Case ID: ny-super-ct_9/html/0533-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court. Duer, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

George A. Schufeldt, Receiver, v. Charles Abernethy.
    (Before Duer, Campbell., and Bosworth, J.J.)
    December 16, 1853.
    An assignment for the benefit of creditors gave an authority to the assignee to Bell the property assigned, “upon such terms and conditions as in his judgment may appear best, and most for the interest of the parties concerned.”
    
      Seld, that these words, by a necessary Implication, gave a discretionary power to the assignee to sell Upon credit, and, therefore, according to the judgment of the Court of Appeals in Nicholson v. Leavitt, rendered the assignment, upon its face, fraudulent and void.
    This was a complaint filed by the plaintiff as receiver of Cornelius Lockwood, a judgment debtor, to set aside an assignment made by the debtor to the defendant.
    The assignment preferred creditors, and the only grounds upon Which it was sought to be set aside were, that it contained a provision authorizing the assignee to sell the assigned property on such terms and conditions as in his judgment might be deemed best,” and that no schedule of the property was annexed to the instrument as required by its terms.
    The cause was argued, at special term, before Mr. Justice Campbell, and the assignment held to he void as to creditors. From his judgment the defendant appealed.
    
      C. F. Sandford, for appellant,
    made and argued the following points.
    1. The assignment in questioU was made and accepted with the bond fide intention of distributing the property of the assignor among his creditors, and not for the purpose of hindering, delaying, or defrauding them. 1st. The answer denies any fraudulent intent, and none appears from the proofs, 2nd. There was an actual bond fide indebtedness from the assignor to the preferred creditors, prior to the assignment. 3rd. The assigned property was subject to the lien of an execution previous to the assignment, and an advance was made by the preferred creditors, in addition to their previous claim, df a suni sufficient to remove said lien. 4th, The transfer is absolute and unqualified, without reservation df benefit or control to the assignor. 5th. There was an actual and immediate delivery of the assigned prtiperty and books tif aéC'dunt, Cohstituting’ the) assignor’s whole effects. 6th. There is no resulting trust in favor of the assignor until all his debts áre paid.
    II. The omission to annex schedules to an assignment for the' benefit of creditors is not per se fraudulent; and, if it raise a presumption of fraud, the same may be repelled by the facts Uhd circumstances attending the execution of the instrument! (Cunningham v. Freeborn, 11 Wend. 241, 254; Keyes v. Brush, 2 Paige, 311; Stevens v. Bell, 6 Mass. 339; Havens v. Richardson, 4 New Hamp. 124; Pierpont v. Graham, 4 Wash. C. C. R. 232.) The facts proved, already adverted to, tend to repel & presumption of fraud. 2nd. The preparation of a complete inventory, and the delivery thereof to the assignee simultaneously with the execution and delivery of the assignment" itself, are, in effect, equivalent to annexing a-schedule, and fully obviate any objection arising from its omission, ■
    The omission of a schedule, to which reference is made as "annexed,” leaves no such uncertainty in the words of descrip-" tion, as would invalidate the instrument, considering it as a conveyance. 1st. The annexation thereof is not rendered by such reference a condition precedent to the complete execution of thd transfer. (Woodward v. Marshall, 22 Pick. 468; Keyes v. Brush, 2 Paige, 311; West v. Steward, 14 Mees. and Wel. 47.) 2ndj The general words of description used cover the whole property of the assignor, ánd although the subsequent specification of particular articles would have controlled and limited the meaning, had a schedule been actually annexed, Specifying particular articles only, and not purporting to be a complete inventory of the assignor’s effects, still the entire omission of any schedule will not be regarded as defeating the operation of thti' general words, the obvious intent of the instrument being to convey the whole of the assignor’s property, and the omission of the Schedule being, obviously, a mete misprision, cured by the proofs. (Clap v. Smith, 16 Pick. 247.)
    IV. The trusts created by the assignment aré such as have long been sanctioned Und sustained by the courts, and their legality was unquestioned, Until the recent decision of the Court tif Appeals in Nicholson v. Lemitt, reversing the judgment of this court, and approving the prior case of Barney v. Griffin (2 Com. 865), threw a dotibt Upon the construction of that clause in the instrument, Which vests in the assignee discretionary powéi* ovér the terms of sale. 1st. The general principle that preferences among creditors may be secured by a voluntary assignment for their benefit is deemed too well established to be controverted. (Murray v. Riggs, 15 John. 571; Grover v. Washburn, 11 Wend. 194.) 2nd. The trust to sell upon such terms and conditions, as, in the judgment of the assignee, should appear most for the benefit of the parties concerned, Was lawful, and its execution would involve no hindrance or delay as against creditors» (a.) The law requires a trustee to exercise his best judgment in the management of his trust, and the courts, upon application of any interested party, will restrain ahy erronéótis exercise of judgment. The trustee, exercising his judgment, is still amenable to the law, and liable for any Violation thereof. (Rogers v. De Forest, 7 Paige, 272.) (5.) The trust under consideration vests no stich authority in the assignee to sell on credit, as is Contemplated by the decisions of the Court of Appeals, above referred to. (c.) There is a marked distinction between those cases and the present one. In tire former, the authority to sell on Credit is express and abso-’ lute. In the latter, if it exist at all, it must be implied, (d.) Courts Will not imply a violation of law. On the contrary, if it be established that an authority to sell on credit is unlawful and fraudulent, it will be presumed that no authority to make SUch sale was contemplated in, or conferred by, the instrument in question, (e.) But the Very terms of the instrument preclude the implication of such an authority. ' The assignee is expressly directed to “ convert” the assignor’s effects into "money,” not into notes or debts. (/.) It is believed that the courts, and the profession generally, do not regard the decisions above referred to as establishing the doctrine claimed by the plaintiff in this casé* A contrary position has been repeatedly taken by the judges of the Supreme Court at special term. (Southworth v. Sheldon, 7 How. Pr. 414; Whitney v. Krows, 11 Barb. 198.)
    
      V. The advance made to the plaintiff in the execution, by the preferred creditors, for the purpose of relieving the property from the execution lien, was made in good faith, and Upon the condition that the assignment should be executed. If the assignment be set aside, the preferred creditors have an equitable claim to the extent of such advance. The ruling of the court, at special term, in authorizing the assignee to retain the amount so advanced out of the assigned property, was in accordance with law and equity,
    VI. The judgment of the court at special term, in pronouncing the assignment fraudulent and void as against creditors, was erroneous, and should be reversed. The assignment should be decreed valid, and judgment be entered for the defendant, with ’costs of the appeal,
    J. C. Dimmick, for respondent, contra.
    
    I. Assignments creating preferences are not encouraged, but simply tolerated by law; the parties claiming under them must be prepared to show with certainty their validity; the law will hot aid them by any presumptions in their favor, (Webb v. Dagget, 2 Barb. 9; Woodburn v. Mosher, 9 Barb. 257.)
    H. The assignment in question vests in the assignee a discretion to sell upon such terms and conditions as in his (the assignee’s) judgment may appear most for the interest of the parties concerned, thereby depriving the creditors of their prior and better right to dictate the terms upon which the property should be sold, and empowering the assignee to sell Upon credit if he sees fit, and thereby do of his own volition what he has ho right to do, except by consent of the creditors, or by order of the court. (Barney v. Griffin, 2 Com. 365; Nicholson v. Leavitt, 4 Sandf. 252, Overruled in Court of Appeals. See Judge Edmonds’ opinion.)
    HI. The assignment itself is imperfect, ánd never was so executed as to vest the property in question in the assignee ; there is a failure in describing the property assigned, arising from the want of the schedule mentioned in the assignment, thus showing that the instrument in question Was never executed or intended as a full and perfect assignment, and all property therefore belonging to the judgment debtor, of which defendant has possessed himself by virtue of this incomplete instrument, must be regarded as held by him for the benefit of the plaintiff, representing the creditors of the judgment debtor, (Anvill v. Loucks, 6 Barb. 470; Porter v. Williams, 5 H. Practice Rep. 441; Wilkes & Fontain v. Ferris, Sh'ff, &c., 5 John. Rep. 335; Moir & Norton v. Brown, 14 Barb. 39.)
    IV. If the assignment should be regarded as executed, it is clearly fraudulent; it is in effect an assignment of so much of the assignor’s property as he should thereafter elect to put on the schedule. (5 John. Rep. 335.)
   By the Court. Duer, J.

Were we at liberty to follow our own convictions, we should probably have no difficulty in holding that this assignment is valid, and consequently Would feel it our duty to declare that the judgment at special term, as erroneous, must be reversed.

But we are not at liberty to follow our own views, The Court of Appeals, in reversing the judgment of this court, in Nicholson v. Leavitt, has established the doctrine, that an assignment made by an insolvent debtor for the benefit of his creditors, is, upon its face, fraudulent and void, when, by its terms, a discretionary power is given to the assignee, by the exercise of which, the immediate conversion of the property into money, or the immediate distribution of the proceeds of its sale among the creditors, may be prevented or delayed, Such a provision, it seems, is conclusive evidence of an intent to delay the creditors, and an intent to delay creditors, it also seems, is equivalent to an intent to defraud them,

It may be that the discretion is given with a Sole view to benefit the creditors by enlarging the fund out of which their debts are’to be satisfied, but this circumstance, whether manifest or proved, is deemed immaterial. The assignment, to be Valid, must either by express words, or by its necessary legal Construction, devote all the property which it embraces, not only absolutely and unconditionally, but immediately to the payment of the creditors. It must be fiiade the duty of the assignee to sell the whole, with the least possible delay, and for cash; and where a discretion is given, the exercise of which, in a particular mode, would be inconsistent with the discharge of this duty, not only the objectionable clause, but the whole instrument is void; Such is the doctrine, which Was first an-1 bounced by Bronson, J., in Barney v. Griffin (2 Comst. 365), Which the Court of Appeals, in Nicholson v. Leavitt, has adopted and affirmed, and which we, therefore, are now bound to say, is established as law. In obedience to the law thud established, we are constrained to declare, that this assignment, although we entertain not the slightest doubt as to the actual good faith of the parties, is, upon its face, fraudulent and void.

The discretionary power given to the trüstée in the assignment, which, on the sole ground that it Contained the power, was set aside as fraudulent in Nicholson v. Leavitt, was that of selling the property assigned for “ cash or upon credit;” The authority of the trustee in the ease now before ns, is to sell the property upon such terms and conditions, as in his judgment may appear best and most for the interest of the parties com cerned.” The words are not the same, but, we apprehend, that in the meaning there is not the slightest difference. “ Terms and conditions,” can only mean terms and conditions of payment, and unless in connexion with the words that follow iti the clause which we have quoted, they convey by a necessary implication, a discretionary power to sell upon credit—they are absolutely without significance or purpose-Mhey are not merely superfluous, but senseless;

The objection is not met by saying that ás á salé Upon credit is an illegal act,'the court will not presume that the discretion given will thus be exercised; The question is not whether the discretion Will he exercised, hut whether it was meant to he given, and is given, by the words that are used; for as we understand the decision of the Court of Appeals, it is the intent of the debtor to delay his creditors, as manifested by his grant of the discretionary power, not the probability, or improbability of the future exercise of the power, that vitiates and nullifies the assignment;

It may be true that wheñ there áre several modes df exercising a discretion, one of which is prohibited by law, the others not, the court, in Order to sustain the grant, will presume that a lawful authority only was meant to he given. But the difficulty in this case is, that if yon take away the poWer to sell upon credit, no discretion remains, since there can be no exercise of a discretion as to the terms and conditions of a sale, when it is for cash, and cash alone, that the salé can be made. There is no discretion where the duty is single and imperative. We repeat then, that the question relates only to the intent of the debtor in granting a discretionary power, as evidenced by the terms of the grant, and that, in this Case, the debtor meant that the assignee should sell the property upon credit, if in his judgment that course would be most beneficial to the parties interested, and that this intent is manifest, from the terms he has used, we think it is impossible to doubt. We can perceive no reason for giving to the words of this assignment a different construction from that which Would be certainly given to the same Words in an ordinary power of attorney. Where the power given to the attorney is to sell real Or personal property, upon such terms and conditions as he may deem most for the interest Of his principal, the validity of a sale made by him in good faith, upon .credit, we apprehend has never been doubted. The sale, however, cannot be valid, unless the Words embrace and convey the authority,

¡Nor, in our judgment, is this construction of the words used in this assignment varied Of affected by the direction that follows in the clause that We have quoted, “to convert the property into money.5’ The duty of converting the property into money is expressed of implied in every assignment, since Where the creditors are to be paid in money, süch a conversion Must of necessity precede the payment. It is to this ultimate and necessary conversion that the direction in question must be construed to refer, since if construed as imposing the duty of Making the conversion by an immediate sale of the Whole property, the discretion previously given to the assignee of selling upon such “terms and conditions as in his judgment might appear best,” is taken away entirely, and the words of the entire clatise are seen at once to be repngnant and contradictory. As it is certain, however, that there was no such contradiction in the mind of the assignor, we are compelled in this, as in alt similar cases, to adopt a construction which, as removing the apparent repugnancy., will most probably be consistent with the real intention.

If there can be a distinction made between the cases, in which the power to sell upon credit is given by express words, and those in which the words, although general, can only he satisfied by holding that they embrace the power, We must leave it to be made in the Court of Appeals, since we are ourselves unable to see that there is any ground in reason upon Which the distinction can be rested.

Holding, therefore, as we do, that this case is in principle the Same as Nicholson v. Leavitt, and yielding our personal convictions, as we must, to the controlling authority of that decision, no other course is left to us than to affirm the judgment at special term.

Judgment affirmed, with coste.