Case ID: hilt_1/html/0189-01.html
Source: Caselaw Access Project
Author: {"author": "Beady, J. —", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Wilson Small v. Peter G. Ludlow and George Whitefield.
    Assignees in trust for the benefit of creditors cannot assign a claim due to them, as trustees, to a third person to collect the claim, and appropriate the proceeds in ■ accordance with the provisions of the original assignment. The assignment devolves a personal trust upon the assignees which they cannot thus delegate to others.
    
      Nor does it help such an assignment that the cestui que trusts, under the original assignment, who will, probabfy, absorb the entire proceeds, have joined in the assignment of the claim, and assented thereto, unless all the creditors of the original debtor have joined therein. When a debtor assigns property for the benefit of bis creditors, they arfe all interested in the estate thus appropriated, and no diversion can be made of the trusts thus created, nor any delegation of any power conferred, without their assent, or the sanction of some tribunal possessing the power to allow such diversion or transfer.
    Appeal by plaintiffs from an order at special term sustaining a demurrer to complaint. The facts sufficiently appear in. the opinion of the court.
    
      A. G. Morris, for the appellant.
    
      Augustus Schell, for the respondents.
   Beady, J. —

Patrick McAuliff assigned to Wm. H. Merrill, Jr., and Thomas Pearson, all his right, title and interest, in and to a building on Fifty-first street, the materials composing tbe same, and all other materials and property upon the lot on which such building, partially finished, bad been erected, and either attached to the same, or lying loose thereon; and also his right and interest in and to the privilege of removing said materials granted to him by the school officers, who are mentioned in the assignment as having made a contract with him in relation to the erection of such building; in trust, However, to remove the said materials with all convenient speed, and to sell and dispose of the same without unreasonable delay, and tbe proceeds thereof, after deducting the costs and expenses of said removal and sale, and all other expenses necessarily incurred in and about tbe same, to appropriate to tbe payment of the debts of tbe assignor, and in tbe order in wlrieb tbey stood in schedule “ A,” and tbe surplus, if any, to other debts. Pearson and Merrill afterwards agreed with the defendants to relinquish all their right and interest to tbe building and materials, upon certain conditions; and tbe defendants were to pay for the same tbe sum of $1,100. Tbe defendants took possession of tbe building and materials, and used them for tbeir own purposes, and under and in pursuance of sucb agreement. Pearson and Merrill subsequently, and on tbe 28th June, 1855, by deed of assignment, under their bands and seals, duly'executed, assigned and transferred to the plaintiffs all tbeir claims as trustees against the. defendants, in trust, to receive wbat might 'be due from said defendants, and to appropriate the same in the manner provided for in the assignment from McAuliff to them, and to which assignment Patrick McAuliff, John McAuliff, Timothy McAuliff and Candee, Merrill & Co. assented. These facts are gathered from the corm plaint, in which it is also alleged that these persons so assenting are the only other persons interested in said claim. It appear^, however, by the assignment of McAuliff, which is made a part of tbe complaint, that John Quinn, Thomas Quinn and Thomas Grogan are creditors in schedule “ A,” to be' paid in the order in which they stand, out of the proceeds of the sale of the assigned property.

The defendants demur to the complaint upon two grounds: 1st. That there is a defect of parties, plaintiff and defendants; because it appears that the right of action, if any, is in Pearson and Merrill, assignees of McAuliff, who should have been made parties instead of the plaintiff; because the assignment was macle by Pearson and Merrill without consideration or authority, and transferred no interest or right of action to the plaintiff, and because other persons are interested in the subject matter who are not made parties plaintiffs or defendants.

2d. Because the complaint does not state facts sufficient to constitute a cause of action.

Judge Ingraham, at special term, held the demurrer to have been well interposed, upon the ground that Pearson and Merrill, being trustees, and having only limited power conferred by the assignment, had no authority to substitute other trustees without the consent of all the parties in interest. It will be perceived that the trust was to sell the property after collecting it, and to appropriate the proceeds to the payment of the debts designated in tbe order in wbicb they were arranged, and tbe surplus, if any, to all other debts of the assignor. Tbe assignees sold tbe property to tbe defendants on a credit, in violation of law (Burrill on Assignments, pages 452, 453, and cases cited), and then again assigned tbe claim created by sucb sale to tbe plaintiff, in trust, to apply it as they were required to appropriate it under the assignment to them. It does not matter wbat is admitted by tbe demurrer, if,' on consideration of all tbe facts divulged by tbe complaint and oyer, it appears that no right of action existed in tbe plaintiff. Tbe authority to apply tbe amount of tbe claim is an express delegation of tbe power to appropriate given by tbe original assignment, which was a per-gonal trust and confidence, and could not be delegated. Hill on Trustees, 178 et seq. Tbe assignment executed by Pearson and Merrill was, in fact, nothing'more than a delegation of power. It was not a sale of tbe claim, but an authority to collect and apply it, and, being void, conferred no interest in, or authority over tbe claim. It is said that, where a deed expressly directs tbe assignee to sell by public auction, tbe trustee is bound to conform to that mode of sale, and cannot adopt any other, although by so doing be may, in reality, promote tbe interests of those for whom be acts, and that be .must, in general, follow tbe provision of tbe trust deed. Burrill, supra ; 7 Paige, 37, 38 ; 1 Peters, 38 ; and in Hawley v. James, 5 Paige, 318, 323, 487, it is said by Chancellor Walworth, that, trustees with discretionary power may entrust an agent with authority to make conditional sales of lands, lying at a distance from the residence of the trustees, subject to a ratification of sucb trustees or any two of them, There is no reason why be should, after tbe sale of distant property, however, delegate tbe authority to appropriate tbe proceeds. That is his duty, to be done within a reasonable time, and in tbe manner directed by tbe deed. It is no answer to this view that the assignor and tbe cestui que trusts, who will, probably, engross tbe whole of tbe proceeds, have united in the transfer, because tbe assignment is in trust for all tbe creditors of tbe debtor, and who thus acquire an inchoate interest in tbe estate wbicb is transferred for tboir benefit, whether it ever become absolute or not. It might appear, too, on a careful execution of the trust by the assignees, that debts to be paid in priority to those of John and Thomas Quinn, and Thomas Grogan, were not, in fact, due, and they, in that event, would become entitled to their respective debts. At all events, it seem very clear to my mind, that when a debtor assigns property for the benefit of his creditors, they are all interested in the estate thus appropriated, and that no diversion can be made of the trusts created, and no delegation of any power conferred be made, without their assent or the sanction of some tribunal gifted with power to allow such diversion or transfer. On the grounds, therefore, assumed by Judge Ingraham, I think the demurrer was w;<?ü.~ pleaded, and that the order of the special term should be affirmed

Order affirmed.