In re the Final Accounting of Clute — 14 A.D. 234

Majority

p. 234

In the Matter of the Final Accounting of Frank M. Clute, as Assignee of Lucius Hart (Doing Business under the Firm Name and Style of Lucius Hart & Co.) for the Benefit of Creditors. Frank M. Clute, as Assignee of Lucius Hart, Appellant; Hendricks Brothers, Respondents.

Headnote

An assignee for the benefit of creditors cannot retain Ms own firm, — he may he ■ allowed the expenses of counsel in an action against the assignor.

An assignee for the benefit of creditors cannot retain, as counsel, a law firm of which he: is a member, and certainly, as against a creditor not assenting-to such retainer, is not entitled to credit on his accounting for money thus expended. An assignee is entitled to be allowed -for his expenses in employing counsel to defend a suit brought against his-assignor subsequent to the assignment, where he successfully resists a large claim made against the estate, disputed by theassignee and not recognized by the schedules filed by the assignor, and where , the services thus paid for were beneficial to the estate.

Appeal by Frank M. Clute, as assignee of Lucius Hart, doing business under the firm name and style of Lucius Hart & Co., from an order of the Supreme Court, made at the Hew York Special Term and, entered in the office. of the clerk of the county of Hew York on the 23d day of June, 1896, sustaining certain exceptions, filed by Hendricks Brothers to the report of the referee, and overruling certain exceptions of said assignee to the referee’s report, and passing the accounts of the assignee for the benefit of creditors.

Thomas P. Wiekes, for the appellant.

Ira D. Warren,. for the respondents.

Hart’s creditors, including Hendricks Brothers, presented allowable claims for $47,906.12. For the administration of the estate the assignee claimed $5,752.71, which the referee reduced to $4,777.71. The assignee is a member of the firm whose claim for services was. disallowed.

The rule of law is, that an assignee who is a lawyer cannot retain and pay his own firm. In justification -of the charges made by the assignee’s firm, it is claimed that at the first meeting of creditors, at which Hendricks Brothers, the objecting creditors, were not pres

p. 235

ent, the assignee agreed to waive his fees in consideration of the creditors consenting to the retaining of his firm as attorneys for the assignee and paying them their reasonable fees for such services as might be rendered. ' Upon this subject .the only evidence is that of the assignee, who testified under objection that he “ was advised that the creditors present and represented consented to the employment of Hatch & Wickes as counsel for the assignee.” And upon cross-examination : “ My understanding of' the result of that meeting was, that Hatch & Wickes were tó be retained as counsel, as counsel would be necessary, and that Mr. Hatch stated at that meeting that Hatch & Wickes being retained as counsel, and being paid the proper fees for their services, that the assignee would make no claim for commissions.” It will be seen that the assignee personally made no agreement with even such creditors as were present, his evidence being directed to showing that he was informed that such an agreement had.been made.

Apart from the competency and binding effect of such evidence, it is conceded that the objecting creditors here were not present at the meeting, were not bound by the agreement if made, and though they undoubtedly knew that the assignee’s firm were performing services, they have not been shown to have ratified such an agreement or placed themselves in a position by which their right to object was lost. Upon their objecting, therefore, we think the court below) was right in following the general rule. The assignee was allowed full commissions on the entire amount realized by him, and was in no way prejudiced by his reliance upon the alleged agreement.

With regard to the item of $150, paid by the assignee to outside counsel for defending a suit brought against the assignor, subsequent to the assignment, for $25,000, this, we think, should have been allowed. It is made to appear that the services thus rendered were for the benefit of the estate, and were rendered after notice to creditors. The assignor, personally, could not defend the suit, because without funds, and the conduct of the assignee resulted in the successful defense of a large claim against the estate.

The cases of Matter of Levy's Accounting ( 1 Abb. N.

p. 236

of the assignee was not justified, because the persons suing as creditors were admitted to be such by the assignor in his schedules; whereas, here, the claim was not only not recognized, but successfully contested. If allowed to be established by default, it would have seriously affected the amount which the other creditors would have received. This case is, therefore, clearly distinguishable from Matter of Levy (supra), wherein it was said:: “ These claims * * * are •in no respect such as the assignee was, or could have been, necessarily compelled to incur in the execution of his trust. Neither the assignee nor the assigned estate (so far as appears) was in any way affected by these suits that were instituted against the' assignor after the assignment. * * * While the assignee, as trustee for the benefit of creditors, is entitled to indemnity and reimbursement out of the assigned estate for all necessary expenses incurred by him in the execution of his trust, his right to incumber the trust estate or involve it in the expense of litigations and the employment of professional advisers, or other expenses, is limited to such .cases as reasonably call for professional advice or the incurring of the expense which ‘ one of or di/na/ry prudence cmd caution would undertake in the management of his own affairs.’ ” In the Matter of Johnson (supra), wherein the Levy .case was cited with approval, it was héld that an assignee for the benefit of creditors, will not be allowed, on his accounting for the services of an attorney in the defense of actions, ■the amount estimated by the attorney as the value of such services, ■without other proof as to their nature and value. Instead of being authorities against, these cases distinctly recognize, the right of the assignee, upon proper facts, to defend claims which are not admitted by the assignor, and, where the value of the services is established by competent proof, to be allowed for such services.

It is uncontroverted that in defending the claim the assignee acted in good faith, and he was successful, thus benefiting the estate, .and the referee finds in liis report that the services were reasonably worth the amount charged by the outside attorneys, and were .actually paid for by the assignee. Our conclusion, therefore, is that this item should have been allowed.

It is conceded that in respect to an item of $500 the assignee is ■charged twice, the result of an error in computation, which, of course, should be corrected.

p. 237

With respect to these two items of $500 and $150, the order should be reversed and the assignee credited therewith, together with the costs and disbursements of this appeal. In all other respects the order should be affirmed.

Van Brunt, P. J., Barrett, Rumsey and Ingraham, JJ.,. concurred.

Order reversed with respect to the items’ of $500 and $150 mentioned in the opinion, with costs and disbursements. In all other respects order affirmed.