Case ID: misc_60/html/0620-01.html
Source: Caselaw Access Project
Author: {"author": "Greenbaum, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Albert Heppenstall et al., Plaintiffs, v. John F. Baudouine, Defendant.
    (Supreme Court, New York Special Term,
    October, 1908.)
    Parties — Plaintiffs — Trustee of express trust — Trustees under agreement with creditors.
    Where the debtor, his creditors and three persons named as trustees unite in an agreement, by which the creditors agree to forbear prosecuting their claims, the debtor agrees to make stated payments to the trustees and to turn over to them certain life insurance policies, and the trustees are required to distribute the fund to the creditors in the manner specified in the agreement, the trustees are trustees of an express trust, within the meaning of section 449 of the Code of Civil Procedure; and, upon default on the part of the debtor to make the payments as agreed, the trustees may maintain an action against him.
    Demurrer to complaint.
    
      Sanborn & Sanborn, for plaintiffs.
    Shearman & Sterling, for defendant.
   Greenbaum, J.

Are the plaintiffs trustees of an express trust within the meaning of section 449 of the Code of Civil Procedure ? The correct answer to this query determines whether or not they may maintain this action. The agreement under which the plaintiffs claim the right, as trustees, to sue defendant was executed by the defendant, certain named creditors of the defendant to whom he was indebted in various amounts, and three named trustees, two of whom are the plaintiffs. Upon the resignation of one of the original trustees a successor was appointed by the creditors, pursuant to the terms of the agreement, and he is also one of the plaintiffs. The agreement was one by which the creditors agreed to forbear prosecuting their claims against the defendant, in consideration of which he agreed to pay over to the trustees at stated periods certain sums of money for the benefit of the creditors and also to deliver to the trustees certain life insurance policies on his life as security for the payment of said debts. The trustees were required to make payments over to the several creditors named in the agreement with a priority of payment in favor of certain named creditors and a pro rata distribution thereafter among the remaining creditors. The defendant having failed to make all the payments as agreed, the plaintiffs, as trustees, bring this action against him to recover the balance due under the agreement to the several creditors therein named, and the right to bring this action is challenged on demurrer by the defendant. The plaintiffs, of course, are not trustees of any express trust as now recognized by our statutes, unless they may be so regarded under the exceptional provisions of section 449 of the Code. That section provides that “ Every action must be prosecuted in the name of the real party in interest, except that an executor or administrator, a trustee of an express trust, or a person expressly authorized by statute, may sue, without joining with him the person for whose benefit the action is prosecuted A person with whom, or in whose name, a contract is made for the benefit of another, is a trustee of an express trust, within the meaning of this section.” This section has received an interesting judicial consideration in Considerant v. Brisbane, 22 N. Y. 389, and as I understand the main contention of the demurrant, it is that although the majority of the court there held that where a contract is directly made with one, as agent for another, for the payment to the agent of certain sums of money for the benefit of his principal, an action against the promisor may be maintained in the name of the agent, yet where the contract to pay to an agent is directly made between the principal and the promisor the agent may not in such a case sue in his own name. It is true in discussing the question before it the prevailing opinion states that in the latter case an action by the agent would not lie, yet, in my judgment, the facts in this case do not come within the principle stated by the court. What was there said was: They (referring to the contracts under consideration) were not contracts, therefore, directly with the principals, with a promise to pay the plaintiff for their benefit. On such a case no action could be maintained by the promisee, though the promise might support an action by the company.” In the case at bar the contract was directly made not only with the principal, but also with the trustees. The mere fact that the principal signed the document does not the less make it a contract direct with the trustees. The intervention of the trustees was a necessary element to the carrying out of the agreement. Hot only were the payments to be made to them and the moneys to be distributed by them in the manner °provided, but they were also to receive certain securities, to wit, policies of insurance, to which no individual creditor was entitled to the possession. It may be urged that the plaintiffs are not suing under the policies, but, nevertheless, that circumstance is an important factor in determining the position of the trustees under the agreement. Whenever a payment was made to the trustees no given creditor, after the payment to the preferred creditors, was entitled to the full amount received by the trustees. It was then the duty of the trustees to distribute the moneys received pro rata. The facts in this case are, therefore, different from those that might arise where a third party is to receive money for the benefit of another, and where the right of action under the agreement would directly inure in favor of him for whose benefit and use the money was to be paid by the promisor. Nor does the clause in the agreement which gives the right to the several creditors to maintain actions upon their claims against the defendant and upon his default in payments to enter judgment against him militate against the view that I hold, for the reason that such a remedy is not inconsistent with the right of the trustees to sue, but merely an additional one accorded to such of the creditors as wish to avail themselves of it. It seems to me that the plaintiffs were persons with whom the defendant contracted for the benefit of others, and within the meaning of section 449 (supra) they were trustees of an express trust entitled in their own names to maintain this action.

The demurrer is overruled, with costs, and with leave to defendant to answer upon payment of costs.

Demurrer overruled.