of individual debts, while a portion of the partnership debts remained unpaid, the stamp of fraud which the law places upon such a transaction can be rebutted by any evidence that the parties did not intend to commit a fraud.

In this case the plaintiffs endeavored to prove a fraudulent intent outside of and upon other facts than this provision of the assignment. Even if they had been unsuccessful in that endeavor, the failure did, not breathe vitality into the instrument which the law denounces as a fraud because of the existence of the illegal provision therein. If the fact be that there are not enough funds in the hands of thq assignee to pay the preferred debts of the firm, the other fact remains, that the assignment provided for the payment of the individual debts with firm property in certain contingencies, and the want of firm and individual assets sufficient to piay the firm debts does not cure this vice. The failure of assets to pay preferred creditors is not like the non-existence of individual debts in a case where an assignment provides for their payment out of firm property. ■ There is no contingency in such case and the provision is mere surplusage; hence, totally immaterial. But mere absence of assets with which to pay as directed may depend upon many contingencies. The illegal intent to devote the property to an unlawful use is there in any event. Good fortune in realizing upon sales of the property assigned may produce the assets, while in the other case there are no individual debts and no chance can create them.

Whether the provision is void or valid should not depend upon a fact of this kind, which may or may not exist when the assignment comes to be carried out. The invalid provision is made in case it should exist, and it is invalid when the assignment is made.

There is no error in the record and the judgment should be affirmed, with costs.

All concur. 
      
       Affirming 35 St. Rep., 710.