Case ID: ny-st-rep_57/html/0125-01.html
Source: Caselaw Access Project
Author: {"author": "Follett, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Daniel B. Halstead et al., as Executors of Caleb D. Gildersleeve, Deceased, App’lts, v. Henry S. Ives et al., Resp’ts.
    
      (Supreme Court, General Term, First Department,
    
    
      Filed November, 17. 1893.)
    
    1. Assignment fob creditors—Power of court.
    The court has no power, on a final accounting by the assignee, to determine that a compounding creditor has released the assignor from all liability on his debt.
    3. Same.
    An adjudication, in such a proceeding, is void.
    S. Same—Compounding.
    An oral agreement between creditors and debtor to compound and discharge their claims is valid.
    4. Evidence—Payment.
    As bearing upon the question of payment, an offer to show that long afterwards the debtor authorized the sale of bonds held as collateral for such payment and directed that the avails be applied upon the debt, is competent.
    A VERDICT for defendants was directed, and a motion to set it aside and for a new trial on a case containing exceptions was ordered to be heard at general term in the first instance.
    
      Taylor, Thompson & Kaufman, for pl’ffs ; Archibald L. Sessions, for def’ts.
   Follett, J.

The accounting was a special proceeding prosecuted under the general assignment act, from which the court derived its powers. The only provisions in the act relating to compositions with creditors of assignors are found in §§ 20 and 22:

“ Section 20. On a proceeding for an accounting under this act, the county court shall have power: * * ® (6) On proof of a composition between the assignor and his creditors, to discharge the assignee and his sureties from all further liability to the compounding creditors appearing or duly cited, and to authorize the assignee to release the assets to the assignor; provided, however, that if there be any creditors not assenting to the composition, the court shall determine what proportion of the fund shall be paid to or reserved for creditors not assenting, which shall not be less than the sum or share to which they would be entitled if no composition had been made, and may decree distribution accordingly.’.’

Section 22 provides that decrees shall have the same force and effect as though made in actions, and then follow directions in respect to the entry of orders, a reference being made to orders releasing assets to assignors.

We find no warrant in the general assignment act, or in any precedent in the reports, authorizing the-court, on a final accounting, to adjudicate that a creditor, by “ a composition,” or by assenting to the terms of such an instrument, executed by other creditors, has discharged his debtor from all liability. The section quoted authorizes the court by its decree “ to discharge the assignee and his sureties from all further liability to the compounding creditors appearing or duly cited ; ’’ but it does not authorize the court to adjudge that the assignor has been, or that he be, discharged from all liability to such creditors. An agreement by the creditors that the assigned estate be restored to the assignor, and that the assignee be discharged, without providing for the discharge of the assignor from his debts, would be quite sufficient to authorize the court to make the adjudication provided for in the sixth subdivision of § 20. If a creditor executes or assents to a composition executed by other creditors by which his debtor is discharged from his debt, well and good; but the decree of the court that he has so executed or assented is no evidence of the fact. In case an action is brought on the debt, and a discharge thereof is pleaded, it must be established by producing it, if in writing, as in this case. Under subdivision 6, above quoted, the county judge or court has power (1) to discharge the assignee and his sureties from all further liability to the compounding creditors appearing or duly cited; (2) to authorize the assignee to release the assets to the assignor, provided, however, that, if there be any creditors not assenting to the composition, the court shall determine what proportion of the fund shall be paid to or reserved for creditors not assenting, which shall not be less . than the sum or share to which they would be entitled if no composition had been made; (3) to decree distribution accordingly.

Other powers are conferred, which may be exercised upon an accounting, but they do not relate to compositions, and are not germane to the question under discussion. We think it is very plain that no power is conferred upon the court by this statute to determine on a final accounting that a compounding creditor has released the assignor from all liability on his debt, and that an adjudication to that effect, being beyond the power of the 'court, and not within the issues raised by the proceedings, is void and of no effect. It is not. necessary to cite authorities to show that an adjudication which is beyond the power of the court to make, or that a determination of a question not involved in an action or in a special proceeding in which it is made, does not estop the litigants or their privies.

The only evidence offered to show that the plaintiffs’ testator had agreed to release the defendants is found in the recitals in the final decree, which are italicized in the statement of facts, which were not competent, and the plaintiffs’ objection to their reception in evidence should have been sustained. The composition deed was not put in evidence, and we have no knowledge of its terms, except such as we have derived from the recital quoted from the final decree. It was not asserted at the trial that plaintiffs’ testator had executed this or any other composition deed or release, and, as before stated, the only evidence that he assented to the deed contained in the recitals which were not relevant.

The defendants insist that an oral agreement between several creditors and their debtor to compound and discharge their claims is valid. This is true. Fellows v. Stevens, 24 Wend., 294; Chemical Nat. Bank v. Kohner, 85 N. Y., 189. But in this case no legal evidence of any composition or release was before the court. Again, the plaintiffs offered to show, but were precluded from showing, that there was in fact no such agreement. This was error. As bearing upon the question whether the debt had been discharged, the plaintiffs offered to show that long after the entry of the final decree the defendants authorized the sale of bonds held as collateral for the payment of the note, and directed that the avails be applied thereon, which was excluded. This was error. The release of a debt presumptively discharges all collateral securities held by the creditor for the debt released. Cowper v. Green, 7 Mees. & W, 633; Leake, Cont., 926, 625; 2 Chitty, Cont.„ 11th Amer. ed.. 1159. The fact that the defendants recognized the right of the plaintiffs to the proceeds of the collateral was relevant to the question in issue between the litigants. The plaintiffs’ exceptions are sustained, the verdict set aside, and a new trial is granted, with costs to them to abide the event.

Parker, J., concurs; Yaw Bruwt, P. J., concurs in result.