Case Name: Samuel C. Reed, plaintiff and appellant, vs. David Allerton and Philip Nussbaum, defendants and respondents
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1865-12-30
Citations: 3 Rob. 551
Docket Number: 
Parties: Samuel C. Reed, plaintiff and appellant, vs. David Allerton and Philip Nussbaum, defendants and respondents.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 26
Pages: 551–570

Head Matter:
Samuel C. Reed, plaintiff and appellant, vs. David Allerton and Philip Nussbaum, defendants and respondents.
1. A judgment creditor of one of two members of a firm, who had, before the recovery of such judgment, assigned all their property, consisting solely of a small amount of partnership goods and chattels, and of real estate belonging to the other partner, to a trustee in trust to pay, first, their partnership, and secondly, their individual debts, cannot hold such assignee responsible for the value of the land assigned, to the extent of such judgment, merely because such assignee had reconveyed such real estate to its original grantor, after the latter had bought up and compromised all the debts of the firm, which exceeded the value of such land, and after the Supreme Court had, upon petition, with the assent of all the partnership creditors, discharged the assignee from his trust, upon reconveying the land to the grantor.
2. Such judgment being against one partner individually, and not against the firm, nor for a firm debt, the party recovering it has no equity to entitle him to have the individual property of the other partner applied to pay it.
3. If the order of the Supreme Court, relieving the assignee from all responsibility as trustee under the assignment, was obtained improperly, or on false suggestions, the remedy of such judgment creditor is by an application to that court to set it aside; but so long as such judgment remains in full force, not set aside or modified, it is a complete bar to any action brought by such judgment creditor against him.
4. The Supreme Court, as the successor of the Court of Chancery, has jurisdiction to accept the resignation of a trustee who is assignee of an insolvent debtor, and to discharge him from all liability to account to the cestuis que trust, under the assignment.
(Before Robertson, Ch. J., and Barbour and McCunn, JJ.)
Heard May 10, 1865;
decided December 30, 1865.
The object of this1 action was to compel the defendant Allerton, as assignee of the defendant Nussbaum and Mr. Strauss, to pay the plaintiff a claim due by the former. The assignment in question was of all the property of the assignors, upon trust, first to pay partnership debts due by them, and secondly individual debts. No property ever passed into the hands of such assignee under such assignment, except individual property of Strauss. Allerton by it accepted the trusts and covenanted to discharge them. There were no other parties to such assignment, except the assignors and the assignees. It never was recorded in the office of the clerk of any county; no inventory, statement or schedule, as required by the statute of 1860, relative to the division of estates of insolvent debtors, assigned by them among their creditors, {Laws of-1860, p. 594,) was ever filed or presented to any judge,- and no bond was ever given by such assignee, as required by that statute.
Prior to the 18th of March, 1862, and some time after the making of such assignment, many of the partnership creditors of Hussbaum- & Strauss signed an agreement in-writing, dated two months previously, by which, after reciting the insufficiency of the property assigned to pay their claims in full, and that they had agreed to receive, in discharge of the whole, one quarter in cash from such assignee, and another quarter in notes of the assignors at eight months, "(satisfactorily secured;) also to release such assignee, and permit such assignment to be surrendered and canceled ; the subscribers thereto agreed, in consideration of the payment of such cash and delivery of such notes, the receipt whereof was thereby acknowledged, to discharge the defendant Allerton from all claim" under such assignment, and that the same might be surrendered and canceled, and, an order of court to that effect obtained; and also to discharge the assignors from all further claims against . them., • :
The names of eight of the persons named in such instrument appeared, by the form of the signature and the certificates of proof appended, not to have been signed by themselves, (J.. & J. Rególe, Westheimer, Katz,,O’Connor, Budd, Kelly, Ulney and Rider,) yet the subscribing witness (Hiscrodt) testified before the notary by whom such certificate was signed, that three of them so signed it (Begole, Westheimer and Katz,) in his presence ; that he signed the names of two, (O’Connor and Budd,)'as assignee of their claims,, and. of three by authority, (Kelly, Ulney and Rider.) Ho proof was- given of such. assignment to Hiscrodt, or of. such, authority .to him. The instrument itself was signed by the defendant Allerton, although it .contained no .stipulation by him, and opposite Ms name was placed the only seal affixed to such instrument. Its attestation clause declared one seal thereto affixed to be thereby adopted by each of the subscribers thereof,, as their separate seal. No other evidence was furnished of its being adopted by the parties signing, as their seal.
- The creditors of the defendant Nussbaum alone signed a written instrument not under seal, dated in February and acknowledged on the 18th day of March, 1862, releasing the defendant Allerton from all claims against him as assignee under the assignment, and agreeing that the assignment to him should be surrendered, and an order of court to that effect entered. •
On the 17th March, 1862, the defendant Allerton applied to the Supreme Court of this state, by petition, to accept his signature as assignee of such property ; in which petition the defendants Nussbaum & Strauss joined. It prayed for such acceptance, and also for liberty to the assignee to surrender the assets in his hands to the assignors. The instruments of compromise before mentioned were annexed to such petition, and their contents recited therein. Nussbaum & Strauss averred therein, to the best of their knowledge,, information and belief, that such instruments -were signed by all their creditors, and that the names of all their creditors who had an interest in such assignment, and the trust therein contained, were affixed thereto. Without any further notice to any one, the Supreme Court made an order, on the 18th of March, 1862, directing the defendant Allerton to surrender such assignment and restore to the assignors the assigned property and its proceeds remaining in his possession or under his control, and discharging him from the trusts contained in such assignment. He shortly thereafter did so restore such property and its proceeds to such assignors, which consisted of some real estate, previously the property of Strauss, whose value above incumbrances was only three thousand dollars, and some wagons and horses of little value.
This action was tried before a referee. By his report he found that all the property assigned was not worth one half of the debts due to the partnership creditors of Nussbaum & Strauss; that the defendant Allerton applied all the money-received by him on account such assigned estate, being nine thousand dollars, to paying such creditors one quarter of their claims ; that the defendants, Nussbaum & Strauss,.delivered their notes to such creditors, for another quarter of such debts ; and that they were secured satisfactorily to such creditors ; that therupon such creditors consented and agreed that such assignment should bé surrendered and canceled, and that. Allerton gave up and released to Nussbaum & Strauss all the assigned property conveyed to him and unconverted, with' knowledge of an action then pending, brought by the plaintiff to recover his claim against Ntissbaum. The report found, also, good faith on Allerton’s part, in all the transactions.
The referee’s conclusions of law Upon the facts, were as follows ;
1st. The disposition made by the defendant Allerton, of the property assigned to him, was to the use and for the benefit of those who were, in equity, exclusively entitled to the whole and every part thereof, and extinguished liabilities to a greater amount than could have been satisfied by the proceeds of said property arising from a sale thereof, and was in no way or sense prejudicial to any right or interest of the plaintiff in or to the property under said assignment.
2d. The order of the Supreme Court, of the date of March 18, A. d. 1862, discharged Allerton from the trusts created by the assignment.
3d. That the plaintiff was not entitled to any relief in this action, against the said defendants, or either of them.
4th. That the defendants were entitled to a judgment in this action, dismissing the plaintiff’s complaint, with costs.
Judgment being entered accordingly, the plaintiff appealed.
E. W. Chester, for the appellant.
I. The assignment of Nussbaum & Strauss to the defendant Allerton, and the acceptance of the same by Allerton, and his covenant therein, imposed on him a legal obligation to pay, every creditor of Nussbaum to the extent of' the property assigned.
II. The release of all the creditors of Nussbaum, with the exception of the plaintiff, left the property assigned liable to the payment of the plaintiff’s judgment, and the defendant Allerton was bound in law to apply whatever remained in his hands to the payment of the judgment.
III. Allerton, by giving up and releasing to the assignors property sufficient in value to pay the judgment of the plaintiff, knowing of the existence of the debt, became liable in law to the plaintiff for the amount of his judgment.
IV. The defendant Allerton has shown no equitable circumstances, sufficient according to any recognized principles of equity jurisprudence, to discharge him from his strict legal liability. Indeed, has shown nothing to commend him to the favor of the court. He acted fraudulently towards the plaintiff, concealing his application to the Supreme Court from the plaintiff, who he knew had an action pending against Nussbaum, and obtaining an order for his discharge by false swearing.
V. The proceedings in the Sup-eme Court were a nullity, except as to the parties consenting thereto.
1. The Supreme Court had no jurisdiction or rightful power to make such an order.
2. Nor, if it had power thus to deal with the assignment, could the order made affect the plaintiff in his rights, he not being a party thereto, and having no notice of the same.
3. So far as respects the plaintiff, the court was induced, by fraud and false swearing, to make the order. The action of the plaintiff was then pending against Nussbaum, and Allerton acknowledges that he knew it.
VI. The referee erred in admitting these proceedings in evidence on the trial before him, and the exception of the plain- . tiff to admitting the same was well taken.
VII. The referee erred in his seventh finding of facts. There was no evidence from which the referee could find or infer ■Allerton’s good faith to the plaintiff as one of the creditors of Hussbaum, for whose benefit the assignment was made.
VIII. The referee erred in hisj^rsi conclusion of law. The evidence, and also the referee’s' finding, show that property exceeding in.value.the*amount of the plaintiff’s judgment, instead of being disposed of to the use and for the benefit of those who were, in equity, exclusively entitled to it, was surrendered up to the assignors. The compromise was effected with other means.
The second conclusion of law can be sustained. by no principle of law as already shown ; the third and fourth conclusions of- 'law resting upon the. first two, necessarily fall with them. ■
S. H. Thayer, for the respondent, Allerton.
■I. The appellant hás never had any interest whatever in any property which passed to the assignee under or by virtue of the assignment.! He had none in the partnership property, because that must go- to pay the partnership debts, and there was not enough of it to pay twenty-five per cent of them. Ho individual property of his debtor, Hussbaum went to the assignee, because there was none to assign. The "referee so finds, and the respondent does not except. . The individual property of Strauss could not be taken for the individual debt of Hussbaum : -this would be to make one man pay the debts of another,, without any consideration, and without any- provision or agreement to that effect. The direction in the assignment to “ pay the ¡private and individual debts of the said parties, or- either of them,’’ does not direct or consent -that the individual property of either be applied to the individual debts of the other, and the court will imply no such consent from the- words used. This" clause can only mean that if. either owes individual debts they are to be paid out of the proceeds of his individual property, and out of his share of any surplus- of partnership property. (Eyre v. Beebe, 28 How. 334.) The- object of -the assignment-was not "to give to any party any right-or interest which he was not already entitled to by law, but to secure a fair distribution of the property among the creditors, according to law.
II. The appellant has not been subjected to any loss or damage, nor in any manner prejudiced by the acts of the assignee. Had the assignee- proceeded to execute to the letter the trusts of the assignment, not a dollar of the proceeds could have reached the appellant. He has, therefore, lost nothing, and has no reason to complain. The whole of the assigned premises were insufficient to pay fifty per cent of the partnership claims. This being undeniably the fact, the partnership creditors had a right -to appropriate them, divide them, and dispose of them in any manner most satisfactory to themselves, subject only to any equities of Strauss’ individual creditors, not one of whom complains. If in so disposing of them, they have been made -to satisfy the whole of the partnership debts, so much the better for the debtors, and incidentally for the appellant, as his debtor, Nussbaum, owes so much less.
III. The assignee has acted in good faith, and is protected by an order of the Supreme Court. There is no allegation or pretense of any fraud, or unfairness on his part, either in his management of the property, his settlement with the creditors, or the obtaining of his discharge. The order of the court is absolute. It was made by consent of all the parties who had any beneficial interest in the assigned premises, and of some who had not. It was made by a court of competent jurisdiction,-upon an application by the party and in the form prescribed by the statute. (3 R. S. 22, 5th ed. § 8. Id.. 16, § 55.)
It was made with full knowledge of all the facts in the case.
' IV. The proceeding of the appellant is irregular and improper. It seeks, virtually, to vacate and avoid the effect of án order of the Supreme Court, and to hold an assignee liable under the trusts of an assignment, after the Supreme Court has discharged him. and ordered the assignment canceled.
The proceeding should have been in the other court, and under another form.
Maclay & Perry, for the respondent Nussbaum.

Opinion:
Robertson, Ch. J.
The case before us is to be considered, so far as the plaintiff is concerned, precisely as' if the assignment in' question were gratuitous, and executed by Strauss, who was not liable to the plaintiff, to pay first the debts due by him jointly with the defendant, Hussbaum, and secondly those due by both separately. There being no obligation by Strauss to pay the plaintiff, the latter is in no better condition by reducing his debt to judgment, than if it had remained at large.
The first question that presents itself is, whether the Supreme Court had jurisdiction to accept the resignation of the defendant Allerton, as trustee, and discharge him from his duties and all liability to account to the plaintiff as cestui que trust under the assignment in question. By the original provision of the Revised Statutes of 1830, (1 R. S. 730, § 69,) the court of chancery was authorized to accept the resignation of a trustee, upon his petition merely, and discharge him from the trust. It was required, also, to establish regulations for the purpose, and determine the terms upon which such resignation should be accepted, having reference to the rights and interests of the persons interested in the execution of such trust. The court of chancery had no such power previously, unless by consent of all parties. (Matter of Van Wyck, 1 Barb. Ch. 565. Matter of Wadsworth, 2 id. 381.) The trustees, by making such application, virtually surrendered the administration of his trust to such court, (see 2 Spence, Eq. Jur. 918,) and deprived the cestius que trust of the power of proceeding against him adversely, until such application was disposed of. (Groshen v. Lyon, 16 Barb. 461.) The better practice sanctioned in such cases, seems to be to order a reference to inquire into the facts and circumstances under which the resignation is offered. (Matter of Miller, 15 Abb. Pr. 277.) But as to the statutory form of proceeding by petition, without notice to any one, it does not necessarily require a litigation inter partes ; the court which acquires jurisdiction can exercise it in any mode it thinks proper, provided it does not transgress its limits; and when exercised, it precludes all the world. It would undoubtedly not follow, that every provision in an order discharging a trustee must he valid, because the court has power to accept his resignation; (Matter of Crossman, 20 How. 350;) but any exercise of such power within such jurisdiction, however indiscreet, cannot be corrected in a collateral proceeding, because it does not, by such indiscretion, become void. Where no trustee remains vested with the legal estate, by the discharge of the petitioner, it would seem to be an incomplete exercise of power to leave the subject of the trust without a legal, owner ; but such power of appointment is the subject of a separate provision in the statute just cited. (2 R. S. 730, § 71.) There is nothing to prevent a court having the power to appoint trustees from appointing the original creators of the trust as such. There could have been, therefore, no obstacle, in this case, to the appointment of either Strauss or the defendant Nussbaum, or both, trustees to carry out the trusts of the assignment; it was a matter entirely in the discretion of the court. The Supreme Court has, of course, succeeded to all the authority of the court of chancery in regard to matters of this kind. How far Strauss and Nussbaum became such trustees in place of the defendant Allerton, by the order of the Supreme Court' directing the latter to transfer to the former any unconverted property and the proceeds of any sold, it is perhaps not necessary now to discuss. Clearly, the property itself would not thereby become freed from the trusts. The Supreme Court undoubtedly ordered Allerton to deliver the custody and title to all the property in his hands to the assignors, either as trustees, or else preparatory to the appointment of new trustees. Whether that was or not an indiscreet exercise of authority, it cannot be overhauled in this action, collaterally. It the acceptance of Allerton's resignation was within the jurisdiction of the court, and completed, he ceased forthwith to have any control over the property, and was not bound to administer the trust any further for the benefit of the plaintiff, or any other person. If the property was left in his hands until a successor was appointed, he was bound to deliver it over to such successor immediately on his appointment. It, therefore, results that Allerton is not responsible to the plain tiff for- any property in His' hands when he was discharged, unless the order of the Supremé Court is to be entirely disregarded. ' If it was obtained improperly, or on false suggestions, the remedy of the plaintiff is by an application to that court to set it aside, where the merits of the whole matter can be inquired into. If this' action had been commenced while such application was pending undetermined, under the "authority of the case of Groshon v. Lyon, already referred to, (ubi sup.) this court would have' been bound to stay proceedings in it. I, therefore, fully concur with the learned referee, in this case, in the opinion, that without regard to the effect of the direction in the order of the Supreme Court to restore the property to the assignors, it discharged the defendant Allerton from all liability as trustee, even" if it left the property in hi's hands, to become subject to ;the original trusts, in the hands of his successor. The remedy of the plaintiff was to have applied to the Supreme Court, to appoint a successor to Allerton, (if Nussbaum and Strauss were not made so by such order,) and through him to.have compelled Allerton to deliver over to him the property in his hands. It certainly would be unjust, in any event, to order the plaintiff's debt to be paid in full,without any allegation or proof respecting the existence of any other creditors of the assignors entitled to an equal sharé. If this were an action for an accounting, all the cestius que trust should be parties, or théir non-existénce should be alleged and proved. •
I think it, however, extremely doubtful, whether, even if the order of the Supreme Court were disregarded, and the defendant Allerton were still a trustee, he could be made .responsible to the -plaintiff for the property handed over to the assignors. The plaintiff had no right in the subject matter of the assignment until the. partnership creditors were satisfied. So long as the property- assigned was not sufficient to pay the preferred debts,- he had no claim. If by any means they were discharged, of course he became interested jointly with other postponed creditors of Nussbaum & Strauss. This operated to relieve such assets from all claim by them, so as to make the plain tiff a cestui que trust of what remained. It is to be recollected, however, that part of the agreement of compromise was that the assignment was to be surrendered and canceled ; if that was not done, part of the consideration for the .agreement to discharge failed, and the creditors in question had a right to insist on the full amount of their debts ; in other words, if the plaintiff is entitled to any benefit from the discharge of the preferred debts he is bound to ratify the stipulation which discharged them. The effect of a surrender or cancelment of the assignment, as it was termed in each agreement, was to revest the assignors with the ownership of the assigned property ; for that and their discharge from indebtedness, they gave their notes with new security therefor. Such assignors, and particularly Strauss, were under no obligation to the plaintiff, so far as the property assigned was concerned, to pay their partnership debts off out of other resources, so as to let the plaintiff come in and claim it. There was no legal restriction upon the right of such assignees to buy the assigned assets, except that the possession of them after the assignment might be a badge of fraud in regard to it, of which no complaint is made; the connection, therefore, of the transfer back of such assets, with a discharge of their indebtedness where there was the additional consideration of new notes and security therefor, did not invalidate either. If the partnership creditors chose simultaneously to receive in place of the proceeds of the assigned assets, notes of the assignors, which would in part be a continuation of a part of the same indebtedness, and discharge the latter only from the rest of it, I know no principle of law to prevent them. They were substantially the equitable owners of such assets to the extent of their claims, and could have taken them at their fair value in satisfaction of a similar amount of such claims, and the plaintiff had no right to interfere. I am at a loss to perceive why they would not be entitled to take them, or consent to their destination or to their transfer to any third person, provided they agreed to extinguish as much of their claims as was equal to their value.
In the argument presented on behalf of the plaintiff, the discharge of the partnership debts is separated from the transfer by the property, as having previously occurred, instead of being part of one transaction, and simultaneous with, and forming part of, mutual considerations. There would have been no difficulty in their arriving at the same result more circuitously ; namely, by the partnership creditors taking all the assets in satisfaction of their debts, and selling part of them to the assignors for their notes, duly secured, which was exactly what the agreement in question accomplished. The plaintiff would have no right in such case to interfere, and does not acquire it by the same result being reached directly.
The partnership creditors and assignors could by no means which they could resort to destroy or cancel the assignment, so far as rights of any other persons were concerned. The purport, therefore, of surrendering or canceling the assignment must, by the agreement between them, be understood from the whole agreement as meaning nothing more than surrendering the assigned property, which was subsequently carried out, and was sanctioned by authority of the Supreme Court. It may not have been the most felicitous expression they could have used to express such meaning, but such purpose being legal, while the literal interpretation would make the agreement illegal, the former is to be preferred.
The covenant contained in the assignment, by the defendant Allerton, to discharge the trusts contained in it, was not to the plaintiff, and did not enable him to bring any action at law upon it. I am also at a loss to conceive of any mode of reasoning by which the power of the Supreme Court to accept the resignation of a trustee who is an assignee of an insolvent debtor can be superseded impliedly by the powers of a county judge to decree upon petition an accounting and distribution of assets, and prosecution of an assignee's bond under the statute of 1860. (Laws of 1860, p. 596, § 4, 5.)
I, therefore, am of opinion that the judgment appealed from should be affirmed, with costs.