Robbins v. Butcher — 6 N.Y. St. Rep. 469

Majority

p. 469

Thomas H. Robbins, App’lt, v. William W. Butcher, Assignee, Resp’t.

(Court of Appeals,

Filed March 1, 1887.)

Headnote

1. Assignment for the benefit of creditors—When hade void by AUTHORITY GIVEN TO ASSIGNEE.

Where by the terms of a general assignment for the benefit of creditors the mode and manner of carrying out the one duty of the trust, to convert and distribute the assigned assets, is placed in the discretion of the assignee and taken away from the supervision of the courts, the assignment is void.

3. Same—When authority given, will not invalidate.

An authority given to an assignee over the disposition of the assigned assets, which is not absolute, but conditional, the condition preserving to the courts their full control and supervision will not invalidate an assignment.

Appeal from a judgment of the supreme court, general term, second department, affirming a judgment of the special term. This action was brought by a judgment creditor to set aside, as void, a general assignment for the benefit of creditors.

Phillips■ & Avery, for app’lt; William C. Cooke, for resp’t.

It is to be expected that- the unpreferred creditors of an assignor, regarding his transfer as an obstacle to the recovery of their debts, will often assail it, either as fraudulent in law or in fact, sometimes justly and sometimes upon quite narrow and technical grounds. In either event our duty is to both parties, not hesitating where fraud is proved, or ought conclusively to be inferred, but preferring a construction, where the choice is open, which indicates innocence rather than fraud.

The question raised on this appeal is to some extent a question of such construction, and arises solely upon the language of the instrument. It contains a provision thus expressed: “And it is further provided that, should it be necessary and to the better performance of the trust, that the party of the second part shall have full power and authority to finish such work as is unfinished, to complete such buildings as are incompleted, and to pay all necessary charges and expenses for such completion prior to the payment of all debts and liabilities hereinbefore mentioned and provided. ”

The repetition of the word “that ” permits it to be said that this provision is an unfinished sentence and confers no authority at all, but no such criticism is made, and the meaning of the language is more accurately expressed by disregarding the word “that” where it occurs the second time. Both parties have argued the case upon such construction.

The appellant claims that the provision confers upon the assignee an authority derived from the assignor to unduly delay the execution of the trust and divert the trust funds, in the exercise of his discretion, and free from the supervision and control of thé courts, and so is fraudulent and void upon its face.

The respondent contends that the authority given is upon a condition which rests in the discretion and judgment of the courts, and if exercised by the assignee without their prior permission and approval must be so exercised at his peril, and subject to their prohibition or direction at any moment, and upon the application of any person interested or aggrieved, and so does not involve an intent to hinder, delay or defraud the creditors of the assignor.

We think the latter view of the instrument discloses its true and intended meaning. Two cases in this court have drawn the line of distinction between the constructions which have been argued. In one of them, Dunham v. Waterman ( 17 N. Y., 9 ), the assignment gave authority to the assignees to pay such sums “as they may find expedient” in completing unfinished articles, as “in their judgment shall seem most advisable.” The assignment was held

p. 471

to be void. The whole point of the decision was that the instrument conferred a discretion upon the-assignees which superseded the authority of the courts; a right to judge when and how long a delay, what and how much to expend, with which equity could not interfere; and the question was asked: “If the courts uphold this condition, must they not execute it ? Can they substitute their discretion for that which the owner of the property has vested in his assignees ?”

The question was answered in the negative, and the assignment fell with the answer. To the argument that sometimes the completion of articles of different stages of progress would be so manifestly wise that the courts would permit it, the reply was made that in such case an error “in the exercise of that legal discretion, which is incident to the trust,” could be corrected by the courts, but not so “in respect to a discretionary power expressly vested” in the assignee-by the assignment. The precise point of the adjudication is that where the mode and manner of carrying out the one duty of the trust, to convert and distribute the assigned assets, is placed in the discretion of the assignee, and taken, away from the supervision of the courts, the assignment is void. The instrument before us does not thus offend, as we read its terms. The authority given is not absolute, but conditional, and the condition preserves the full control and supervision of the courts, and no inconsistent or superseding discretion is conferred. The words are, “should it be necessary and to the better performance of the trust.” Who is to judge of that necessity or prudence ? The condition is not the judgment of the assignee as to whether the fact exists or not, but the existence of the fact itself. It must be necessary. It is not enough that the assignee thinks so. Any one interested may challenge the existence of the necessity or the prudence of the delay, and, when they do, the court has a right to determine whether or not the condition has arisen, and so decide whether the assignee may or may not spend a dollar, or wait a day, and he is vested with no discretion of his own which can prevent that intervention. And so the case differs at a vital point from the one cited. It comes rather within the doctrine of a later authority. Jessup v. Hulse, 21 N. Y., 170 . The note of that case confines the invalidity discussed to instances “where the trustee would derive an independent discretion by force of the deed, if valid, and not by operation of law.”

In that case the language was to sell, etc., “ at such time or times and in such manner as shall be most conducive to the interests of the creditors, and convert the same into '.money as soon as may be consistent with the interest of

p. 472

such creditors.” The court asked who was to judge as to-when or how the sale would be most beneficial, and answered, not the assignee, for no power to determine was-vested in him. It remained in the courts, and their supervision and control was not superseded or destroyed. That, is true as we read it of the instrument before us. It confers no discretion to complete unfinished articles. It gives, simply the power to do so when necessity or a better performance of the trust as adjudged by the discretion of the-court shall require. We are of the opinion that this assigneecould not with safety spend money or employ time in completing unfinished articles except under the order of the court, and acting without that order acts at his peril, and. may be restrained at any moment since his sole authority is conditioned upon a necessity of which not he, but the court, is the sole and ultimate judge. This was the view which must have been taken by the general term and we give it our assent.

The judgment should be affirmed, with costs.

All concur.