Court Opinion

ID: 3628301
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:08:22.026+00
Date Added: 2024-06-11T11:44:44.853171
License: Public Domain

The assignment before us contains a clause to this effect, that all the assigned property is "to be converted into cash or otherwise disposed of to the best advantage by the party of the second part, to pay, first, the expenses of the trust created, and the debts and demands mentioned or described" in certain schedules annexed to the instrument. In the decision pronounced at the trial, as well as in the opinions delivered, both at the special and general term, it was held that this clause conferred a power to sell the assigned property on credit, and the assignment was declared to hinder and delay creditors, because it contained this clause.
In the two leading cases of Nicholson v. Leavitt andBurdick v. Post (2 Seld., 510, 522), it was decided that an assignment for the benefit of creditors is void, if it authorizes a sale of the assigned property upon credit. Since these decisions there has been, of course, no dispute but that authority to allow credit upon the sale of the assigned property will be fatal to an assignment by an insolvent debtor. The questions which have been agitated in the subsequent cases, have been questions of construction, whether the terms of the particular instruments in question conferred or imparted such an authority. In Brigham v. Tillinghast (3 Kern., 215), the assignment directed the assignees to convert the property, as soon as practicable and expedient for the best interests of all concerned, into cash or available means. It was decided that available means must be understood to be credits, and, therefore, this was an authority to sell on credit. Probably, but for this clause, that assignment might have been sustained upon the distinction which was adopted by this court in Jessup v.Hulse (21 N.Y., 168), that a direction to the assignees to convert the property into cash as soon as was expedient for the interests of the parties, *Page 319 
was valid, although had it been to make such a conversion as soon as they thought it would be expedient for such interests, it would be fatal. On the other hand, in Kellogg v. Slauson (1 Kern., 302), the assignees were authorized and directed to dispose of the property upon such terms and conditions as, in their judgment, might be best for the parties, and to convert the same into money. Here the assignment was sustained upon the ground that the discretion conferred upon the assignees was restricted to, or, at least, would be satisfied by, regulating the manner of selling, whether in public or private, in bulk or in small quantities. If the discretion given by that deed had extended to the time either of sales or of payments, the deed could not have been sustained even by the distinction afterwards taken in Jessup v. Hulse. The assignees were to act in the matters left to their discretion as they should judge best for the parties interested, and not as should be the best for their interests. The case of Jessup v. Hulse, which is reported in the Supreme Court (29 Barb., 539), and in this court (21 N.Y., 168), was this: The assignee was directed to sell and convey the property at such time and in such manner as should be most conducive to the interests of the creditors of the assignor, and to convert the same into money as soon as might be consistent with the interests of said creditors. The Supreme Court holding that this language authorized the assignees to delay selling the property, or to delay the time of payment for it, until a time should arrive which they might consider best for that purpose, supposed that it came within the scope of the decisions against assignments authorizing sales upon credit, and pronounced against it. This decision was reversed in this court with singular unanimity. The reason given for the reversal was that the clause in question was, in effect, surplusage. Judge SELDEN said, in delivering the opinion of the court: "If the clause in question purported, in terms, to invest the assignee with any discretion, as coming directly from the assignor himself, it would be fatal to the assignment, as if it had authorized the assignee to dispose of the property at such time and in such manner as, inhis judgment, *Page 320 
would be most conducive to the interests of the creditors, or as he should deem expedient and best calculated to promote these interests." And he subsequently observes: "The assignment in the present case contains no such language. It requires, it is true, that the interests of the creditors should be consulted in fixing the time, but it does not say that the assignee shall be the judge of those interests. Whatever discretion is vested in the assignee here, he derives, not from the terms of the assignment, but from the law, and it is this which distinguishes the present case from all those in which the assignment has been condemned. The legal effect of this assignment is in no respect different from what it would be, if its language had been that the assignee should sell immediately, or at such time or times as his duty would require."
The principles deducible from all the authorities upon these questions have been frequently stated. An insolvent debtor who makes a voluntary assignment, must devote his property absolutely and unconditionally to the payment of his debts. He may direct the order of the application, or of the payment of these debts, and he may select the agent by whom the application is to be made; but his power goes no further. He can neither direct nor authorize any delay in selling his property, or in collecting the proceeds of such sales, or in distributing such proceeds among his creditors; and an authority to his assignees to do either of these things is as objectionable as a direction to a like effect. But an authority to do an act or to exercise discretion, which results necessarily from the duty of the assignee, or which is incident to his trust, is nothing more than an affirmance of his legal authority and obligation, and will not affect the assignment.
The question, in the present case, is not, whether the discretion conferred upon the assignee is to be exercised upon his own judgment, or by that of the law. According to the case ofJessup v. Hulse, the authority to convert the property into cash, or otherwise dispose of it to the best advantage, may be admitted to mean that he is to do the one or the other, if these expressions signify different things, as may be in law or *Page 321 
in fact, and not in his judgment, to the best advantage. But the question then is, whether to dispose of the assignor's property otherwise than by converting it into cash, is a disposition which the law will permit, and whether the power to make such a disposal of assigned property, is an authority which the assignors had a right to confer. In other words, whether disposing of the assigned property otherwise than by converting it into cash, will hinder, delay or defraud the creditors of the assignor. It seems to me that the bare statement of the question carries with it the answer. All that a failing debtor can do, or authorize to be done, with his property, is to convert it into money, into cash, and to apply it to pay his debts. To dispose of it otherwise, is simply to do something else with it than what the law permits. This language, if it occurred in an instrument where such a power would be legal, might well be claimed to authorize a mortgage or a lease, or any disposition of the property referred to, which, in the judgment of the law or the parties, would be most for the advantage of those interested. It is not an authority to sell the property and convert it into money, at such time or in such a way as may be for the interest of the creditors, but it is an authority to convert it into money or make such other disposition as may be for such interests. It is not an authority to do a lawful act, with a discretion as to time or manner, conferred and controlled by law, but it is a power to do a lawful act, or one wholly unlawful, in the discretion of the assignees, whatever may be the rule or the guide of that discretion.
The answer which is attempted to this is, that the interests of the creditors do not require nor permit any other disposition of the assigned property than its conversion into cash; and as the action of the assignees is to be controlled by legal discretion, and not their own judgment, this clause imports nothing more than the alternative authority to convert into money. The judgment of this court in Jessup v. Hulse is invoked to sustain this construction. But it cannot be pressed into such a service. An authority to do an illegal act is not to be sustained or overlooked, because it may or may not be *Page 322 
exercised; and the law to whose discretion its exercise is referred, would hold that such exercise would be contrary to the interests which are to be consulted. The argument is, that although the assignees are authorized to do what they have no right to do, yet they are authorized to do so only if it be for the best advantage of the creditors; and that, as the law will not decree an illegal act to be for their advantage, therefore the trustees are not authorized to do it at all. I have already said, that an authority to do what the law forbids, is as fatal as a direction to do it. The law exercises no discretion or control over illegal acts. When power is conferred to do what is legal and permissible, but the time and mode of acting is left to be determined by an exercise of discretion, we are to infer that it is intended to leave the decision to the law's discretion, and not to place the wishes or opinions of the parties above the law, unless this is positively stated. But we have no right to say, that where power is given to do either a legal or an illegal act, the latter authority is nugatory, because the discretion to do the one or the other will be controlled by the rules of law, and these will forbid the violation of the rights of creditors. Upon such a principle, it would be difficult to condemn an assignment for anything which it might contain, of a permissive character merely.
I am unable to see how we can come to any other result, than that which was reached by the court below, upon this point, and as this is decisive against the validity of the assignment, it is unnecessary to consider any other question arising upon that instrument. There are one or two minor questions which must be adverted to. It is said that it was erroneous for the court to proceed with the trial of the cause, upon the testimony taken and reported by the referee, until he had executed the residue of the order of reference, and stated the accounts of the assignees. It was, however, entirely a matter of discretion with the court to do so or not, and we cannot review their decision in such a particular. It is also objected, that the court had no right to order payment of the plaintiff's claim, without going through with an accounting, if not appointing *Page 323 
a receiver. The answer to this objection is, that the answer admits the possession of assets by the assignees, claiming to retain the same until the issue of a litigation between certain preferred creditors as to priority in payment; and the judge found as a fact, upon the evidence, that the assignees had in their hands sufficient to pay the plaintiffs. We must take this fact to be as found, and cannot review the decision establishing it. Upon such a state of facts, the court had the right to order the plaintiff's judgment paid, and there was no reason why he should be compelled to go through an accounting by the defendants, or to submit to the appointment of a receiver.
The defendants also complain of an order, striking out a part of their answer. It may, in some cases, be the duty of this court to review such orders. They may deprive a party of his defence, and thus involve the merits and affect if not produce the judgment. But the matter stricken out in this case was irrelevant, in the aspect in which it was pleaded. It did not prove that there was nothing due upon the judgment. It was evidence to establish, if anything, the ratification of the assignment by the plaintiff. But it was not pleaded in that connection or for that purpose. Besides, the allegation did not go far enough to conclude the plaintiff. All that was alleged was, that he had signed a paper, agreeing that five persons, of whom the assignors and one of the assignees were three, might dispose of the assigned property in a certain way, not the way pointed out in the assignment, and that upon receiving his share of the proceeds, he would release the assignees from their debt, thus, it is said, recognizing the fact of the assignment. It was not alleged that any money had been paid to or received by the plaintiff, under this agreement; and I do not see how he was estopped or concluded, by the mere execution of the paper, from attacking the assignment for fraud. At all events, the execution of such a paper neither satisfied the plaintiff's judgment nor went to show it paid. At the trial, there was no offer or attempt to prove these facts in any other connection or for any other purpose. The only testimony concerning them, indeed, is contained in *Page 324 
the record of the plaintiff's judgment, which was read in evidence. In this, it appears that this agreement was pleaded as a defence to the plaintiff's claim, and the defence overruled. The order striking out the allegations of the answer, to which I have adverted, was correctly made, as a question of pleading, and no question of the effect of the evidence in any other aspect is before us. The judgment of the Supreme Court should be affirmed, with costs.
WRIGHT, J., concurred in this opinion. SELDEN, J., did not sit in the case.
Judgment and order reversed, and new trial ordered.