Maass v. Falk — 24 N.Y.S. 448

Majority

p. 448

(70 Hun, 598;

mem. report without opinion.)

MAASS et al. v. FALK et al.

(Supreme Court, General Term, First Department.

June 30, 1893.)

Headnote

General Assignment—What Constitutes—Preferences.

A transfer of property by a debtor to several creditors which recites that it is “security for” the debts, and authorizes the creditors to sell the property, apply the proceeds to the debts, and return excess, if any to the debtors, is not a general assignment, but a pledge, and therefore not within Laws 1887, c. 503, declaring void preferences in general assignments, except to the amount of one-third of the assigned estate.

Appeal from special term, Mew York county.

Action by Selig Maass, Samuel P. Hyman, Theodore Meyer, and Max Maass, composing the -firm of S. Maass & Go., and Maurice Mauchauffee, George Mauchauffee, and Louis Dupre, composing the firm of M. Mauchauffee & Go., against Abraham Falk, Zachariah Falk, David B. Falk, and Washington Falk, composing the firm of Falk Bros. & Go., the Mercantile Mational Bank, the Mational Citizens’ Bank, and the Mechanics’ & Traders’ Bank, to set aside a, transfer of property made by Falk Bros. & Co. to the banks named above as defendants on the ground that such transfer was a general assignment, and in violation of Laws 1887, c. 503, forbidding preferences in general assignments exceeding in value one-third of the assigned estate. From a judgment in favor of defendants, plaintiffs appeal.

Affirmed.

The instrument of transfer is as follows:

“Whereas, the firm of Falk Brothers & Oo. is Indebted to the Mercantile National Bank of the City of New York in the sum of $29,490, and to the Mechanics’ & Traders’ Bank in the sum of $25,913.22, and to the National Citizens’

p. 449

Bank of New York in the sum of $33,429.58: Now, the said firm of Faulk Bros. & Co. does hereby grant, bargain, sell, and transfer unto the said three banks above named all the goods, wares, and merchandise, stock in trade, and fixtures of and belonging to the said firm now contained in the first floor, basement, and cellar of the store and building number 676 Broadway, in the city of New York, with the policies of insurance thereon, occupied by said firm, to have and to hold the said banks as security for the said indebtedness to them, respectively, with authority to the said banks to hold and sell the same at public or private sale, with or without notice to said firm; and after payment of the expenses of such sales and the said indebtedness to said banks, with interest in full, or ratably in case the proceeds of said sales shall be insufficient to pay them in full, to render the overplus to the said firm or its assigns.

“Dated New York, March 27th, 1891. Falk Bros. & Co.”

The following is the opinion of Mr. Justice INGRAHAM at special term:

The facts in this case are not ■ disputed, and the sole difficulty in its disposition arises from the inferences of fact to be drawn from the facts proved. The effect of the act of 1887,' prohibiting preferences in a general assignment to a sum greater than one-third of the assignor’s property, has resulted in a series of decisions which it is difficult to reconcile. It seems to me, however, that one principle has been established by the court of appeals, and, as I understand it, it is the duty of this court to follow and apply the law as determined by that court; so that, when a rule of law is thus settled, it is the law of the state, and is to be applied in all cases to which it is applicable. The rule thus settled is that the statute of 1887 does not apply when no general assignment is made or contemplated. Manning v. Beck, 129 N. Y. 1 , 29 N. E. Rep. 90 . That case presented a question as to the validity of a transfer by a father to his son of property as security for a debt owing by the. father to the son, which transfer was followed by a general assignment made by the father for the benefit of his creditors. The court held that, as there was no evidence to show that the son had knowledge, when he received the transfer, that the debtor was insolvent, and intended to follow the bill of sale by an assignment for the benefit of his creditors, and thus direst himself of all control over his property, the transfer was not void or voidable at the suit of the creditor. It will be noticed in the case cited that the transfer alleged to be fraudulent was followed by a general assignment, and that the effect of the general assignment and the transfer to the favorite creditor did in effect violate the spirit, though not the letter, of the statute of 1887. The remarks of Peckham, J., who delivered the opinion of the court, determine the question here presented. Thus he says: “But the statute does not, and was not intended to, prevent a creditor from obtaining payment or a security, and thereby a preference for his debt, even from an insolvent debtor; and where a court is asked to set aside a security which is disconnected from and prior to any general assignment on the ground that it is in violation of the act in relation to preferences in general assignments, it at once becomes a question whether that act was ever intended to cover a case where a creditor obtaining or availing himself of such securities was innocent of any existing intention on the part of the debtor to thereafter perform an entirely separate act and make a general assignment. It does not, in terms, cover such a case, and we think it should not be thus extended by construction.” And, after examining and commenting on White v. Cotzhausen, 129 U. S. 329 , 9 Sup. Ct. Rep. 309 , the learned judge continues: “It has been urged that by this construction the statute may be easily evaded. It is said that a failing debtor may prefer his favorite creditors by separate instruments, and then make a general assignment, and as a result his favorite creditors will be paid in full, and those provided for in the assignment will get nothing. Those creditors, however, who participated, or^ who were cognizant of the intent of the debtor, could not avail themselves of their security beyond, at any rate, the statutory rate; and as to those' creditors who were ignorant of any such intent it is not perceived that any great misfortune would attend the

p. 450

allowance of their securities in the same way as has been legal for hundreds of years past. The debtor might neglect to make an assignment at all, and then it would look as if the act of preference would be legal. The statute of 1887 at any rate does not cover such a state of facts, and we do not feel at liberty to enlarge its provisions by construction so as to bring such facts within the condemnation of the statute.” I think we have here a controlling decision which requires me to hold that a mortgage, pledge, or bill of sale to a creditor with the intent only to secure such creditor to the amount of his lawful demand against the debtor, not followed by a general assignment, is not invalid because by that means a creditor obtains in payment of or as security for this demand a sum greater than one-third of the debtor’s property at the time such payment was made or security given.

In this case the one question, therefore, is, was there a general assignment? It is clear that there was not a general assignment made by the debtor, within the meaning of the act of 1887. To constitute a general assignment, it must, in the first place, be general; that is, it must include all of the debtor’s property. The assignee must be a trustee, and not the absolute owner, mortgagee, or pledgee. “The assignee is merely trustee, and not absolute owner. He buys nothing, and pays nothing for the performance of trust duties.” Brown v. Guthrie, 110 N. Y. 441 , 18 N. E. Rep. 254 . And the essential difference between a general assignment to an assignee in trust and a pledge is that in one case the absolute title passes to the assignee, while in the case of a pledge the title remains in the pledgor; and it is the right of possession, and to hold or apply the pledge to secure the debt, that is vested in the pledgee. The instrument sought to be set aside in this case contains none of the elements of a general assignment. It transfers property to certain creditors themselves, not to an assignee in trust; and, while it is in form a grant, bargain, sale, and transfer, it is only of specific property, not by any means all of the debtor’s property, and the title in the grantee is limited by the language used in the transfer, which is: “To have and to hold to the said banks as security for the said indebtedness to them, respectively, with authority to the said banks to hold or sell the same at public or private sale, and to apply the proceeds to the payment of the indebtedness, rendering the overplus, if any, to the bailors.” The legal effect clearly is a pledge of the property to the creditors to secure the payment of their demands. Upon payment to the banks of the amount due to them, any right or interest they had in property covered by the transfer would have been divested, and the right to possession of the property would have revested in the debtors, and they could have maintained replevin to recover the goods. Under the authority contained in this instrument, the banks took immediate possession of the property, sold and transferred the same as authorized by the instrument, and applied the proceeds to the payment of their debts. At that time, so far as appears, there was no intent to make a general assignment, and none was in fact ever made. If, as was expressly held in Manning v. Beck, supra, the defendant had the legal right to give to these creditors a pledge of their property to secure the payment of the indebtedness, and intended to do nothing else except what they were thus legally entitled to do, there could be, in the nature of things, no intent to defraud creditors, within the provision of the Revised Statutes as to fraudulent conveyances. Undoubtedly they intended to pay to these creditors their demands, and to do so by the transfer to them of this property, and the application of the proceeds thereof to the payment of such demands; but there was no intent to follow such a provision by a general assignment, so as to put all the rest of their property out of their control, and thus to avoid the prohibition of the statute; and the fact that they did subsequently make pledges or transfers of their other property to other creditors to secure other demands cannot effect this valid exercise of a debtor’s power to provide for the payment of one demand before that of his other creditors when the transferrer had no knowledge that such subsequent transfer was intended.

The case of Abegg v. Bishop, 20 N. Y. Supp. 810 , decided by the general term in this department in October, 1892, is distinguished from this case by the fact

p. 451

that there a general assignment immediately followed the transfer attacked, and the role laid down in the case of Berger v. Varrelmann, 127 N. Y. 281 , 27 N. E. Rep. 1065 , was applicable; and the fact of that decision is, as I understand it, that where by any method or scheme in which a general assignment for the benefit of creditors is a part a greater preference is allowed than is provided for by the statute, with intent to evade the statute, such a scheme is void, under the provisions of the Revised Statutes in reference to transfers made with intent to hinder, delay, and defraud creditors. Thus the presiding justice, delivering the opinion of the court, says: “Now, in case a party contemplating making an assignment for the purpose of evading the restrictions of the assignment law knowingly makes transfers of his property as security to creditors in excess of that which is allowed by the assignment law, and thereby attempts to evade the provisions of the statute, such transfer is made with intent to hinder, delay, and defraud his creditors, and therefore, under the express words of the statute, it is void, whether the transferee has knowledge of such intent or not.” This rule, however, does not apply where the making of an assignment is not contemplated, and where no assignment was ever made; and Manning v. Beck, supra, as I understand it, expressly holds that the statute of 1887 does not affect any transfer that is not contained in the general assignment, or made in contemplation of the making or as a part thereof. Applying the role thus stated, I am unable to see that the debtors in this case did anything except what they had a lawful right to dp, and intended to do nothing except what they did, and that they did not intend to hinder, delay, or defraud their creditors. The defendants should therefore have judgment, with costs; decision and judgment to be settled on notice.

0. Donohue, for appellants.

S. B. Brownell, for respondents.

Judgment affirmed, with costs, on opinion of the court below.

Cases cited

Manning v. Beck 129 N. Y. 1 N.Y. 1891-12-01 at 29 p. 449
White v. Cotzhausen 129 U. S. 329 SCOTUS 1889-01-28 p. 449
Berger v. Varrelmann 127 N. Y. 281 N.Y. 1891-06-09 p. 451