Smith v. Hartwell — 1 N.Y. St. Rep. 241

Majority

p. 241

Smith v. Hartwell and others.^[1]

(New York Superior Court,

Special Term,

July, 1886.)

Headnote

Assignment—Laws 1884, chapter 328—General assignment is invalidated BY REASON OP OMISSION TO PREFER CERTAIN WAGES WHTT/m PREFERRING OTHER WAGES, AND THEN DIRECTING THE BALANCE OF THE ASSETS TO BE PAID TO CERTAIN PREFERRED CREDITORS.

Action brought by a judgment creditor of the firm of H. Edgar Hart-well & Company, to have a general assignment made by defendants for the-

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benefit of creditors, declared void. The complaint alleged that at the time of the assignment the defendants were indebted to the plaintiff for wages actually due him as an employee; that other employees were preferred, and that by the terms of the assignment certain other parties not employees were preferred in an amount exceeding the actual assets. Sell, that the direction contained in section 338 of the Laws of 1884 was mandatory; that the assignment itself must contain a direction to pay all employees before any other debt; that the fact that the assignors directed the wages due certain employees to be preferred and then disposed of the balance of the estate without providing for the payment of the plaintiff, rendered the assignment void. Distinguishing Mieharrüson v. Serrón, 39 Hun, 537 , following the doctrine in Harriot v. Mastwson, 38 id., 643 , and Roberts y. Tobias, Special Term Supreme Court, reported in note.

Motion for an injunction opposed on the ground that the •complaint did not state facts sufficient to constitute a cause of action. The plaintiff, a judgment creditor of the assigning partners, Hartwell and Woodford, brought the action to set aside a general assignment, under which the defendant Lantry is the assignee. The plaintiff was an employee of the assignors at the time of the execution of the assignment, and there was actually due him as wages some $227.52, for which he duly obtained judgment and issued execution, which was returned unsatisfied. Preferences were created by the assignment in the following order: (1) For wages of employees, other than the plaintiff, to the amount of $308.78: (2) lawyer’s fees, $268; (3) Julia B. Woodford, $6,000; (4) William H. Jackson & Uo., $3,417.35; (5) Louis F. Stevens, $259.63; making in all, $10.253.76. The assets amount only to $9,000. The assignee is about to pay these creditors in the order named. The plaintiff based his action upon the ground that the assignment is void under the amendment to the general assignment act, passed May 21, 1884, and obtained an injunction under section 603 of the Code. The opposition to the continuance of the injunction is based solely upon the ground that the complaint does not constitute a cause of action.

James B. Dill (Dill, Chandler & Seymour), for the plaintiff.

The act of 1884 requires that the preference of wages shall be declared in the instrument of conveyance. Benton v. Wickwire, 54 N. Y., 226 ; Johnson v. Railroad Co., 49 id., 455. The assignment is void because of the failure to comply with the requirement® of the act of 1884. Buthon v. Lorenz, 45 N. Y., 51 ; Hardman v. Bowen, 39 id., 196 ; Rennie v. Bean, 24 Hun, 123 . This statute is mandatory. It cannot be directory, because a failure to comply with it ■can never be supplied; because it provides for the acquiring ■of a property right, and not simply for a mode of procedure; because it goes to the very essentials of the instrument, and a failure tó comply with it affects every right created under the instrument. See opinion of Judge van Brunt,

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•special term, 1886, in Roberts v. Tobias; see, also, In re Lewis, 81 N. Y., 421 , 424. The meaning of the statute • evidently was that the assignors should insert a direction to the assignee to pay all debts actually due employees at the time of the assignment. If it be true, as held by the court of appeals In re Lewis, before cited, that an assignment is a deed of trust, and “that the assignee is merely the representative of the debtor, and must be governed by the express terms of his trust,” it cannot be held that the requirements of the statute may be admitted, or, as in the ■present case, the requirements of the assignment directly overridden, and yet me purposes of the statute effectuated, for then, as we shad hereafter attempt to show, the act would be unconstitutional. The case of Richardson v. Herron ( 39 Hun, 531 ), is relied upon by the defendants as controlling this motion. It is distinguished as to the facts as follows: (1.) At special term the only point considered, and the point upon which the case turned, was that the plaintiffs not being employees, could not avail themselves of the objection, and Judge Andrews there says: “ The failure of the assignors to give preference to the wages and salaries of employees is not an injury but a benefit to the plaintiffs in this action, and, in my opinion, is an objection to the assignment, which is available to no one but such employees themselves.” 39 Hun, 350 . (2) The assignment in that case created no preferences, while in the present case, by the express Arms of the assignment, the assignee is directed to pay over $10,000 of preferences, or more than the assets amount to, so that, unless the assignee expressly departs from the instrument from which he derives his authority as assignee, he cannot comply with the assignment. This case is squarely met by the unanimous decision of the general term of the second department, affirming the decision of Judge Dykeman, at special term, which is reported in 38 Hun, 634 , and a copy of the opinion in full is annexed. The language of the general term is: “Wages of employees were not preferred, as required by the act of 1884, and that neglect made the assignment invalid.” The following judges of the supreme court have held that the failure to prefer employees rendered the assignment void: Judges Dykeman, Pratt and Barnard, of the second department, and Judges Van Brunt and Daniels, in the first department. As opposed to these is the opinions of Judges Davis and Brady.

Stabler & Hippie, for defendant Hartwell.

N. A. McBride, for defendant Woodford.

William A. Stewart, for defendant Lantry.

The only question on this motion is, whether or not an assignment made for the benefit of creditors that directs the assignee to pay certain persons named the amounts due to them for salaries or wages, and after-paying such amounts to pay certain other preferred creditors is void, where it appears that certain persons other-than those mentioned were creditors of the assignor for wages or salaries owing to them as employees of the assignor.

By section 328 of the Laws of 1884, the act in relation to assignments for the benefit of creditors was amended so-that “in all assignments made in pursuance of this act the wages or salaries actually owing to the employees of the assignor or assignors, at the time of the execution of" the assignment shall be preferred before any other debt.”

It would appear from the language of the statute that it was the intention of the legislature that the assignment itself should provide for such preferences.

The act does not say that such preferences shall exist-independent of the assignment, but that “in all assignments made, the wages or salaries, etc., shall be preferred before any other debt.”

In this case the assignors have directed that the wages-due to certain employees shall be preferred, and have then disposed of the balance of the estate without providing that-the amounts due the plaintiff shall be preferred.

This, I think, is clearly in violation of the statute, and as the assignee derives all his powers from the assignment, it is-clear that he would not be authorized to pay any debts to employees not mentioned in the schedule.

In the case of Richardson v. Herron ( 39 Hun, 537 ), a, majority of the court held that where no attempt was made to prefer any of the debts due to the employees, the-assignment was not void, but that decision would not. apply where the assignors had directed that certain of them employees should be preferred without providing for other • of their employees to whom there was an actual indebtedness for wages or salaries, and the contrary view appears ■ to have been taken in Harriot v. Masterson, decided by the • general term of the second department, and in the case of' Roberts v. .Tobias, decided by Justice Van Brunt at special: term.

I think, therefore, that this assignment is void.

Motion for injunction must, therefore, be granted, with ten dollars costs to the plaintiff to abide the event of the-action.

Note.—The authorities stand as follows: Richardson v. Herron ( 39 Hun,. 638 ), held, by a divided opinion of the court, that an assignment was not invalidated by reason of its containing any provision giving a preference to.

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wages of employees, Judge Davis writing the prevailing opinion, Judge Brady -concurring, and Judge Daniels writing a dissenting opinion. This decision was followed by the general term of the fifth department in Burley v. Hartson (23 Weekly Dig., 586), holding that the statute itself created a preference irrespective of the assignment. The contrary doctrine was held in Boberts v. Tobias, by Judge Van Brunt, at special term, April, 1886, in the following ■opinion:

Van Brunt, J.—I am of the opinion that the assignment in question is void because of a failure to comply with section 29 of the Assignment Act of 1877, -as amended by chapter 828 of the Laws of 1884.

The act of 1884, Chapter 328, declares that in all assignments made in pursuance of this act (chapter 466, Laws of 1877) the wages and salaries actually owing to the employees of the assignor at the time of the execution of the assignment shall be preferred, etc.

The words are that in all assignments the preference shall be made. Hot that the preference shall exist outside of and independent of the assignment. The right to the preference arises in the assignment and nowhere else.

The assignee has no right to act in any way except as directed by the assignment, because “ the assignee derives all his power from the assignment, which is both the guide and measure of his duty. Beyond that, or outside of its terms, he is powerless and without authority.” In re Lewis, 81 N. Y., 421 ,424.

In view of the above it cannot be said that the act is an enactment to govern the mode of distributing the estate, because the assignee must distribute the ■ estate as the assignment directs.

Having this fact in view, the Legislature said that in the assignment provision must be first made for the payment of employees.

The argument that as the act does not say that the assignment shall be void if this preference is not made, and that, therefore, the assignment is good, would operate as a repeal of the act, because as the assignee derives all his authority from the assignment, and as he cannot act outside of it, then if the . assignment contained no preference of employees, the assignment would be good, although the assignee could not give the employees the preference provided by law.

Such a result shows that the act is mandatory, and a failure to comply with it must avoid the instrument.

Judgment accordingly.

The general term of the second department affirmed the decision of Judge Dykeman, who wrote no opinion, in the case of Harriot v. Masterson. A memorandum of the decision appears at 38 Hun, 642 . The opinion is as follows:

Pratt, J.—The court, at special term, has found upon evidence sufficient i o that purpose, that the assignment of Masterson was made with the intent to hinder, delay and defraud his creditors. The omission from the schedules - of items of valuable property without any adequate or satisfactory explanar tion, affords ground to believe that the intention of the assignor was to secrete the property for his own benefit. Assignments by debtors of their property to trustees of their own selection are tolerated, not favored, in law, ana the requirement that all the debtor’s property should be disclosed and brought within the scope of the trust is not too severe. The other grounds upon which the assignment was attacked were equally fatal. Wages of employees were not preferred as required by the act of 1884 and that neglect made the assignment invalid. 34 Hun, 457 . So of the preference of the co-partnership creditors to be first paid from the individual property. A well-established prin- ■ ciple of equitable administration of insolvent estates was sought to be evaded. Ho such effort can be permitted to succeed. Jackson v. Cornell, 1 Sand. Ch. R., 348.

Judgment affirmed, with costs.

Barnard, P. J., concurs.