Case ID: ny-super-ct_22/html/0503-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court—White, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

John and States D. Morrison, Plaintiffs and Respondents, v. Amos M. Atwell et al., Defendants and Appellants.
    1. Where an assignment for the benefit of creditors is made, by the members of a partnership, giving preference to the payment of the partnership debts, a creditor of the partnership cannot have the assignment set aside as void, because its provisions as to the subsequent payment of creditors of individual partners contain a direction calculated to hinder and delay them. No creditor but the one who is hindered, delayed or defrauded by the particular provision complained of, can avoid the instrument on that account.
    
      2. An assignment purporting to transfer real as well as personal property, for the benefit of creditors, is not rendered void by a direction to pay rents, taxes and assessments which may become due before the lands can be sold. If the assignment contemplates an immediate sale, such a provision may, in the absence of evidence to the contrary, be presumed to have been intended for the benefit of the creditors, by increasing the fund.
    3. Where copartners made an assignment which recited their copartnership, and their indebtedness as such, and assigned all the “ property of every name and nature whatsoever of the said parties of the first part.”
    
      Held, that this was not an assignment of the individual property of the . members of the partnership; and hence a direction in the assignment to pay rents, &c., due on lands, &c., assigned, did not apply to rents due from one partner individually for his dwelling house.
    (Before Robertson, White and Barbour, J. J.)
    Heard, June 9, 1862;
    decided, October 11, 1862.
    Appeal from a judgment entered after a trial of the cause at a Special Term, before Mr. Justice Moncbief, without a Jury, on the 21st of November, 1861.
    The action was brought by the plaintiffs against the defendants, Peleg G. Berry and Homer L. Smith, who were judgment debtors of the plaintiff, and Amos M. Atwell and Vincent Kenyon, to whom Berry and Smith had made a general assignment for benefit of creditors. The object of the action was to set aside the assignment and have a receiver appointed and directed to pay the plaintiffs’ judgment.
    The assignment was, by its terms, expressed to be an indenture made, &c., “ between Peleg G. Berry and Homer L. Smith, copartners, doing business in the city, under the name, style or firm of Berry & Smith of the first part,” &c., &c., and recited and declared that “whereas the said copartnership is justly indebted in sundry considerable sums of money, and has become unable to pay or discharge the same with punctuality, or in full, and the said parties of the first part are now desirous of making a fair and equitable distribution of their property and effects among their creditors:
    “ Now, therefore, this indenture witnesseth, that the said parties of the first part, in consideration of the premises,” * * * assign to the parties of the second part * * * *. “ All and singular, the lands, tenements, and hereditaments, situate, lying, and being within the State of Hew York, and all the goods, chattels, merchandise, bills, bonds, notes, book accounts, claims, demands, choses in action, judgments, evidences of debt, and property of every name, and nature whatsoever of the said parties of the first part, except such as is by law exempt from levy and sale under execution, to have and to hold,” &e., &c.
    “ In trust, nevertheless, and to and for the following uses, intents, and purposes — that is to say :"
    “ That the said parties of the second part shall take possession of all and singular the lands, tenements and hereditaments, property and effects hereby assigned, and sell and dispose of the same, and convert the same into cash with all reasonable dispatch and shall also collect all” debts, &c., &c., * * * * “ and. by and with the proceeds of such sales and collections the said parties of the second part shall first pay” costs, * * * * the expenses of the assignment, * * * * “ and all rents, taxes, and assessments due, or to become due, on the lands, tenements and hereditaments aforesaid, until the same shall be sold and disposed of, and by and with the residue or nett proceeds and avails of such sales and collections the said parties of the second part” were directed* to pay the partnership debts in a certain order of preferences, and afterward the individual debts of the partners share and share alike.
    Among other facts, the Oourt found that, at the time of executing the assignment, the defendant Berry occupied a dwelling house under a letting which was to terminate about six months thereafter: and also found that, at the time of executing the assignment, the assignors’ individual debts were unequal in amount, and that one of them (Berry) had individual property, but that the other had none.
    
      
      The plaintiffs having obtained judgment declaring the assignment void, the defendants’ took the present appeal therefrom.
    
      William Fullerton, for defendants, appellants.
    Argued that the assignment was valid; and as to the provision in reference to the payment of individual debts, cited Collomb v. Caldwell, (16 N. Y. R., 484,) Goodrich v. Downs, (6 Hill, 438,) Barney v. Griffin, (2 Comst., 365,) Bogert v. Haight, (9 Paige, 297,) Curtis v. Leavitt, (15 N. Y. R., 96, 97,124,) and cases there cited.
    
      T. D. Pelton, for plaintiffs, respondents.
    I. The direction to pay rents, &c., delays the creditors. It is a power which the law does not confer upon assignees for the benefit of creditors, and renders the assignment void. (Jessup v. Hulse, 21 N. Y. R., 168, 169; Burdick v. Post, 12 Barb., 168.) The deed transfers individual as well as partnership property, (Wharton v. Fisher, 2 Serg. & R., 178,) and the provision appropriates copartnership property to pay individual debts first, which is fatal. (Wilson v. Robertson, 21 N. Y. R., 587.)
    Again, this provision makes the amount for which some of the creditors are preferred dependent upon the action, if not upon file discretion, of the assignees. The debtor must declare his preference at the time of executing the assignment, and the rights of creditors must be fixed by the deed itself. If they are left subject to the action of the assignees, nothing passes under the deed. (Boardman v. Halliday, 10 Paige, 228; Barnum v. Hempstead, 7 Paige, 572.) Moreover, this provision also directs the payment of moneys which the assignors were not, and never could become, liable to pay.
    An insolvent debtor can only assign his property for the benefit of his creditors, and direct it to be applied to the payment of debts due, or which will become due, in consequence of some engagement made by the debtor before the assignment. (Burr. Assign., 234.) Any trust in the deed which can possibly interfere with the immediate distribution of the fund among the creditors, vitiates the assignment. (Dunham v. Waterman, 17 N. Y. R., 9; Mead v. Phillips, 1 Sandf. Ch., 87; Burr. Assign., 204; Mead v. Phillips, supra.)
    
    II. The provision by which the joint effects of the firm are taken to pay the debts of its individual members irrespective of the claim of each-member upon the fund, so that the share of one partner may be taken to pay the debts of the other, to the exclusion of his own creditors, furnishes conclusive evidence of fraudulent intent on the part of the assignees. (Wilson v. Robertson, 21 N. Y. R., 587; Smith v. Howard, 20 How. Pr. R., 121.)
    III. The assignment cannot be helped by extrinsic evidence showing that there were no lands or tenements assigned, or that there was no individual property, and that the assets were not sufficient to pay the copartnership debts. The parties having provided in the assignment for the payment of rents, &c., and for a surplus after payment of copartnership debts, they cannot say there was no real estate, or that there could be no surplus. They are estopped by their deed.
    1. It is immaterial whether occasion has arisen for the operation of the illegal powers conferred upon the assignees. The question is, what have the assignors enabled the assignees to do. The law presumes that they intended all that their instrument provides. (Mead v. Phillips, supra; Goodrich v. Downs, 6 Hill, 438 ; Collomb v. Caldwell et al., 16 N. Y. R., 484; Barney v. Griffen, 2 Comst., 365, 371; Smith v. Howard, 20 How. Pr. R., 128.)
    IV. The assignment being void as to the individual . creditors of the assignors, is void as to all. (Leitch v. Hollister, 4 Comst., 211, 215.)
   By the Court—White, J.

An assignment was made by the defendants, Berry & Smith, copartners, of all their property, to pay, first, the partnership debts with certain preferences, and then to pay the individual creditors of both partners in full, or pro rata, if the surplus-was insufficient to pay in full.

The plaintiffs are copartnership creditors, and bring this action to set aside the assignment, on the ground that it hindered and delayed creditors, and was therefore void. They pray, also, for payment of their own debt, &c. On the trial they waived all allegations of fraud except two, viz:

First, that the assignment purported to assign lands, tenements and hereditaments, and directed the assignees to sell and convert the same into money, with all reasonable despatch, and to pay all rents and assessments due, or to become due on said lands, &c., until they were sold; which direction," the plaintiffs allege, delays and hinders creditors, because, being indefinite as to time and amount of payments to be made for those purposes, it wastes the personal property indefinitely, in payments to be made for taxes, rents and assessments for the improvement of real estate, from which nothing may ever be realized for the creditors; and so postpones, hinders and delays creditors, and wrongfully postpones the distribution of the personal estate among them.

Second, that the assignment directs that after all partnership creditors are paid in full, the individual creditors of both partners shall be paid out of the residue of the partnership fund, share and share alike, without making any provision for the application of the fund to the payment of such creditors, in accordance with the right and interest of each partner in the fund. As the assignment stands, the share of one partner in the surplus fnnd may be applied towards the payment of the individual debts of the other, while some of his own debts may remain unpaid; thus, suppose one partner, A., owes $100 and "the other partner, B., owes $500. The surplus, after paying copartnership debts, may be $200, in which the interest of each partner is equal, viz., $100 for each. The share belonging to A., the partner who owed but $100, would be just sufficient to pay his individual debt, in full. But under the assignment, this $200 of surplus not being sufficient to pay all the individuál debts of both partners, in full, it must be apportioned, pro rata, among the creditors of both, which disposition of it would leave two-thirds of the individual debts of A. unpaid, thus unjustly diverting two-thirds of A.’s share from the payment of his own debts to the payment of the debts of his partner B.

This would be good ground for an individual creditor to ask that the assignment be declared void, as to the distribution which it ordered of the surplus after the payment of the partnership debts, and the assignee would be ordered, upon such application, to apportion the surplus, after the payment of the partnership debts, to and among the individual creditors of the copartners, according to the rights of the respective copartners in such surplus; or, perhaps a receiver of the surplus (if any surplus there should be) might be appointed, and the individual creditor bringing the action to avoid the assignment, so far as it affected the surplus, might obtain thereby a priority in his own favor as to payment out of that surplus. But it would not afford a ground for setting aside the assignment, as to the copartnership property- and the -payment of the partnership debts, in which the individual creditor could have no interest, and by which he could not be in any manner affected. Kor would it afford a ground for a partnership creditor to ask that the assignment be declared void, because the individual debts were in no event to be paid until the partnership debts (his included) were paid in full; and this provision respecting the individual debts could neither hinder, delay nor defraud him; and no creditor but one who is hindered, delayed or defrauded by the particular provision complained of, can demand to have the instrument, upon that account, avoided.

And as to the payment of the rents, taxes and assessments that might come due before the lands, &c., should be sold, it is, I think, to be presumed, in the absence of all proof to the contrary, that this provision was intended in good faith for the benefit of the creditors; that it contemplated an increase of the fund by the addition of the avails or proceeds of a sale of the real estate, in which case (that is in the event of a sale of the real estate) the rents, taxes or assessments due at the time of sale, must of necessity be paid; and the direction in the assignment to sell with dispatch, shows that it was not intended to hold the real or leasehold estate unreasonably, or so as to produce a waste or exhaustion of the personal', but that the design was to sell it forthwith.

And I think the assignment being made by the copartners, and purporting to convey all their property, assigned only that which was the joint partnership property, and not any of their- individual property. It did not, therefore, convey the leasehold estate of the partner Berry in his private dwelling house-, and consequently, when the assignment directed the application of the copartnership funds to the payment of rents, &c., it only directed them application to the payment of copartnership rents, and not to the individual rents due, or to come due, for the partner Berry’s bouse.-

The judgment should therefore be reversed, and the plaintiff not claiming to show any other frauds or reasons for avoiding the assignment than those above considered, judgment should be rendered for the defendants, with costs.

Judgment accordingly.