Court Opinion

ID: 3577344
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:29:07.300604+00
Date Added: 2024-06-11T13:36:43.698025
License: Public Domain

[EDITORS' NOTE:  THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 538 
[EDITORS' NOTE:  THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 541 
We think this judgment should be affirmed for the reasons stated in the opinion given at the General Term. We will add but a few words, which are suggested by the argument of the counsel for the appellant before us. The construction which the Supreme Court gave to the language used in the assignment is, we think, the only one permissible.
The effect of the assignment is in one contingency to devote part of the partnership property to the payment of individual debts before payment in full of partnership debts, and there is an express finding that there were such individual debts of one of the partners. There is evidence sufficient to justify it. InCrook v. Rindskopf (105 N.Y. 476) the members of the firm executed the assignment for the benefit of their creditors, and devoted all their property to the payment of the copartnership debts, and after such payment, if there should be any residue, it was to be applied to the payment of the individual debts of the assignors or either of them. One member of the firm owned individual assets of the value of $30, and the other of the value of $10, and their individual indebtedness was of an unequal amount. It was thought hardly worthy of attention on account of the smallness of these amounts, but the construction of the assignment was, nevertheless, entered upon, and it was held that the language did not provide for the creation of a fund in the surplus after payment of firm debts, to be used indiscriminately in the payment pro rata of the individual debts of the members of the firm, but that if there were a surplus, the share of each partner therein was to be applied to the individual debts of such partner. The language used here does not permit this construction. The payment of the firm debts is not provided for in full before any payment can be made the individual creditors, but the contrary is the fact in a contingency provided for in the assignment. If there are not enough assets to pay the preferred firm creditors, *Page 542 
no sufficient answer to the charge of fraud arises from that fact.
If an insolvent firm appropriate by an assignment partnership property to the payment of the individual debts of one partner, the assignment is fraudulent and void. (Wilson v. Robertson,21 N.Y. 587.)
In case of such an assignment it has been held (Hurlbert v.Dean, 2 Keyes, 97), if it be shown and found as a fact that there are no individual debts thus provided for, the presumption of fraud may be repelled and the assignment upheld. But in this case the finding is exactly contrary. And in Crook v.Rindskopf (supra), the assignment having provided first for the full payment of firm creditors, such creditors, it was said, were not aggrieved, for the intention could not have been to defraud them by providing for the payment of individual creditors thereafter, even though the individual partners owned unequal amounts of individual property, which might be affected by a provision to pay the debts with the surplus pro rata. It never has been held that in a case where partnership assets have been by the assignment devoted in certain contingencies to the payment of individual debts, while a portion of the partnership debts remained unpaid, the stamp of fraud which the law places upon such a transaction can be rebutted by any evidence that the parties did not intend to commit a fraud.
In this case the plaintiffs endeavored to prove a fraudulent intent outside of and upon other facts than this provision of the assignment. Even if they had been unsuccessful in that endeavor, the failure did not breathe vitality into the instrument which the law denounces as a fraud because of the existence of the illegal provision therein. If the fact be that there are not enough funds in the hands of the assignee to pay the preferred debts of the firm, the other fact remains that the assignment provided for the payment of the individual debts with the firm property in certain contingencies, and the want of firm and individual assets sufficient to pay the firm debts, does not cure this vice. The failure of assets to pay preferred *Page 543 
creditors is not like the non-existence of individual debts in a case where an assignment provides for their payment out of firm property. There is no contingency in such case and the provision is mere surplusage, hence totally immaterial. But mere absence of assets with which to pay as directed may depend upon many contingencies. The illegal intent to devote the property to an unlawful use is there in any event. Good fortune in realizing upon sales of the property assigned may produce the assets, while in the other case there are no individual debts and no chance can create them.
Whether the provision is void or valid should not depend upon a fact of this kind, which may or may not exist, when the assignment comes to be carried out. The invalid provision is made in case it should exist, and it is invalid when the assignment is made.
There is no error in the record and the judgment should be affirmed, with costs.
All concur.
Judgment affirmed.