Crook v. Rindskopf

On the 23d of October, 1882, Leopold Bindskopf and Meyer Bosenthal, composing the firm of Bindskopf & Bosenthal, executed an assignment of all their property, both real and personal, in trust to Abraham Bosenthal to convert the same into money, and after paying the lawful expenses of the trust to pay their partnership debts in the order specified in the instrument. It then provided “ that

The proof established the facts that the assigned estate amounted in value to the sum of $9,360.87, and the firm indebtedness to $14,667.87, and that the individual assets of the members of the firm amounted to forty dollars, of which Rindskopf owned ten dollars, and Rosenthal thirty dollars. Rindskopf’s absolute individual liabilities amounted to $300, and his contingent liabilities to $4,300; and Rosenthal’s absolute individual liabilities to $2,850.

The plaintiff being a judgment creditor of the firm, brought this action to set aside the assignment, upon the ground that it was made with intent to hinder, delay and defraud the creditors of said assignors, and to have the assets of the assigned estate applied to the payment of his debt. Both the assignors and assignee respectively appeared, and answered in the action, and the assignee denied all of the allegations contained in the complaint imputing fraud to the assignors, which put the plaintiff to the proof of his ease. Ho attempt was made on the trial to show any fraud in the assignment, except such as was sought to be inferred, from the provision relating to the payment of individual debts.

The trial court found that there was no fraud in fact in the making of the assignment, and, as a conclusion of law that the instrument constituted a valid transfer of the property of the assignors to their assignee, and ordered judgment dismissing the complaint. Upon appeal, the General Term reversed the judgment, and ordered a new trial. As that court

Passing over the questions, whether an intended fraud by one member of a firm in transferring his individual assets, avoids an assignment of the firm assets, made by the firm, and whether such a fraud, affecting a distinct portion of the assets devoted to a special class, is inseparable, and must, as matter of law, be held to vitiate the entire trust, we will consider the case upon the theory discussed by the court below. The burden was upon the plaintiff to show affirmatively that the enforcement of the provisions of the assignment, would necessarily work a fraud upon the creditors of the assignors, and that it could not legally be carried out without producing ^uch a result.

It nos, in some cases, been.,held that assignors providing in their assignment - for an illegal disposition of property, are not at liberty, in an action to set it aside, to show, as ..woof of innocence of fraudulent intent, that the assigned fund was insufficient to satisfy the prior valid provisions of the assignment, and could not, therefore, be affected by the alleged illegal provision, and are estopped from controverting the existence of the conditions which they had provided for. (Collomb v. Caldwell, 16 N. Y. 484 , and cases there cited.)

The principle that a party may be inquired of as to his intent in doing an act, where such intent is material, tends-strongly to confirm the proposition that the presumption of fraud arising from the provisions of an assignment may be repelled by paroi evidence. (Seymour v. Wilson, 14 N. Y. 567 ; Hunt v. Johnson, 44 N. Y. 27 .)

The plaintiff in this case anticipating the probable defense, did not rely upon the presumptions of fraud, arising from the-assignment alone but undertook to establish the fact affirmatively, that in the actual circumstances of this case, the execution of the provision in question would necessarily operate as a fraud upon creditors. It is unnecessary’ therefore to assail the doctrines annunciated in Collomb v. Caldwelt ( 16 N. Y. 484 ); Barney v. Griffin (2 id. 365); Goodrich v. Downs ( 6 Hill, 438 ), and similar cases, for conceding them to-the fullest extent claimed, the facts of this case do not bring it within their operation.

It is lawful for an insolvent member of a firm, to devote his individual property to the payment of firm debts, to the exclusion of his individual creditors. (Hazard v. Dimon, 32 N. Y. 65 ; Saunders v. Reilley, 105 id. 12; Royer Wheel Co. v. Fielding, 101 id. 504; Kirby v. Schoonmaker, 3 Barb. Ch. 46 .) And it follows from the same principle that he may also apply it, to the payment of any debt owing by him, to his partners in the firm, and no inference of fraud can legally be derived from such disposition, of' his individual property. This case was decided by the General Term, as appears from

We think this argument, upon the facts of the case, is defective in several particulars. It is not at all certain that such a result -would follow in this case, for if Rindskopf’s contingent liabilities never became fixed, there would be only $300 of his individual debts, to be paid as against $2,850 of Rosenthal’s, and in that event private property of Rindskopf would in fact be taken to pay Rosenthal’s individual debts.

We also think the result claimed does not follow from the premises assumed by the court below, but that it would necessarily be produced only, by the existence of exact equality of interest in the firm assets by both members, or a greater interest in Rosenthal, combined with equality in individual indebtedness, and inequality in the individual property. If there is simply inequality of interest in the firm assets, and inequality in individual assets, one inequality could be easily compensated by a corresponding inequality in the other, and the evidence does not show but that this state of things in fact existed. It does appear that the assignors were equal partners in their firm business, but there is no evidence as to the amount they each originally contributed to the capital of the firm, except that the amounts were about equal. Neither does it appear how much they had, respectively, drawn from the firm, except that the amounts were nearly

Assuming that there was a surplus remaining after the payment of firm debts, the assignment ostensibly required this residue of $40 to be put into a common fund for the payment of the individual debts of both assignors, and then if Rindskopf’s contingent liability became fixed, it is evident that about $15 of his assets would be paid to Rosenthal’s individual creditors, leaving $15 only subject to be diverted from them to the payment of Rindskopf’s creditors. The insignificance of this sum, as compared with the amount of individual debts to be paid, and the almost infinitesimal amount of any dividend to individual creditors would seem to furnish a conclusive answer, to the presumption of fraud sought to be drawn from the obviously tentative provision in question. It would also seem, in view of the large amount of property transferred and the trivial value of that which might be improperly paid out, that the maxim “ De minimus own curat lex ” might well have been applied and held to con - trol the determination of the case. (In re Empire City Bank, 18 N. Y. 199 ; Colman v. Shattuck, 62 id. 363; Ross v. Hardin, 79 id. 84, 93.) We conclude, therefore, upon this branch of the case, that within the authorities cited below, every inference of fraud derivable from the provisions referred

We are also of the opinion that the provisions of this assignment, if fairly construed and enforced according to their natural meaning and import, would not occasion an illegal disposition of the individual property of either assignor. While heretofore there has been some diversity of opinion in the courts in respect to the proper rule to be applied in the construction of such instruments, we think the tendency of modern decisions, especially those of most approved authority, has been to adopt the same rules which obtain in the interpre • tationof other contracts. (Knapp v. McGowan, 96 N. Y. 75 , 87; Rapalee v. Stewart, 27 id, 310, 315; Benedict v. Huntington, 32 id. 219 ; Townsend v. Stearns, id. 209 .) Among those rules is that requiring such an interpretation as will render the instrument consistent with innocence, and the general rules of law, in preference to such, as would impute a fraudulent intent to the assignor, or defeat the general purpose and intent of the conveyance. (Bagley v. Bowe, 105 N. Y. 171 ; Ginther v. Richmond, 18 Hun, 232 , 234 ; Rapalee v. Stewart, 27 N. Y. 315 ; Benedict v. Huntington, 32 id. 219 ; Townsend v. Stearns, id. 209.) Such transfers are sanctioned by law and are, when made, like other contracts, to be fairly and reasonably construed with a view of carrying out the intentions of the parties making them. When authority to do an act is conferred in' general terms it will be deemed to be and to have been intended to be exercised within the limits prescribed by law, (Kellogg v. Slauson, 11 N. Y. 302 .) In such cases as m others, doubtful and ambiguous phrases admitting of different meanings are, in accordance with the maxi m " ut res rnagis valeat quam pereat,” to be so construed as to authorize a lawful disposition of the property only, although there may be general language in the instrument susceptible of a different construction. (Townsend v Stearns, supra.)

If the instrument in question be considered in the light of these rules, we think it is not fairly subject to the criticism

It is essential to the argument of the respondents to establish that the language of this assignment, contains authority to the assignee, from each member of the firm, to satisfy the individual debts of the other, from the combined individual property. We do not think a proper construction of the instrument justifies the inference of such an authority; certainly no such power is expressly given, and it would be contrary to settled rules to impute such an intention to its authors, unless the language of the instrument expressly requires it. The law would require, in the event of an assignment by a firm of two persons, that after the payment of firm debts the residue should be'divided into two funds for the payment of individual creditors, and the only defect, if any, in this assignment is, that it did not expressly recognize the possible existence of the two funds. We think the law will supply this omission and order a distribution of the fund according to the legal rights of the claimants upon it. It was plainly contemplated in the assignment itself that this division should be made in the eventual surplus, if any’there was, for that is directed to be paid to the parties of the first part, their executors, administrators and assigns. This provision could be carried out only upon the assumption that a division of the residue had been made between the two assignors, and thus reflects strongly upon the intention of the conveyancer in the use of the language criticised. A reasonable construction of this provision would seem to require that the language should be distributively applied, and held to mean that each member of the firm transferred such part of the property as he had a lawful right to convey, and subjected the residue

Upon the satisfaction of the debts of the firm, it would be the legal duty of the assignee, even in the absence of any express provision requiring it, to determine the interest of the individual partners in the surplus, and devote each share to the interest of its respective owner in accordance with his legal rights. (Eyre v. Beebe, 28 How. 333 ; Friend v. Michaelis, 15 Abb. [N. C.] 354.)

While the instrument was necessarily the joint act of the members of the firm, so far as their joint property was concerned, it was the individual contract of the respective members, so far as they dealt with iudividual property. When providing for their joint interests and property, which constituted the main object of the assignment, they spoke their joint interest and purpose, but when dealing with their individual interests, although inaptly continuing the use of the phraseology applicable to its earlier provisions, their language must be construed as referring to and expressing only their individual wishes with reference to their individual property and liabilities. In case a surplus arose in the administration of this estate, and it became the subject of judicial controversy among the individual creditors of the members of the firm, it could not reasonably be said that there is anything in the language of the assignment which precluded Hosenthal or his creditors, from demanding that his individual property should be applied to the payment of his individual debts.

The order of the General Term should be reversed, and judgment of the Special Term affirmed.

All concur (Andrews, J., on the construction of the instrument) except Daneorth, J., not voting.

Order reversed, and judgment affirmed.