In re the Assignment of Carpenter

This proceeding is taken under chapter 466, Laws of 1877, section 20, subdivisions 1 and 3. It is not quite clear what the practice in such cases should be: whether the report of the referee authorizes the entry of an order thereon, or whether the matter is to be reheard by the county judge (in this case, the special term). The parties here have followed the practice of having the matter reheard on its merits by the special term upon exceptions taken to the report.

The important points on which the parties disagree are these:

First—Whether Cornell was in fact negligent in failing to reduce to possession certain property previously transferred by the assignors, or in not attempting so to do.

Second—Whether he can be held liable for such alleged negligence in this proceeding.

Third—Whether the inaction of these creditors and of the new assignee since Cornell’s removal, affects his liability, if any existed.

• Now we understand that, as the case was heard before the special term, all evidence tending to show that Cornell was

The learned justice, in his opinion, relies largely on a case decided in this court, Matter of Raymond, 27 Hun, 508 . In that case the assignor, prior to making his general assignment to the assignee, had given him a bill of sale of some personal property with intent to defraud the assignor’s creditors, The assignee had been removed and another appointed in his place. It was held that on an accounting of the original assignee he could not be charged with the value of the personal property thus fraudulently transferred to him. The point involved, therefore, was not whether the assignee could be held liable for neglect in failing to sue for and recover from third parties, property rightfully belonging to him as assignee.

And it was said in the opinion: The neglect of the assignee in a proper case to bring the necessary action against a third party to set aside such a fraudulent transfer might make him liable to the extent of the loss" sustained.^ Thus the opinion expressly admitted the right of creditors to charge the assignee with such neglect, as is here charged. But the difficulty in that case was that the creditors sought to charge the assignee with property transferred to him and claimed by him in his own right. That principle, if adopted, would enable creditors, on a mere accounting, to attack any purchase made long before by the assignee of the assignor. We thought no such principle necessary, since the new assignee or the creditors themselves had sufficient remedy by action. The views stated in that case are in harmony with remarks made in Matter of Holbrook, 99 N. Y., 546 .

„ This court, however, has not held that, on the accounting of an assignee, a creditor could not show that the assignee had been negligent in faffing to recover property fraudulently transferred to others.

We remarked in the case above cited that “the question of his liability in such a case would plainly involve considerations other than the mere amount of property alleged to have been fraudulently transferred. It would involve the assignee’s knowledge that the transfer was fraudulent, and the prospect of such a recovery as would be beneficial to the estate.

The case of Haight v. Brisbin ( 100 N. Y., 219 ) (though the principal point was as to the necessity of accounting before action against sureties), yet shows by what is incidentally said, that for such neglect of an executor he may be charged on said accounting. See, also, Williamson’s Executors, 180;

We must notice, too, that this matter of neglect must be judged as it appeared, or might have appeared, to the assignee at the time; not as it may appear upon subsequent and labored investigation.

But the difficulty we meet is that the learned justice held, that neither the referee nor the court had authority or jurisdictidn to investigate, adjudge or determine the question as to the validity or invalidity of transfers or assignments made by assignors to third persons previous to the execution and delivery of their assignment to Cornell. And he rejected and struck out all evidence relating to such acts, as incompetent, and illegally and improperly received.

Now, of course, it would be impossible to examine whether Cornell had been negligent in not endeavoring to recover property thus transferred, without first proving the circumstance of the transfer. Such proof alone would not show negligence; but without it no duty could be shown to arise. And on the evidence now in the case, that is, remaining after striking out evidence as aforesaid, of course it followed that no negligence was shown.

But further: the referee found in regard to many of the insurance policies, which constitute a large part of the property in question, that they had been transferred to creditors (as it was claimed) as collateral security; and that there was a surplus above the amount for which the policies were held as collateral. Clearly this surplus was property which belonged to the assignors, and should have been collected by Cornell. In those instances no question arose as to setting aside fraudulent conveyances made by the assignors prior to the assignment. If those transfers were collateral to debts of the assignors, then, when those debts were paid, any surplus belonged to the assignors, and after the assign-, ment to Cornell, the assignee. A neglect to take such surplus, or permitting Hiland Carpenter wrongfully to appropriate it, would be a violation of duty for which the assignee would be plainly liable.

And in regard to transfers claimed to be fraudulent, it is said by the learned justice that it must necessarily be left to the discretion of the trustees whether and to what extent he should involve the trust estate in litigation in such cases. This is undoubtedly true. But for the trustee to exercise his discretion is one thing; to neglect to use any discretion at all is another. Negligent inaction is not discretion.

It is urged that the inaction of the creditors, Bliss and Allen, to take steps themselves to recover this property is a defense to Cornell. We think not. Cornell was their trustee, bound to faithful discharge of duty for their benefit. He had taken the property of their debtor, and thus had, to some extent, deprived them of the opportunity of collecting their debt therefrom.

It has never been held that a trustee was not liable for a breach of trust, because his cestui que trust might have brought an action to redress the wrong done to the trust estate.

Again it is said that the new assignee might collect his property, and therefore the beneficiaries are not injured. Of course there may be cases where a short delay, or neglect, of an assignee to reclaim property which belongs to him, may work no real injury; and where a new assignee may be able, to recover all that belongs to the estate. But the circumstances here are very different. If an assignee, by continued negligence, permits the original property to pass into the hands of persons who have no claim thereto, it is a poor excuse to say that a vigilant assignee substituted for him may recover it back.

And it must be noticed that these creditors, Bliss and Allen, applied for the removal of Cornell in October, 1878, and it was on this application that he was finally removed, upon the ground of neglect of duty, and a new assignee appointed. Cornell opposed the removal and endeavored to retain the trust.

The assignee urges that the question of fraudulent transfer cannot be litigated here without making the fraudulent holders parties. They cannot be parties to this accounting, nor does it bind them. But yet it must be proper when an inquiry is made as to the fidelity of the assignee to prove what property he might have reduced to possession if he had made the attempt.

And it is evident from the findings of the referee that his conclusions as to the of the in these

The referee has charged the assignee with these several amounts and with the interest thereon. To this interest the counsel of the assignee object. But it is to be understood that this interest represents the interest which the assignee might have recovered from those who held money belonging to the estate. If surplus moneys above the debts were received on the policies held as collateral, and a demand had been made for it, the assignee could have received interest.

The referee has disallowed a credit of $445.95 taxes on real estate, and twenty-eight dollars interest on a Sweet mortgage, and this disallowance the special term reversed. The facts appear to be, that Sweet is claimed to have held a first mortgage, Robinson a second, Cornell himself a third. Ro.binson’s was originally $20,000, reduced by the time of the assignment to $5,000 or $6,000 by moneys collected on policies, as Cornell knew. Cornell’s was $5,000. The amount of Sweet’s does not appear. The property was inventoried at $40,000. After advertising it, Cornell, as assignee, sold it for twenty dollars to Robinson, subject to the payment of the amount payable on these two mortgages. Nothing is said in the deed of Sweet’s mortgage.

Robinson afterwards agreed to sell the land to Hiland Carpenter for the amount of these two mortgages, and any indebtedness of the assignors to Robinson or his firm.

In the assignee’s account, he states that at the time of the assignment, this property was mortgaged for more than its actual value. Thus, Cornell having, in his own right, the last incumbrance, instead of paying the taxes from his own funds and thus adding to his own claim on the land, paid the same from the assigned estate, when the property would bring only twenty dollars above the incumbrances. If he had not been personally the holder of the subsequent mortgage, it would be unjust not to allow him for the taxes paid, unless it was clearly shown that the payment was unwise. But when he was .the last mortgagee, it is plain' that this payment is practically a payment of money for his individual benefit. He should have paid it from his own funds. Then if the property had sold for enough, he would have been reimbursed. We think the referee was right.

In the twelfth finding of fact, it appears that there is a clerical error made by deducting the amount received on one policy from its face value instead of its adjusted value. This reduces the amount charged against the assignée under that item from 83,015.67 to $3,646.83.

In the fourteenth finding of fact, the assignee is charged with the difference between the adjusted value of policies, $94,118.16, and the adjusted value of those shown to be assigned as collateral, $79,004.35, less the amount, $6,831.33, with which the assignee charged himself. In regard to the total adjusted insurance, it is stated in the schedule attached to the assignment, and again is stated by the assignee in his schedule A, filed on the accounting. It is, therefore, reasonable to take this amount as a starting point, and to require the assignee to show where is the residue of the adjusted value of policies not shown to be assigned, unless we can find proof that this residue had been assigned before the general assignment. The counsel for the assignee claim that this deficiency' is explained by the assignment of policies to Barker. Eo collateral security held by him is mentioned in the schedule attached to the assignment. The assignor’s ledger shows a balance due from him of $5,000. And the referee does not pass upon the validity of this amount. But the referee, in his thirty-eighth finding, does find that Barker held about $11,000 insurance policies collateral. The adjusted value of these would be over $9,000. Eow as the inventory does not mention that Barker had any policies as collateral, and as the charge in this fourteenth -finding rests upon the deficiency above stated, it seems to us that the referee’s thirty-eighth finding is a sufficient explanation of this supposed deficiency.

We have examined the evidence in regard to the several findings of the referee in regard to the whole case. It cannot be necessary to go over it in detail.

With the exceptions above stated, we are of the opinion that the report was correct and should be affirmed.

In striking out the item- of $8,383.53 and the interest thereon, Cornell must not be allowed the $473.95 taxes and interest, as allowed by the special term.

The order of the special term must be modified in accordance with this opinion.

No costs to either party.

Landon, J., concurs.