Case ID: daly-ny_12/html/0454-01.html
Source: Caselaw Access Project
Author: {"author": "Charles P. Daly, Chief Justice.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In the Matter of the Assignment of Henry Adams et al. to Edward C. Hazard et al. for the Benefit of Creditors: Claim of James Talcott.
    (Decided June 30th, 1884.)
    Where a general assignment for benefit of creditors is made by manufacturers who have contracted to supply all their products to another for a term of years, and they thereby become unable to perform their contract, no claim for damages for loss of prospective profits, either on goods which might thereafter have been manufactured and supplied under such contract, or on goods manufactured and on hand but not delivered at the time of the assignment, is provable against the assigned estate; since such claim is not a “ debt,” but merely a claim for damages unascertained.
    Assignees for benefit of creditors cannot be compelled to deliver, in performance of such unperformed contract of their assignors, goods manufactured but not delivered before the assignment.
    Appeal from a judgment of this court entered upon the report of a referee upon reference of a disputed claim under a general assignment for benefit of creditors.
    The assignors, copartners under the firm name of R. & H. Adams, were silk manufacturers, and, on or about July 14th, 1882, made a contract with the claimant, James Talcott, their factor, that he should sell all their goods in stock and the entire production of their mills, at a specified commission, for a term thereby fixed of more than three 3'ears. They accordingly consigned to him all their goods in stock and the entire production of their mills, except some goods on hand on or about August 29th, 1882, when they made a general assignment for the benefit of their creditors to Edward C. Hazard and William G. Fenner. A claim by Taleott for the sum of $170,000 damages for loss sustained by him through the failure of the assignors to perform their contract was presented to the assignees and rejected by them, and was thereupon referred. The referee reported that the claim should be dismissed, and judgment for the assignees was entered upon the report. From the judgment Taleott, the claimant, appealed.
    
      William P. Chambers, for appellant.
    
      Hugh Porter, for the assignees, respondents.
   Charles P. Daly, Chief Justice.

The claim of damages for a breach of contract was not provable as a debt under the assignment. It has been settled b}r a long series of decisions that unascertained claims for damages were not provable as debts in proceedings in bankruptcy; that in claims for damages arising from breaches of contract in indemnity bonds and other possible liabilities, the damages must be ascertained and fixed before the act of bankruptcy to entitle the claim to be proved as a debt of the bankrupt, unless the contingent liability is one that has been specifically allowed by statute, and the actual’ prospective value of which at the time of the bankruptcy is capable of being ascertained b3r some mode of computing or estimating (Ex parte Marshal, 1 Mont. & Ayr. 118; Ex parte Thomson, 1 Mont. & Bli. 219; Ex parte Tyndal, 1 Deac. & Chit. 291; Yallop v. Evarts, 1 Barn. & Ad. 698; Boorman v. Nash, 9 Barn. & Cr. 145; Allwood v. Partridge, 4 Bing. 209; Lancashire Coal Co., Mont. 27; Woolby v. Smith, 3 Com. Bench 610).

Formerly, in bankruptcy proceedings in England, the claim had to be due at the time of the act of bankruptcy, and the liability upon a promissory note, not due until afterwards, was not provable. But this was relaxed by provisions in subsequent statutes which allowed contingent liabilities to be proved, where, as before stated, the value could be estimated; and under our own bankruptcy act, claims for unliquidated demands, arising out of any eontracc or promise, were allowed; but unless where changes have been made in this way by statute, the rule has been as above stated. The reason of it was, as the bankrupt, under the act, was to be discharged from his debts, the proceeding was to be strictly confined to what was regarded as a debt; and for the further reason, that the creditors whose claims were ascertained and fixed when the bankrupt went into or was brought into bankruptcy, were entitled to share in the distribution of his estate as soon as it was gathered in, and were not to be delayed by claims against him sounding in damages, which it might take years to determine. It was said that the assets were not to be locked up pending such uncertain litigation, but that matters were to be adjusted according to the relative liabilities of the bankrupt, as they were ascertained and known at the time of the act of bankruptcy and as his estate then existed; that it was not proper to keep the property, or a certain part of it, until it was ascertained whether somebody who had a claim to damages which it might take years to determine, would recover any or not (Exparte Marshal, 1 Mont. & Ayr. 118). In which connection I may mention that I have known cases in our own court, in which actions for the recovery of damages, through mistakes and new trials, remained in the court for ten years before they were finally determined. .

The grounds upon which unascertained claims of the nature of the one here presented were not allowed to be proved as debts in bankruptcy, apply with equal force in cases of voluntary assignments for the benefit of creditors, aiid indeed more so, because there the instrument itself provides how and to the payment of what debts the property assigned shall be applied, and unless the assignment is impeachable for fraud or otherwise invalid, the question is one to be gathered from a fair construction of the instrument and not from the provisions of any statute (Bishop on Assignments c. 27).

The assignment is not set forth in the case as made up, but its provisions as to the manner in which the assigned estate is to be applied are stated in the defendants’ points to be, as is usual in such instruments, that the estate is to be converted into money and applied to the payment of the just debts of the assignors.

The question then is what is to be understood as debts, within the intention of the. assignment.

A debt, says Sir John Cross, in Ex parte Thompson (Mont. & Bli. 219), “is a demand for a sum certain ; ” and it is, says Commissioner Fonblanqtte, in Ex parte Marshal (1 Mont. & Ayr. 118), “a sum actually ascertained.” “ That there must be,” he says, “ an ascertained debt, and not an unliquidated demand or liability, is sustained by all the cases, legal and equitable. It must be a debt existing and ascertained at the time of bankruptcy.” ..... “The distinction,” he says, “between debt and damages has always been rigorously adhered to.”

The same exposition of what is considered a debt is to be found in our own cases. It imports, says Chief Justice Monell, in Zinn v. Ritterman (2 Abb. Pr. N. S. 262, 263), “ a sum of money arising on contract and not a mere claim for damages ; ” in which case it was held that, in our insolvent acts, it does not extend to actions where the damages are unliquidated.

In The Matter of Denny (2 Hill 220), which was a proceeding in this court under the Insolvent Debtors’ Act, which as first enacted allowed the trustees to sue for debts or demands, but which- was afterwards limited to debts, it was held that the word demand is of much broader import than the word debt, and would embrace rights of action belonging to the debtor beyond those which could be called debts.

In Losee v. Bullard (54 How. Pr. 320), where a stockholder of a corporation was sought to be made liable under the statute for a debt, it was held that a claim for damages was not a debt within the meaning of the statute.

In Kimpton v. Bronson (45 Barb. 618), upon the question of what was a debt under the United States statute making treasury notes a legal tender for debts, it was held that the voluntary payment of a specific sum of money in discharge of an obligation was, within the meaning of that statute, the discharge of a debt.

In Kennedy v. Strong (10 Johns. 289), it was held that, under the Insolvent Act, a liability for goods received by the insolvent as a factor or trustee was not a debt within the meaning of the Insolvent Act; that the insolvent’s discharge would in no way affect it, but that he remained equally liable to be sued upon it, as well after as before his discharge. And in Mechanics and Farmers Bank v. Capron (15 Johns. 467), it was held that the insolvent’s liability as indorser of a' promissory note, which was not due at the timé of his discharge did not constitute a debt which was or could be discharged by that proceeding, which extended only to debts that were due at the time of the assignment of the insolvent’s estate, or debts contracted before that time and payable afterwards; that it was a general and well settled rule that if the creditor, at the time of the assignment by the insolvent debtor, has not a certain debt due or owing to which he can attest by oath, so as to entitle him to a dividend of the insolvent’s effects, it is not embraced in that proceeding ; and as, in that case, the liability of the insolvent at the time of the assignment was merely contingent—that is, upon the non-payment afterwards of the note by the maker —it was held that the holder of the note was in no way affected by the insolvent’s discharge, but might maintain an action thereafter against him; which was reaffirming substantially a prior decision of Chancellor Kent in Frost v. Carter (1 Johns. Cas. 74), in which the Chancellor (then a judge of the Supreme Court) held that the insolvent's proceedings extended only to such debts as were due at the time of the assignment. That “ such debts must be specific and certain sums of money to which the creditor can make oath as being justly due or to become due at some specified time; and unless the creditor, at the time of the assignment, be able to produce and verify such a debt, he will not be entitled to receive from the assignees his dividend of the insolvent’s effects, nor will he be barred from his future action against the insolvent.” And this rule, that the liability at the time- of the assignment must be ascertained and fixed at a sum certain, whether payable before or after the assignment, to entitle the creditor to a dividend of the insolvent’s estate, has been recognized in many other cases both in this state and elsewhere.

Under the act (L. 1877 c. 466), regulating voluntary assignments,- the creditor at the time specified in the notice must come in and prove his claim or he is debarred from participating in the distribution of the estate (Kerr v. Blodget, 48 N. Y. 62). The act (§ 13) contemplates that the creditors shall prove their claims, and it is the practice to do this by an affidavit.

In this case there could be no compliance with the rule laid down by Chancellor Kent, in Frost v. Carter (supra), for there was no debt of a certain or specific amount due at the time of the making of the assignment, or in fact any debt due then, for it was by the making of a general assignment for the benefit of creditors that Adams and Horne put it out of their power to perform the agreement made by Adams with Talcott, and it is this which Talcott relies upon as constituting the breach of the agreement. It is upon this that his claim rests, so that the claim did not come into existence until after the assignment.

The referee has found that the making of a general assignment by R. & H. Adams and their consequent inability thereafter to manufacture and supply Talcott with goods, did not amount to a breach of the agreement. He has found, however, that Talcott was entitled to receive for sale under the agreement the goods which were manufactured and in the hands of R. & H. Adams at the time of the assignment; but that it did not appear that Talcott had suffered any loss or damage by these goods not being consigned to him.

The referee in his opinion states generally that there was nothing before him upon which it would have been possible for him to have estimated the amount of profits that would or might have been realized if the contract had been fulfilled; that any estimate on the facts before him would have been purely speculative and wanting in that reasonable certainty which the law requires. This conclusion was, I think, undoubtedly correct, so far as regards the claim for loss of profits on goods to be manufactured thereafter and delivered during the whole period for which the agreement was to run.

In the affidavit of the claim, Talcott swore that the insolvent firm was justly indebted to him in the sum of $170,000 for damages arising from the breach of the contract; but upon his examination, through various errors and mistakes, the amount sworn to in his affidavit as $170,000 was reduced by him to $130,000. The greater part of this claim, as thus reduced to $130,000, as appeared from his examination, Avas an estimate made by him upon the assumption that the sales for the folloAving three years would be the same, or at least not less per year than they had been during the short period that the agreement was carried out. This could not be assumed in respect to the sales of this commodity, consisting of manufactured silks and cottons, for the long period of three years thereafter; and the referee properly refused to find as requested, that, it appearing that the yearly sales by the firm of the production of their mills had been $1,000,000 annually, and the annual expenses had been $23,000, the law would presume, in the absence of evidence to the contrary, that the future sales would have yielded the same returns, under the same expense, and that Talcott Avas entitled to have his damages for loss of prospective profits computed upon that basis.

The law makes no such presumption. Profits are reeov erable as damages Avhere it can be shown with reasonable certainty what the party would have received if the contract had been fulfilled, as appears in the leading case of Masterson v. The Mayor &c. of Brooklyn (7 Hill 61), which the appellant cites, and on which he relies. The plaintiff there had a contract to furnish marble from a specified quarry, at a specified sum, for the erection of a city hall, which, by a contract made with the owners of the quarry, he was to receive at a smaller sum than he was to get for the marble when delivered for use in the building. That difference constituted his profit, the whole of which prospectively could be accurately ascertained by the proof of that amount, and of the amount of marble he was, by the contract, to deliver to the defendant; and it is only in such cases, where the prospective profits can be shown with reasonable certainty, that they can be recovered as damages (Mayne on Damages, 15, 18).

It may have been possible to have ascertained with reasonable certainty the amount of profits that could have been obtained on the sale of the goods which R. & H. Adams had manufactured and on hand at the time of the assignment, if they had been delivered, by proof of the market price at that time, and, in accordance with the referee’s finding, an action for damages for the non-delivery of these goods may have been maintainable against the members of the firm. However that may be, the goods were not delivered, and this was, after the assignment, simply a claim for an unascertained amount of damages, which was not provable, under the assignment, as a debt.

The appellant requested the referee to find—which the referee would not—that upon the refusal of the assignee to deliver, upon demand, the goods manufactured and on hand at the time of the assignment, he, Talcott, was entitled in this proceeding to an order or decree that they make such delivery to him or account to him, as assignee, for the proceeds of these manufactured goods.

The assignee could not be compelled to fulfill, by the delivery of goods, the unperformed contract of R. & H. Adams at the time of the assignment. No authority or power was given them, in that instrument, to do so. All the property of the firm was, I assume, as is usual in such instances, conveyed to them subject to the trust already referred to, to convert it into money and apply the money to the payment of the just debts of the firm, which was what they had to do and all they could do.

The conclusion from what has been stated is that Talcott’s claim does not come under this trust, because it was not á debt, but a claim for damages unascertained; which is sufficient to dispose of this appeal, without deciding whether the referee was right or wrong in holding that the making of a general assignment for the benefit of creditors was not a breach of this agreement, and other questions incident to it, in the case.

The judgment therefore entered upon the referee’s report should be affirmed.

Larremore and Beach, JJ., concurred.

Judgment affirmed.