Case ID: ny-st-rep_8/html/0066-01.html
Source: Caselaw Access Project
Author: {"author": "Ruger, Ch. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

J. D. Kurtz Crook, Resp't, v. Leopold Rindskopf and others, App'lts.
    
    
      (Court of Appeals,
    
    
      Filed April 26, 1887.)
    
    1. Assignment fob benefit of creditors—Firm property applied to PAY FIRM DEBTS.
    The assignment in question gave the assignee power after paying partnership debts to pay all the individual and private debts of the parties of the first part if sufficient for that purpose, and if insufficient, then “pro rata share and share alike, to the payment of such debts, and according to their respective amounts.” Held, that an action to set aside the assignment could not be sustained by mere evidence that the individual members of the firm owned individual assets of unequal amounts in value, and were liable iu unequal sums upon their respective accounts also for individual debts.
    2. Same—Burden of proof on plaintiff.
    The burden of proof is upon the plaintiff to show by affirmative evidence that the enforcement of the provisions must necessarily work a fraud upon the creditors of the assignors or one of them, and that it could not be legally carried out without producing such a result.
    8. Same.
    As it is lawful for an insolvent member of a firm to devote his individual property to the payment of firm debts to the exclusion of his individual creditors, so he may also apply it to the payment of any debt owing by him to his partners.
    4. Same.
    The rule requiring that the interpretation which will render an instrument consistent with innocence and the general rules of law, in preference to such as .would impute a fraudulent intent to assignor or defeat the general purpose and intent of the conveyance, should apply to assignments as. .well as to other contracts.
    5. Same.
    
      Held, that in case a surplus arose, it could not reasonably be said that there is anything in the language of this assignment which precludesRosenthal or his creditors from demanding that his individual property should be applied to the payment of his individual debts.
    Action to set aside an assignment for benefit of creditors.
    
      Adolph L. Sanger, for app’lts; Edward T. Bartlett, for resp’t.
    
      
       Reversing 34 Huu, 457.
    
   Ruger, Ch. J.

On the 23d of October, 1882, Leopold Rindskopf and Meyer Rosenthal, composing the firm of Rindskopf & Rosenthal, executed an assignment of all their property, both real and personal, in trust to Abraham Rosenthal to convert the same into money, and after paying the lawful expenses of the trust, to pay their partnership debts in the order specified in the instrument. It then provided “that with the remainder and residue of said net proceeds and avails, if any there shall be, the party of the second part shall pay and discharge all the individual and private debts of the parties of the first part, or either of them, whether due or to become due, providing such remainder shall be sufficient for that purpose; and, if insufficient, then the same shall be applied pro rata, share and share alike, to the payment of said debts, and according to their respective amounts.” It was further provided that, if there was any surplus then remaining, it should be repaid to the said assignors, or to their executors, administrators, or assigns. The proof established the facts that the assigned estate amounted in value to the sum of $9,360.87, and the firm indebtedness to $14,667.87, and that the individual assets of the members of the firm amounted to forty dollars, of which Eindskopf owned ten dollars and Eosenthal thirty dollars. Eindskopf’s absolute individual liabilities amounted to $300, and his contingent liabilities to $4,300, and Eosenthal’s absolute individual liabilities to $2,850. The plaintiff, being a judgment creditor of the firm, brought this action to set aside the assignment upon the ground that it was made with intent to hinder, delay and defraud the creditors of said assignors, and have the assets of the assigned estate applied to the payment of his debt. Both the assignors and assignee, respectively, appeared and answered in the action, and the assignee denied all the allegations contained in the complaint imputing fraud to the assignors, which put the plaintiff to the proof of his case. No attempt was made on the trial to show any fraud in the assignment except such as was sought to be inferred from the provision relating to the payment of individual debts, considered in connection with evidence tending to show that the individual members of the firm owned individual assets of unequal amounts in value, and were liable in unequal sums upon their respective partnership accounts, also for individual debts. The trial court found that there was no fraud in fact in the making of the assignment, and as a conclusion of law that the instrument constituted a valid transfer of the property of the assignors to their assignee, and ordered judgment dismissing the complaint. Upon appeal, the general term reversed the judgment, and ordered a new trial. As that court did not assume to reverse the judgment upon the facts, its order can now be sustained only upon the theory that the undisputed evidence furnished conclusive proof of fraudulent intent on the part of the assignors in making their assignment. The conclusion of that court was based wholly upon the ground that the clause of the assignment, providing for the payment of the individual creditors of the respective assignors, considered in connection with the facts of inequality in the amount of individual indebtedness, of value of individual assets, and of the amount of the respective accounts with the partnership firm, operated as a fraud in law upon the individual creditors of the partner having the largest individual estate, and afforded conclusive evidence of a fraudulent intent on the part of the assignors rendering the assignment wholly void.

Passing over the questions as to whether an intended fraud by one member of a firm in transferring his individual assets avoids an assignnment of the firm assets made by the firm, and whether such a fraud, affecting a distinct portion of the assets devoted to a special class, is inseparable, and must, as matter of law, be held to vitiate the entire trust, we will first consider the case upon the theory discussed by the court below. The burden was upon the plaintiff to show by affirmative evidence that the enforcement of the provisions of the assignment must necessarily work a fraud upon the creditors of the assignors, or one of them, and that it could not legally be carried out without producing such a result. It has in some cases been held that assignors for the benefit of creditors, who contemplate and provide in their assignment for an illegal disposition in any respect of their property, are not at liberty, in an action to set it aside, to show, as proof of innocence of fraudulent intent, that the assigned fund was insufficient to satisfy the prior valid provisions of the assignment, and could not, therefore, be affected by the alleged illegal provision, and are estopped from controverting the existence of the conditions which they had provided for. Collomb v. Caldwell, 16 N. Y., 485, and cases there cited. It has, however, been frequently held that it may be shown, in rebuttal of an inference of fraudulent intent arising from provisions for the payment of individual debts, there were in fact no such debts or individual assets to be affected by such provision (Turner v. Jaycox, 40 N. Y., 470; Bogert v. Haight, 9 Paige, 297), or that the property formerly belonging to the firm had become the property of purchaser making the assignment (Dimon v. Hazard, 32 N. Y., 68), and other circumstances showing that no fraud in fact was intended. Dimon v. Hazard, supra; Hurlbert v. Dean, 41* N. Y., 97. The principle that a party may be inquired of as to his intent in doing an act, where such intent is material, tends strongly to confirm the proposition that the presumption of fraud arising from the provisions of an assignment may be repelled by parol evidence. Seymour v. Wilson, 14 N. Y,, 567; Hunt v. Johnson, 44 id., 27.

The plaintiff in this case, anticipating the probable defense, did not rely upon the presumptions of fraud arising from the assignment alone, but undertook to establish the fact affirmatively that, in the actual circumstances of this case, the execution of the provision in question would necessarily operate as a fraud upon creditors. It is unnecessary, therefore, to assail the doctrines enunciated in Collomb v. Caldwell (16 N. Y., 485), Barney v. Griffin (2 N. Y., 365), Goodrich v. Downs (6 Hill, 438), and similar cases; for, conceding them to the fullest extent claimed, the facts of this case do not bring it within their operation.

It is lawful for an insolvent member of a firm to devote his individual property to the payment of firm debts, to the exclusion of his individual creditors. Dimon v. Hazard, 32 N. Y., 65; Saunders v. Reilly, 6 N. Y. State R., 452; Royer Wheel Co. v. Fielding, 101 N. Y., 504; Kirby v. Schoonmaker, 3 Barb. Ch. 46. And it follows from the same principle that he may also apply it to the payment of any debt owing by him to his partners in the firm; and no inference of fraud can legally be derived from such dispositions of his individual property. This case was decided by the general term, as appears from their opinion, solely upon the ground of a fraud alleged to have been intended by Rosenthal upon his individual creditors. The argument of the respondent is, in brief, that Rosenthal having twenty dollars more individual property than Rindskopf, the law will assume that he, by placing that sum in a common fund with other individual assets, and directing the payment of their aggregate individual indebtedness theref orm, intended to commit a fraud upon his individual creditors, because, it is said, if the excess of Rosenthal’s individual assets is distributed pro rata among each and all of the individual creditors of both parties according to the amount of their respective claims, that Rindskopf’s creditors will necessarily receive something to which Rosenthal’s creditors were equitably entitled.

We think this argument, upon une facts of the case, is defective in several particulars. It is not at all certain that such a result would follow in this case; for, if Rindskopf’s contingent liabilities never became fixed, there would be only $300 of his individual debts to be paid as against $2,850 of Rosenthal’s, and in that event private property of Rindkopf’s would be taken to pay Rosenthal’s individual debts. We also think the result claimed does not follow from the premises assumed by the court below, but that it would necessarily be produced only by the existence of exact equality of interest in the firm assets by both members, or a greater interest in Rosenthal combined with equality in individual indebtedness, and inequality in the individual property. If there is simply inequality of interest in the firm assets, and inequality in individual assets, one inequality could be easily compensated by a corresponding inequality in the other, and the evidence does not show but that this state of things in fact existed. It does appear that the assignors were equal partners in their firm business, but there is no evidence as to the amount they each originally contributed to the capital of the firm, except that ° the amounts were about equal. Neither does it appear how much they had respectively drawn from the firm, except that the amounts were nearly equal. As the witness says, one might have contributed “a little more or a little less than the other.” No statement of accounts between the respective partners has been given showing their liabilities to the firm, or the amount of their respective interests in its assets, and, for aught that appears in the case, Rosenthal might, on a settlement of the partnership accounts, have owed Rindskopf the exact sum which it is claimed he diverted from his individual assets to the payment of Rindskopf’s creditors. This, in the absence of a fraudulent intent, he had a perfect right to do, as he could lawfully pay his debt to his partner in preference to that of any other creditor, if done in good- faith, and, if he did so in fact, it would relieve the clause in question from any criticism or objection. Royer Wheel Co. v. Fielding 101 N. Y., 504; Dimon v. Hazard, 32 id., 65.

Assuming that there was a surplus remaining after the payment of firm debts, and the assignment required this residue of forty dollars to be put into a common fund for the payment of the individual debts of both assignors, and that Rindskopf’s contingent liability became fixed, it is evident that about fifteen dollars of his assets would be paid to Rosenthal’s individual creditors, leaving fifteen dollars only subject to be diverted from them to the payment of Rindskopf’s creditors. The insignificance of this sum, as compared with the amount of individual debts to be paid, and the almost infinitesimal amount of the dividend to individual creditors to be derived therefrom, would seem to furnish a conclusive answer to the presumption of fraud sought to be drawn from the obviously tentative provision in question. It would also seem, in view of the large amount of property transferred, and the trivial value of that which might be improperly paid out, that the maxim, de minimis non curat lex, might well have been applied and held to control the determination of the case. U. S. Trust Co. v. U. S. Fire Ins. Co. 18 N. Y., 199; Colman v. Shattuck, 62 id., 363; Ross v Hardin, 79 id., 84, 93. We conclude, therefore, upon this branch of the case, upon a consideration of the whole evidence, that, within the authorities cited below, every inference of fraud derivable from the provisions referred to was effectively answered. Bogert v. Haight, supra; Turner v. Jaycox, supra; Dimon v. Hazard, supra; Hurlbert v. Dean, supra.

We are also of the opinion that the provisions of this assignment, if fairly construed and enforced according to their natural meaning and import, would not occasion an illegal disposition of the individual property of either assignor. While heretofore there has been some diversity .of ■opinion in the courts in respect to the proper rule to be applied in the construction of such instruments, we think the tendency of modern decisions, especially those of most ■approved authority, has been to adopt the same rules which obtain in the interpretation of other contracts. Knapp v. McGowan, 96 N. Y., 87; Rapalee v. Stewart, 27 id., 310; Benedict v. Huntington, 32 id., 219; Townsend v. Stearns, id., 209. Among those rules is that requiring such an interpretation as will render the instrument consistent with innocence and the general rules of law, in preference to such as would impute a fraudulent intent to the assignor, or defeat the general purpose and intent of the conveyance. Ginther v. Richmond, 18 Hun, 234; Rapalee v. Stewart, 27 N. Y., 315; Benedict v. Huntington, 32 id., 219; Townsend v. Stearns, id., 209. Such transfers are sanctioned by law, and are, when made, like other contracts, to be fairly and reasonably construed, with a view of carrying out the intentions of the parties making them. When authority to do an act is conferred in general terms, it will be deemed to be, and to have been intended to be within the limits prescribed bylaw. Kellogg v. Slauson, 11 N. Y., 302. In such cases as in ■others, doubtful and ambiguous phrases admitting of different meanings are, in accordance with the maxim, ut res magis valeat quam pereat, to be so construed as to authorize .a lawful disposition of the property only, although there may be general language in the instrument susceptible of a ■different construction. Townsend v. Stearns, supra.

If the instrument in question be considered in the light of “these rules, we think it is not fairly subject to the criticism which has been made upon it. The insolvenpy of the firm of Rindskopf & Rosenthal necessarily worked its dissolution and a division of the interests of its respective members, except so far as their property was already legally disposed ■of by the assignment. After satisfaction of the firm debts by the assignee, the law would restore each member of the firm to his legal rights in the residue of the property, subject only to the execution of the power conferred upon the assignee to dispose of the same. It is essential to the argument of the respondents to establish that the language of this assignment contains authority to the assignee from each member of the firm to satisfy the individual debts of the other from the combined individual property. We do not think a proper construction of the instrument justifies the inference of such an authority. Certainly no such power is expressly given, and it would be contrary to settled rules to impute such an intention to its respective authors, unless the language of the instrument expressly requires it. The law would require, in the event of an assignment by a firm of two persons, that, after the payment of firm debts, the residue should be divided into two funds for the payment of individual creditors, and the defect, if any, in this assignment, is that it did not expressly recognize the possible existence of the two funds. We think the law will supply this omission, and order a distribution of the fund according to the legal rights of the claimants upon it. It was plainly contemplated in the assignment itself that this division should be made in the eventual surplus, for that is directed to be paid to the parties of the first part, their executors, administrators and assigns. This provision could be carried out only upon the assumption that a division of the residue had been made between the two assignors, and thus reflects strongly upon the intention of the conveyance in the use of the language criticised. A reasonable construction of this provision would seem to require that the language should be distributively applied, and held to mean that each member of the firm transferred such part of the property as he had a lawful right to convey, and subjected the residue of such part to the payment of such debts as he was individually hable for. The assignment purported to deal with all of the property, and its fair import was to distribute it to those who were legally entitled to it, paying the firm creditors first, and then, in case there were assets applicable to that purpose, providing for the respective individual creditors of the members of the firm. There is no language in the clause in question which expressly forbids such a construction, or requires that the property of one should be applied to the payment of the debts of the other, and its whole language would be satisfied by the distribution, of the share of each in payment of his individual debts. Upon the satisfaction of the debts of the firm, it would be the legal duty of the assignee, even in the absence of any express provision requiring it, to determine the interest of the individual partners in the surplus, and devote each share to the interest of its respective owner, in accordance with his legal rights. Eyre v. Beebe, 28 How. Pr., 333; Friend v. Michaelis, 15 Abb. N. C., 354.

While the instrument was necessarily the joint act of the firm so far as their joint property was concerned, it was the individual contract of the respective members so far as they dealt with individual property. When providing for their joint interests and property, which constituted the-main object of the assignment, they spoke their joint interest and purpose; but when dealing with their individual interests, although inaptly continuing the use of the-phraseology applicable to its earlier provisions, their lan-guage must be construed as referring to and expressing only their individual wishes with reference to their individual property and liabilities. In case a surplus arose in the administration of this estate, and it became the subject of judicial controversy among the individual creditors of the members of the firm, it could not reasonably be said that there is anything in the language of the assignment which precluded Rosenthal or his creditors from demanding that his individual property should be applied to the payment of his individual debts.

It may be finally said that the effect of the provision complained of could not in any event have been intended to defraud the creditors of the firm, and until they are aggrieved they have no cause of action. Royer Wheel Co. v. Fielding, 101 N. Y., 510; Dimon v. Hazard, supra.

The order of the general term should be reversed, and that of the special term affirmed.

All concur,—Andrews, J., on the construction of the-instrument,—except Danforth, J., not voting.