In re Eaton — 35 N.Y. St. Rep. 497

Majority

p. 497

In the Matter of the Petition of Walter J. Eaton, as assignee of James Moir.

(Supreme Court, General Term, Third Department,

Filed February 4, 1891.)

Headnote

1. Assignment for creditors—Preferences.

An assignment for benefit of creditors directed the assignee “first to pay ‘ the expenses,'” etc.; “second, to pay "the N. Y. State Hat. Bank certain drafts; ‘ ‘ third, to pay ” said bank upon another account; “ fourth, to pay "George Moir, a creditor, and “fifth, to pay” all other debts. Held, that this language indicated a preference to each class and that said classes must be paid in their order.

3. Same.

Where the preferred debts amount to more than one-third of the assets (Chap. 503 of Laws of 1887), the pro rata payment directed by the statute cited must be made as follows: All the debts of the first preferred class (after payment of expenses, etc., which are absolutely preferred), must be paid first, although nothing be left to pay the debts in the subsequently preferred classes.

Appeal from an order construing an assignment upon the application of the assignee and upon notice to George Moir, a creditor, who appeals from the order.

Townsend, Dyett & Einstein (A. R. Dyett, of counsel), for app’lt; Matthew Hale, for resp’t; M. T. Hun, for petitioner.

This is an appeal from an order giving construction to the assignment, made on application of the assignee and on notice to George Moir, preferred creditor, who is the present appellant.

p. 498

The appellant’s first position is that, by the terms of the assignment itself, there is no preference created among the several classes of preferred creditors, designated as first, second, third .and fourth, but that all of those classes stand on an equality by the terms of the assignment.

The assignment in the usual form directs the assignee to convert the assets into money, and with and out of the proceeds: “ First, to pay and discharge the just and reasonable expenses,” the lawful commissions and the payments required by chapter 328, Laws of 1884, as amended by chapter 283, Laws of 1886. Now it is very evident that the payments provided for by this clause are to be made in preference to those of the second clause. Expenses and commissions must clearly be paid before any preferred creditors.

In like manner the employes protected by the statutes named as above in the assignment are to be paid before other creditors. It therefore necessarily follows that the payments provided for in this first clause must have a preference over all those named in succeeding clauses.

The assignment proceeds: “ Second. To pay New York State National Bank, Albany,” and specifies two drafts drawn by J. K. Post& Go., accepted'by the assignor and discounted by said bank, and a draft drawn by the assignor on said J. K. Post <& Go., protested .

It then proceeds: “Third. To pay the said New York State National Bank, Albany, any and all loss and damage ” which said bank may sustain by the nonpayment of certain promissory notes.

It then proceeds: “ Fourth. To pay to George Moir the sum of nine thousand dollars; ” and to other persons certain sums mentioned.

The fifth clause is for the payment of all other debts.

Now, if the contention of the appellant were correct, there would have been no reason for making two clauses, such as the second and third. The payee was the same in both, and if, as the appellant urges, the numbering of the clauses did not indicate the order of preference, all the debts payable to the New York State .National Bank would have been included in one clause. There could be no other reason for making two clauses except the wish of the assignee that the Post drafts should have a preference even over other draffs held by that bank. It seems to us that the meaning of the assignment is unquestionable, and that the preferred creditors were intended to have preference among each other according to the order of these respective clauses.

The language of the court in Greenfield's Estate, 24 Pa. St., 232 , cited by the appellant, “ that it is believed that no case can be found where it has been held that the prefix of a numeral alone gives priority,” hardly applies here. There is more than the prefix of a numeral. There is a direction to pay first such and such debts, second such and such. When one is directed first to do a certain thing, and se d another, it is not a forced construction to understand that the first is to be done in full before the second is attempted.

p. 499

The case of Colgin v. Redman, 20 Ala., 651 , cited by appellant, held that debts in the first class were to be paid before those in the second class; only that all in such class were to share pro rata. That, in our view, is this case. Moir, the appellant, although his name is the first mentioned in the fourth clause, has no preference over others in that clause. But the creditors in the first, second and third clauses have respectively preference, according to their clauses and all of them, before those of the fourth clause. No doubt would probably ever have risen as to this, were it not for the question we now come to consider.

Chapter 503, of the Laws of 1887, provides that any preference, other than for wages of employes, shall not be valid except to the amount of one-third in value of the assigned estate, and should said one-third be “ insufficient to pay in full the preferred claims to which under the provisions of this section the same are applicable, said assets shall be applied to the payment of the same pro rata to the amount of each of said preferred claims.”

The assignee has in his hands applicable to debts about $25,000. The amounts preferred in the second clause are about $6,100; the amount in the third clause does not appear; the amount in the fourth is about $12,000. The appellant insists that the one-third of the assets shall be applied pro rata to all of the claims named in the second, third and fourth clauses. The learned court below held that such one-third should be applied first pro rata to the creditors in the second clause, and the balance pro rata to the claims in the other clauses successively. We think the construction of the learned justice was correct. This statute was not intended to interfere with anything but the amount which might be given to preferred creditors. It did not intend to limit or control the power of the assignor, to the extent of one-third of the assigned estate, to dispose of it as he chose, giving preference as it might please him. The doctrine of this state has been and is, except as modified by that statute, that an insolvent debtor may make any preference which he may choose. As to one-third of his property, the debtor may do this still. In this present case, according to the estimate of the assignee, the one-third is sufficient at least to pay in full the first and the second class. If the assignor had made no third or fourth class, then the persons qamed in those classes would have been among the creditors not preferred, and the first and second would have been paid in full. Now,, when the assignor has directed that these creditors of the third and fourth classes shall be paid after the first and second, but. before all others, can it be supposed that he intended that in case of an insufficiency of assets those of the third and fourth should be paid pro rata with the second ? Certainly the addition of more classes after the second was not intended, under any circumstances, to put such added classes on an equality with the second.

The provision in the statute is to pay pro rata when the one-third is insufficient to pay in full the preferred claims to which such one-third is applicable, and the question is to what claims is it. applicable The one-third is applicable just as the assignor

p. 500

directed, and in the order in which he directed. He may be presumed to have known the law, and, perhaps, to have known something of the extent of the estate. In giving a preference to the second and third classes over the fourth, he must have anticipated that it was possible that there would not be enough for all the preferred creditors. And he did not say that, in case of such deficiency, all the preferred classes, except the first, should share pro rata. He practically said the contrary. There is no analogy between this case and that of legacies, for the reason that in this assignment a preference is expressed; in a will there is usually no preference expressed. But when in a will a priority is given, either by principles of law or by express language, effect is given to it.

In the present case priority is given by express language. It is not taken away' by the statute. The statute interfered only with the extent of the debtor’s right of preference; not with the manner in which he should exercise that right. The words pro rata apply when there is not enough of the one-tliird to pay all the creditors in some certain class, and not to the right of preference between several classes.

The order is affirmed, with costs.

Landon and Mayham, JJ., concur.