Case ID: abbn-cas_15/html/0061-01.html
Source: Caselaw Access Project
Author: {"author": "Daly, Ch. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

MATTER OF ADAMS.
    
      N. Y. Common Pleas Court ; General Term,
    
    
      June, 1884.
    Assignment for Benefit of Creditors ; what provable as debts; DAMAGES FOR BREACH OF CONTRACT.-DAMAGES ; PROSPECTIVE PROFITS.
    A claim for damages for breach of a contract by the assignors, whereby claimant lost possible profits accruing after the assignment, is not provable as a debt against the estate of an insolvent, assigned for the benefit of his creditors.
    The liability of the assignors, at the time of the assignment, must be ascertained and fixed at a sum certain, whether payable before or after the assignment, to entitle the creditor to a dividend of the insolvent’s estate.
    Prospective profits on a contract of a manufacturer to consign his products to another for a term of years, are not recoverable by the latter as damages for a breach of the contract, unless it is shown with reasonable certainty what profits he would have made if the contract had been fulfilled.
    The law makes no presumption that the future sales under the contract would have yielded the same returns, under the same expense, as for the short period of two months during which the contract was fulfilled, so as to entitle the party to have his damages for loss of prospective profits computed on that basis.
    Whether the making of a general assignment by the manufacturer, and his consequent inability thereafter to manufacture and Supply the goods according to contract, amounts to a breach thereof,-—query? An assignee for benefit of creditors cannot be compelled to fulfill the unperformed contract of his assignor to deliver goods.
    Appeal from a judgment entered upon the report, of a referee, disallowing a claim against an insolvent’s estate, assigned for the benefit of creditors.
    Henry Adams and Peter Horne, composing the firm of R. & H. Adams, silk manufacturers, on August 29, 1882, made a general assignment to Edward G. Hazard and William Gr. Fenner, for the benefit of their creditors.
    At the time of the assignment, the assignors had an outstanding contract with one James Talcott, their factor, to consign their manufactured products to him for three years next after July 14, 1882. This contract was performed up to the date of assignment and no longer.
    Talcott presented to the assignee a claim for $170,000 for damages for breach of the contract referred to. The assignee rejected the claim, and thereupon the court referred the matter to Hamilton Cole, Esq., as referee, to hear the proofs and report his determination to the court.
    
      The referee upon the proofs dismissed the claim, with costs, and Talcott appealed to the general term of the court of common pleas from the judgment dismissing the claim, entered upon the report of the referee.
    Chambers, Boughton & Prentiss, for the appellant.
    
      Hugh Porter, for the assignees, respondents.
   Daly, Ch. J.

The claim of damages for a breach of contract was not provable as a debt, under the assignment.

It has been settled by a long series of decisions, that unascertained claims for damages were not provable as debts, in proceedings in bankruptcy; that in claims for damages arising from breaches of contract, in indemnity bonds and other possible liabilities, the damages must be ascertained and fixed before the act of bankruptcy, to entitle the claim to be proved as a debt of the bankrupt, unless the contingent liability is one that has been specifically allowed by statute, and the actual prospective value of which, at the time of the bankruptcy, is capable of being ascertained by some mode of computing or estimating (Ex parte Marshal, 1 Mon. & Ay. 118 ; Ex parte Thompson, 1 Mon. & Bli. 219; Ex parte Tindal, 1 Dea. & C. 291; Yallop v. Ebers, 1 Barn. & Ad. 698 ; Boorman v. Nash, 9 B. & C. 145 ; Allwood v. Partridge, 4 Bing. 209 ; Lancashire Coal Co., Mont. 27; Woolby v. Smith, 3 Com. B. 610).

Formerly, in bankruptcy proceedings in England, the claim had to be due at the time of the act of bankruptcy, and the liability upon a promissory note, not due until afterwards, was not provable. But this was relaxed by provisions in subsequent statutes which allowed contingent liabilities to be proved where, ás .before stated, the value could be estimated; and under our own bankruptcy act, claims for unliquidated demands, arising out of any contract or promise were allowed ; but, except where changes have been made in this way by statute, the rule has, been as above stated. The reason of it was, that as the bankrupt under the act was to be discharged from his debts, the proceeding was to be strictly confined to what was regarded as a debt;.and for the further reason, that the creditors whose claims were ascertained and fixed when the bankrupt went into or was brought into bankruptcy, were entitled to share in the distribution of his estate, as soon as it was gathered in, and were not to be delayed by claims against him sounding in damages, which it might take years to determine. It was said that the assets were not to be locked up pending such uncertain litigations, but that matters were to be adjusted according to the relative liabilities of the bankrupt, as they were ascertained and known at the time of the act of bankruptcy, and as his'estate then existed; that it was not proper to keep the property, or a certain part of it, until it was ascertained whether somebody who had a claim for damages, which it might take years to determine, would recover any or not (Ex parte Marshal, 1 Mont. & Ay. 118). In which connection, I may mention, that I have known cases in our own court, in which actions for the recovery of damages, through mistakes and new trials, remained in the court for ten years before they were finally determined.

The grounds upon which unascertained claims of the nature of the one here presented, wrnre not allowed to be proved as debts in bankruptcy, apply with equal force in cases of voluntary assignments for the benefit of creditors, and indeed more so, because there, the instrument itself provides how and to the-payment of what debts the property assigned shall be applied; and, unless the assignment is impeachable for fraud or otherwise invalid, the question is one to be gathered from a fair construction of the instrument and not from, the provisions of any statute (Bishop on Assignments, ch. 27).

The assignment is not set forth in the case as made up, but its provision as to the manner in which the assigned estate is to be applied, is stated in the defendant’s points to be, as is usual in such instruments, that the estate is to be converted into money and applied to the payment of the just debts of the assignors.

The question then is, what is to be understood as debts, within the. intention of the assignment? A debt, says Sir John Cross in Ex parte Thompson, Mont. & Bli. 219, “is a demand for a sum certain and it is, says Commissioner Fonblanque in Ex parte Marshal, 1 Mont. & Ay. 118, “a sum actually ascertained.” “That there must be,” he says, “ an ascertained debt, and not an unliquidated demand or liability is sustained by all the cases, legal and equitable. It must be a debt existing and ascertained.at the time of bankruptcy the distinction, he says, “ between debt and damages, has always been rigorously adhered to.”

The same exposition of what is considered a debt, is to be found in our cases. “ It imports,” says Chief Justice Monell, in Zinn v. Ritterman, 2 Abb. Pr. N. S. 262, 263, “a sum of money arising on contract, and not a mere claim for damages in which it was held, that under our insolvent acts, it does not extend to actions where the damages are unliquidated.

In the Matter of Denny, 2 Hill, 220, which was a proceeding in this court under the insolvent debtor’s act-,—which as first enacted allowed the trustees to sue for debts or demands, but which was afterwards limited to debts,—-it was held that the word demand is of, much broader import than the word debt, and would embrace rights of action belonging to the debtor, beyond those which could be called debts.

In Losee v. Bullard, 54 How. Pr. 320, where a stockholder of a corporation was sotight to be made liable under the statute for a debt, it was held that a claim for damages was not a debt within the meaning of the statute.

In Kimpton v. Bronson, where the question of what was a debt under the United States statute making treasury notes a legal tender for debts was raised, it was held that the voluntary payment of a specific sum of money in discharge of an obligation was, within the meaning of that statute, the discharge of a debt.

In Kennedy v. Strong, 10 Johns. 289, it was held, that under the insolvent act, goods received by the insolvent as a factor or trustee, was not a debt within the meaning of the insolvent act; that the insolvent’s discharge would in no way affect it, but that he remained equally liable to be sued upon it-as well after as before his discharge; and in the Mechanics’ and Farmers’ Bank v. Capron, 15 Johns. 467, it was held that the insolvent’s liability as indorser of a promissory note, which was not due at the time of his discharge, did not constitute a debt which was or could be discharged by that proceeding, which extended only to debts that were due at the time of the assignment of the insolvent’s estate, or debts contracted before that time, and payable afterwards ; that it was a general and well settled rule, that if the creditor, at the time of the assignment by the insolvent debtor, has not a certain debt due or owing, to which he can attest by oath, so as to entitle him to a dividend of the insolvent’s effects, it is not embraced in that proceeding; and as, in that case, the liability of the insolvent, at the time of the assignment, was merely contingent, that is, upon the non-payment afterwards of the note by the maker, it was held, that the holder of the note was in no way affected by the insolvent’s discharge, but might maintain an action thereafter against him ; which was reaffirming, substantially, a prior decision of Chancellor Kent in Frost v. Carter, 1 Johns. Cas. 74, in which, the chancellor, then a judge of the supreme court, held that the insolvent’s proceedings extended only to such debts as were due at the time of the assignment,—that “ such debts must be specific, and certain sums of money to which the creditor can make oath as being justly due or to become due at some time ; and unless the creditor, at the time of the assignment, be able to produce and verify such a debt, he will not be entitled to receive from the assignees, his dividend of the insolvent effects, nor will lie be barred from his future action against the insolvent.” And this rale, that the liability, at the time of the assignment, must be ascertained and fixed at a sum certain, whether payable before or after the assignment, to entitle the creditor to a dividend of the insolvent’s estate, has been recognized in many other cases both in this State and elsewhere.

Under the act regulating voluntary assignments (Laws 1877, c. 466), the creditor, at the time specified in the notice, must come in and prove his claim, or he is debarred from participating in the distribution of the estate (Kerr v. Blodget, 48 N. Y. 62). The act (§ 13). contemplates that the creditors shall prove their claims, and it is the practice to do this by an affidavit.

In this case, there could be no compliance with the rale laid down by Chancellor Kent, in Frost v. Carter (abooe), for there was no debt of a certain or specific amount due at the time of the making of the assignment, or in fact, any debt due then, for it was by the making of a general assignment for the benefit of creditors, that Adams and Horne put it out oL' their power to perform the agreement made by Adams with Talcott, and it is this which Talcott relies upon as constituting a breach of the agreement. It is upon this that his claim rests, so that the claim did not come into existence until after the assignment.

The.referee has found that the making of a general assignment by R. & H. Adams and their consequent inability thereafter to manufacture and supply Talcott with goods, did not amount to a breach of the agreement. He has found, however, that Talcott was entitled to receive for sale, under the agreement, the goods which were manufactured and in the hands of R. & H. Adams, at the time of the assignment, but that it did not appear that Talcott had suffered any loss or damage by these goods not being consigned to him.

The referee in his opinion states generally, that there was nothing before him upon which it would have been possible for him to have estimated the amount of profits that would or might have been realized if the contract had been fulfilled ; that any estimate on the facts before him would have been purely speculative and wanting in that reasonable certainty which the law requires. This conclusion was, I think, undoubtedly correct, so far as regards the claim for loss of profits on goods to be manufactured thereafter and delivered during the whole period for which the agreement was to run. In the affidavit of the claim, Talcott swore that the insolvent firm was justly indebted to him in the sum of $170,000, for damages arising from the breach of the contract, but upon his examination, through various errors and mistakes, the amount, sworn to in his affidavit as $170,000 was reduced by him to $130,000.

The greater part of this claim as thus reduced to $130,000, as appeared from his examination, was an estimate made by him, upon the assumption that the .sales for the following three years would be the same, or at least not less per year than they had been during the short- period that the agreement was carried out.

This could not be assumed in respect to the sales of this commodity, consisting of manufactured silks and cottons for the long period of three years thereafter; and the referee properly refused to find, as requested, that, it appearing that the yearly sales by the firm of the production of their mills had been $l,()00,00()'annually, and the annual expenses had been $23,000, the law would presume, in the absence of evidence, to the contrary, that the future sales would have yielded the same returns, under the same expense, and that Talcott was entitled to have bis damages for loss of prospective profits, computed upon that, basis.

The law makes no such presumption. Profits are recoverable as damages, where it can be shown with reasonable certainty what the par:y would have received if the contract had been fulfilled ; as appears in the leading case of Masterson v. Mayor, &c. of Brooklyn, 7 Hill, 52, which the appellant cites and on which he relies. The plaintiff there had a contract to furnish marble from a specified quarry, at a specified sum, for the erection of a city ball; which, by a contraer made wi;h the owners of the quarry, he was to receive at a smaller sum than he was to get for the marble when delivered for use in the building. That difference constituted his profit, the whole of which prospectively could be accurately ascertained by the proof of that amount, and of the amount of marble he was, by the contract, to deliver to the defendant; and it is only in such cases, where the prospective profits can be shown with reasonable certainty, that they can be recovered as damages (Mayne on Damages, 15, 18).

It may have been possible to have ascertained with reasonable certainty the amount of profits that could, have been obtained on the sale of the goods which R. & H. Adams had manufactured and on hand, at the time of the assignment, if they had been delivered, by proof of the marked price at that time ; and, in accordance with the referee’s finding, an action for damages for the non-delivery of these goods may have been maintainable against the members of the firm. However that may be, the goods were not delivered, and this was, after the assignment, simply a claim for an unascertained amount of damages, which was not provable under the assignment, as a debt.

The appellant requested the referee to find,—which the. referee would not—that, upon the refusal of the assignee to deliver upon demand, the goods manufactured and on hand at the time of the assignment, he, Talcott, was entitled in this proceeding to an order or decree that they make such delivery to him, or account to him, as assignee, for the proceeds of these manufactured goods.

The assignees could hot be compelled to fulfill by the delivery of goods, the unperformed contract of B. & H. Adams, at the time of the assignment. No authority or power was given them, in that instrument, to do so. All the property of the firm was, I assume, as is usual in such instances, conveyed to them, subject to the trust already referred to, to convert it into money, and apply the money to the payment of the just debts of the firm, which was what they had to do, and all they could do.

The conclusion from what has been stated, is, that Talcott’s claim does not come under this trust, because it was not a debt, but a claim for damages unascertained ; which is sufficient to dispose of this appeal, without deciding whether the referee was right. or wrong in holding that the making of a general assignment for the benefit of creditors was not a breach of this agreement, and other questions incident to it in the case.

The judgment, therefore, entered upon the referee’s report, should be affirmed.

Note.—As to how far demands for unliquidated damages, and for contingent liabilities, are within the rules as to justification of sureties; the rules as to representations to obtain credit; the rules as to who is a “ creditor”, within the statutes as to fraudulent convey" anees, recording deeds, &c.; or filing chattel mortgages; or within the statutory regulations as to presentation before suit against a municipal corporation, or against the estate of a decedent,— compare Ridler v. Ridler, 22 Ch. Div. 74 ; 48 L. T. R., N. S. 396; 31 Weekly Rep. 93; Milldam Foundry v. Hovey, 21 Pick. 417; Haynes v. Brown, 36 N. H. 545; Zinn v. Ritterman, 2 Abb. Pr. N. S. 261; Sellis’ Casc; Bubcock v. Lillis, 4 Abb. Pr. 272; S. C., 4 Bradf. 218; Cable v. McCome, 26 Mo. 371; Cable v. Gaty, 34 Id. 373; Joslin v. N. J. Carspring Co., 7 Vroom N. J. 145; N. J. Ins. Co. v. Meeker, 8 Id. 301; Haywood v. Shreve, 35 Id. 104; White v. Hunt, 6 N. J. Law. 415; Dryden v. Kellog, 2 Mo. App. 87; Stokes v. Mason, 12 Bankr. R. 408; Spalding v. People, 7 Hill, 301; 10 Paige, 284; McElfresh v. Kirkendall, 36 Iowa, 226; Cook v. Fewman, 8 How. Pr. 523; Muser v. Stewart, 21 Ohio St. 353; Warner v. Cammach, 37 Iowa, 642; Dunlap v. Leith, 1 Leigh, 430; People v. Argnello, 37 Cal. 524; Wood v. Curry, 57 Id. 209; Quinlan v. City of Utica, 11 Hun, 217, and cases cited; Brusso v. City of Buffalo, 90 N. Y. 679; Cornes v. Wilkin, 79 N. Y. 129. 
      
       In Matter of Adams (N. Y. Common Pleas Court, Special Term January, 1885), it was held, that to establish a valid claim against the assigned estate for breach of the contract of the assignors, the claimant must proceed under the assignment act, ami that no such claim could Lie established in an action against the assignors.
      Daly, J. The decree of Inarch 18, 1884, directed the assignees to retain the residue in their bands to meet the amount, if any, finally decided to be a just and valid claim in favor of Taleott and of Palmer against the assigned estate in the hands of the assignees. As to Talcott’s claim, the general term has decided that it is not provable against the assigned estate being an unascertained claim for damages. Talcott’s claim was tried under the assignment act. Palmer has no proceeding pending under these acts to establish his claim. His pending action against the assignors for damages will not establish, under the terms of the decree above quoted, any “ valid claim in his favor against the assigned estate in the hands of the assignees.” To effect that, he would have to proceed under the assignment act. If he did so, he would be met by the decision in the Taleott case which covers his own claim. The referee properly decided that the residue of the estate in the assignee’s hands should no longer be retained by him, but surrendered to the assignor’s trustees.
      Report confirmed.