Court Opinion

ID: 6581255
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:38:28.395325+00
Date Added: 2024-06-11T15:57:17.554399
License: Public Domain

The opinion of the court was delivered by
Powers, J.
From the statement of facts submitted it is clear that no assignment under the statutory requirements was accomplished by the contract entered into by the creditors of the defendant with the defendant and trustees. Probably none was in*447tended. The transaction however does amount, in substance, to a composition. It must be taken from the language made use of in the agreement and conveyance, that it was contemplated that the trustees selected should convert all the assets of the insolvent into cash, and from the avails pay to all the creditors of the insolvent an equal pro rata share upon their respective claims; and it was further contemplated that all the debts of the insolvent should participate in the percentage distribution. The utmost good faith is required in composition arrangements. Indeed, the contract itself rests largely in the confidence and trust placed by the creditors in each other that all will share alike in the final distribution. The complaint made by the plaintiffs is, that all the creditors did not personally come into the scheme, but that the trustees have paid some of them in full, and others a larger percentage than they were entitled to, and have applied some of the trust property in such payments. The conveyance to the trustees provides in terms that they shall convert the property into cash in order to get funds with which to pay the percentage. The trustees are to exercise their own discretion respecting the conversion of the property, circumscribed only by the rules of that good faith which is required of all persons acting in a fiduciary capacity. The use of the personal property in payment of debts, therefore, is proper enough, so long as no bad faith is imputed and no diminution of the common fund results.
As before suggested, the object of the composition is to bring about an equal application of the insolvent’s property to all his debts. The assent of the creditors is essential, not to the end that their names shall appear upon the contract, but that their respective debts shall participate in the distribution. It is the debt of the creditor, and not the creditor himself, that must be represented in the percentage realized. If the insolvent himself applies his assets to the payment of any claims in full, or to induce unwilling creditors to join in the contract, it operates as a fraud upon other creditors, as it withdraws so much from his available means for paying his liabilities. But, if the creditors among themselves buy and sell their claims, the assets of the insolvent are unaffected. In Towne v. Rublee, 51 Vt. 62, a composition contract was en*448tered into by the defendant and his creditors, which in terms was conditioned that all his creditors named in a schedule attached to the contract, should execute the contract. One Mead, a creditor named in the schedule, declined to execute the contract, whereupon another creditor so named purchased Mead’s claim, and signed the contract as the holder of the Mead debt. It was held that the contract was not avoided, as the debt of Mead was made to share equally with the rest in the assets of the insolvent. In this case the trustees settled vyith the non-assenting creditors, understanding that they were buying in their claims upon their own personal responsibility, and they have at all times held such claims for an equal percentage only, with other creditors. So long as no bad faith is apparent, we see nothing in this transaction that affects the plaintiffs’ rights in the least. The trustees could not, and do not assume to, reimburse themselves in full from the common fund. For aught that appears, the course taken by the trustees was the only practicable way to effectuate the purpose of the creditors and is presumably for the advantage of all concerned.
It does not appear that the trustees have closed their trust, nor that they hold any dividend to which the plaintiffs are entitled. The suit, therefore, is prematurely brought.
The pro-forma judgment of the County Court for the plaintiffs is reversed, and judgment that the suit is prematurely brought, and for defendant and trustees to recover their costs. .