Read v. Worthington — 22 N.Y. Super. Ct. 617

Majority

p. 617

Grandison F. Read et al., Plaintiffs and Respondents, v. John R. Worthington et al., Defendants and Appellants.

Headnote

1. An assignment of property in trust for the benefit of creditors, which contained the usual recital, that the assignors were “ unable to pay their

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debts," and were desirous of “ dividing their property equitably among their creditors," directed -the assignees to pay to persons named in a schedule annexed, “ the sums of money which are or may become due to them ” from the assignors, * * * * and afterward, “ to pay all the rest, residue and remainder of the creditors of said firm what may become due to them.”

Held, 1st. That the assignment was not fraudulent and void on the ground that under its provisions a preferred creditor could purchase other demands than those he held at the time of the assignment, and thus secure a preference for them also; for the provision giving a preference to the specified creditors, for sums which “ may become due to them," should be construed to apply to actual debts already owing to them, or contingent liabilities already incurred by them, at the time of the assignment, and thereafter to become payable.

2d. Nor was the assignment void, as excluding from the benefit of the second clause creditors whose debts had become payable at the time of making the assignment. The direction to pay. the rest of the creditors • such sums as “ may become due them,” cannot be construed to exclude the payment of claims already due.

2. In construing an assignment of property in trust, for the benefit of credit- • ors, as well as other written instruments, the general intention of the parties is to govern; and if its language - can be satisfied by a construction that will support the instrument, a construction should not be given that will defeat it; and fraud is not to be presumed, but must be proved by the party alleging it.

3. An assignment for benefit of creditors is not void for securing and giving á preference to the payment of debts not yet due. Securing such a debt does not hinder or delay creditors, for the assignees may retain in their hands sufficient to meet it, and distribute the residue without delay.

4. An allegation in the complaint that an assignment, which the plaintiffs seek to set aside, was made with intent to hinder, delay and defraud creditors, &o., is sufficiently put in issue by a .denial that the assignment was made with inteiS; to hinder and defraud creditors.

5. Under the act of 1860, (Laws of 1860, 594,) an assignment for benefit of creditors is not void because of defects in the inventory filed and the bond given by the assignee.

(Before Bosworth, Ch. J., and Moncrief, Robertson, White and Barbour, J. J.)

Heard, June 7, 1862;

decided, June 28, 1862.

This action was a judgment creditors’ suit, brought by various judgment and attachment creditors of the firm of O. W. & T. J. Moore & Co., to set aside an assignment by them to the defendants, Worthington and Knapp. The plaintiffs were, Grandison F. Read, James Benkard and

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Benjamin H. Hutton; James H. Black and Alexander Guild; William W. Stone, George R. Bowman and Robert Bliss; Charles H. Wilmerding, John 0. Wilmerding, Thomas A. Wilmerding, George G. Wilmerding and William S. Mount; James Haslehurst, Bryan H. Smith and Joseph Haslehurst; and the defendants were, John R. Worthington, George H. Knapp, James Myers, Ohauncey W. Moore, John T. Moore, William M. Robbins, Emmor K. Haight, Joseph B. Lockwood, Joseph ST. Ely, Ohauncey W. Brown and William R. Dean. The present appeal was taken from an order made at Special Term, appointing a Receiver of the assigned property, and enjoining the defendants from interfering therewith; the motion on which such order was made was founded on the complaint duly verified, the affidavits of B. L. Johnson and the plaintiff, Read, and in opposition thereto were read the affidavits of the defendants and upwards of sixty of their creditors, and a certified copy of an instrument of confirmation.

In addition to the usual averments of the recovery of the judgments and issuing of executions and attachments, and their return, the complaint alleges the possession and concealment by the defendants of divers evidences of debt, choses in action, effects, and documents and account books in relation thereto, which they refused to deliver to the Sheriff of the Oity and Oounty of Hew York, who held such executions and warrants of attachment, and an application Iby such Sheriff to the assignees in question, in order to levy on the assigned property. It further alleges, that the Sheriff, at the time of such application, left with such assignees a certified copy of such warrant, and a notice, wherein he stated that he attached the property in their hands, demanded a delivery to him of the evidences of debt, choses in action and effects held by them, together with a certificate designating the amount and description of property held by such assignees for the benefit of the debtors, and the debts owing them, and claimed such assignment to be fraudulent and void; but

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such assignees refused to deliver up the articles demanded, and falsely certified that they had no property belonging to the debtors. It also alleges, that the seven defendants, G. W. and J. T. Moore, Robbins, Haight,. Lockwood, Brown and Dean, composing the firm of O. W. & J. T. Moore & Co., who are the judgment debtors, in 1861, on the 4th of December, executed and delivered to the defendants, Worthington an-d Knapp, and acknowledged before a proper officer, a certain instrument which is set forth verbatim therein. This instrument, to which the defendants, members of the firm of O. W. & J. T. Moore & Go., were parties of the first part, and the defendants, Worthington and Knapp, parties of the second part, is under seal, and dated the 1st of December, 1861. It recites, that the parties of the first part had become “insolvent and “unable to pay their debts, and were desirous of dividing “their property equitably among their creditors,” and for the expressed consideration of one dollar and other good considerations, assigns all the property of the parties of the first part, and each of them, of every kind, to the parties of the second part, to hold upon certain trusts, which were, (first,) to collect and convert into money such assigned property; (secondly,) therewith to pay the legal expenses of drawing such assignment and executing such trusts; then, (thirdly,) to pay to persons named in an annexed schedule “ the sums of money which are, or may “become, due them from the assignors, not exceeding, “ however, the sums set opposite the names, respectively, “ of those who had any so set, if so much should become “ due them” from the assignors, or pro rata, in case such proceeds are insufficient to pay the whole; and lastly, (fourthly,) to pay all the rest of the creditors of the firm what might become due to them. In such schedule six persons, of whom the defendant, Knapp, is one, have no sums set opposite to their names. The assignment itself was recorded in Kings Oounty, on the 5th day of December, and a verified inventory of the assigned property was presented to the Oounty Judge of that Oounty, by whom,

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on the same day, an order was made, requiring the assignees to give security in the sum of $230,000, with sureties justifying in double that sum. On the 20th of that month, a bond in the penal sum of $230,000 was presented to such Judge, signed by the assignees and by four sureties, Hoyt, Sprague, Worthington and Bobbins, but purporting, in the body thereof, to be executed by a Mr. Bichards; it recited the order and assignment, and was conditioned, as required by law, for the due performance, by the assignees, of their duties. Hoyt justified in the sum of $160,000, Sprague in the sum of $60,000, and Messrs., Worthington and Bobbins in the sum of $40,000 each, making $400,-000. Such bond was duly acknowledged, approved and filed. The foregoing facts are set out in 'the complaint.

The complaint specifies as defects in such inventory its fraudulent omission of property, particularly land on Wabash avenue, Chicago, and an interest of John T. Moore in a firm of Hanford & Browning; also, its want of particularity in describing what was mentioned”; its undervaluation ; its omission of the names and places of residence of creditors and sums due to them, of the nature of the debt and demand in each case, of the true cause and consideration of such indebtedness, the place where it arose and the collateral securities given therefor; and that the debts of the two creditors, the plaintiff Bead and a Mr. Todd, are not properly set out therein. It does not, however, specify what names were omitted, or what the debts were, the particulars of which such inventory fails to give. The complaint also alleges the sureties jn the bond not to be sufficient security for the performance of the duties of the assignees by them, and their justification to have been insufficient, as not amounting to the sum required by the order. It also claims the bond executed by them to have been void by the omission of its execution by Mr. Bichards, and its filing, without the authority of the other obligors, or any waiver by them of its execution by Bichards. It further alleges that five of the persons against whose name no sum was set in the schedule annexed to the

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assignment were not creditors of the assignors or either of them when it was executed; also, that the assignees were not proper or safe persons to execute the trusts ; that all the assigned property is in the City of Few York, except certain real estate, and that the debts due by the assign- or's were contracted in that city; that the defendant Knapp is a brother-in-law of J. T. Moore, and Worthington a brother-in-law of O.W. Moore; that' the latter resides in Otsego county, having no place of business in this county, and leaves the management of the assignment to the defendant Knapp and the assignors; that Knapp at the time of the,assignment was a. clerk of the assignors, and under their influence, is of no responsibility; that the assignment was made with the intent to retain control of the property, and the bond made defective, so as to involve no liability.

The complaint also alleges, “that the assignment was “ so drawn,that the persons named as. preferred Creditors “ might buy up notes and debts of the assignors at a great “ discount, and have the same preferred in said assignment “ for the full amount thereof, for the benefit of the “ assignors.” That the judgment debtors in September last, made a pretended sale of their goods and chattels to the defendant Myers, who pretended to take possession thereof,- and thereby prevented the Sheriff from levying thereon. That such sale and all the other acts of the defendants were made with intent to hinder, delay and defraud the plaintiffs and other creditors of Moore & Co., of their just rights; that Myers and the assignees, with the debtors, are about to dispose of such property.

The whole of the complaint is stated to be upon information and belief, and is verified by several of the plaintiffs with the usual qualification in the oath as to matters So stated. The affidavit of Mr. Johnson is positive, however, as to the assignment, bond, inventory, certificates, affidavit and approval annexed, and also that five of the persons named in the schedule annexed to the assignment without sums set opposite to their names, including

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the defendant Knapp, are not named as creditors in such inventory.

The affidavits of sixty creditors of the judgment debtors, holding claims to nearly 400,000 dollars, show the ability, responsibility and character of the assignees, and their confidence therein. On the 10th of March, 1862, the five sureties in the bond filed with the inventory in Kings County, executed an instrument under seal, reciting the execution of such bond by them, and their knowledge that Richards was not to be a party thereto, and that they assented to the delivery of such bond as their joint and several bond, whereby they ratified and confirmed such bond. An affidavit of O. W. Moore, one of the defendants, shows that the sureties in such bond were informed before its delivery and acknowledgment by them, that Mr. ' Richards had declined to execute it, and that they delivered it with such knowledge, and assented to his omission. The' defendant, Knapp, swears that he is surety for the assignors, on an appeal in a suit pending in the Court of Appeals. The defendants, who are members of the firm of O. W. & J. T. Moore & Co., state that the Sheriff of the City and County of Hew York never made the application to them set forth in the complaint. They allege that all their property not exempt from execution were included in such inventory; that it contains the na&e and residence of each creditor, and the sums owing them, with the nature of each demand and debt, the true consideration of such indebtedness, with the place where it arose, and a statement of all collateral securities for their payment, and that Todd was not a creditor for a larger sum than Was stated in such schedule; that the plaintiff, Read, was not mentioned because he was assignee of a demand, and the name of the assignor was inserted; that the five persons whose names have no sum set opposite to them in the schedule annexed to the assignment, were only contingently creditors, having signed certain undertakings for the assignors, and were only mentioned as creditors to protect them against liability, which is corroborated by

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the affidavit of the several creditors themselves. The assignors deny under oath any fraud in the assignment, and allege a bona fide sale of their stock in trade in September, 1861, to the defendant Myers, for the best price they could obtain, without any intent to hinder their creditors or reserve anything for their own use. An affidavit of the defendant, J. T. Moore, explains the omission of his interest in the firm of Hanford & Browning by a statement of his sale of the same, bona fide, before such assignment. It also contradicts or explains a statement by Mr. Johnson, in regard to the omitting to state the valuation of certain notes of the defendant, Myers, in the schedule, by saying that they were subject to liens, which amounted to more than they were worth.

C. A. Nichols and L. B. Woodruff, for defendants, appellants.

1. This action cannot be maintained, and of course an injunction and receivership cannot be properly granted, except the assignment be declared void.

H. Final approval, by the Judge, of the assignee’s bond was an adjudication which, cannot be disturbed except upon application to him.

III. Any defects in the bond or schedules, or any matter arising subsequent to the making of the assignment, cannot affect the validity of the assignment, even if the assignors retained property and withheld it from the assignees, as alleged.

IY. There is no evidence of any intent to allow preferred creditors to buy claims for the benefit of assignors.

Y. The assignment is not fraudulent because there is a preference made therein in favor of contingent liabilities. (Cunningham v. Freeborn, 11 Wend., 241 ; Paige v. Wilson, 8 Bosw., 294 ; Kettletas v. Wilson, 23 How. Pr., 69 ; Hendricks v. Robinson, 2 Johns. Ch., 284 .)

It makes no difference whether, in terms, the contingent creditor, or the contingent liability is preferred. Equity will decree the execution of the trust by applying the trust

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fund to payment of the liability sought to be secured by it. (Wright v. Morley, 11 Vesey, 22; Keyes v. Brush, 2 Paige, 311; Pratt v. Adams, 7 Paige, 627.)

C. Bainbridge Smith, for plaintiffs, respondents.

I. Plaintiffs’ warrants of attachment were issued against the property of the defendants, (C. W. & J. T. Moore & Cq.,) and were in the hands of the Sheriff to be executed, before the making and delivery of their assignment; and it being conceded that they had property in their possession at the time the Sheriff had the warrants, which he demanded, and they refused to deliver, and fraudulently concealed, and secreted the same, with the intent that said Sheriff could not find the same, the Sheriff, by such assignment, was not deprived of Ms lien.

II. A creditor who has obtained a warrant of attachment against the property of a debtor, wMch the Sheriff is prevented by fraud or otherwise from levying, acquires thereby a lien,, as valid and effectual as in the case of an execution at law, and a Court of equity will enforce it in the same manner for the benefit of creditors. (Falconer v. Freeman, 4 Sandf. Ch., 565 ; Wilson v. Forsyth, 24 Barb., 109 ; Scott v. McMillen, 1 Littell, 302; McElwain v. Willis, 9 Wend., 548 ; Drake on Attachments, 2d ed., 225; Thayer v. Willet, 5 Bosw., 357 ; Beck v. Burdett, 1 Paige, 305; Clarkson v. DePeyester, 3 Id., 320; Cuyler v. Moreland, 6 Id., 276; Boardman v. Halliday, 10 Id., 223; Forbes v. Logan, 4 Bosw., 482 ; Spear v. Wardell, 1 Comst., 144; Jacot v. Boyle, 18 How., 106 ; Morton v. Weil, 33 Barb., 30 ; Reed v. Stryker, 12 Abb. Pr., 47 ; Code, § 117.)

III. The assignment by the defendants C. W. & J. T. Moore & Co. is fraudulent and void. (Jessup v. Hulse, 21 N. Y. R., 168; Dunham v. Waterman, 17 N. Y. R., 19; Nicholson v. Leavitt, 2 Seld., 517; Wilson v. Forsyth, 24 Barb., 105 ; Rathbun v. Plainer, 18 Id., 272; Burdick v. Post, 12 Id., 168; Seymour v. Wilson, 14 N. Y. R., 567; Dubose v. Dubose, 7 Ala., 237 ; Gamez v. Lazarus, 1 Dev. Eq., 205 ; Goodrich v. Downs, 6 Hill, 438 ; Barney

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v. Griffin, 2 Comst., 365; Doremus v. Lewis, 8 Barb., 124 ; Dana v. Lull, 17 Verm., 390 ; Green v. Trieber, 3 Md., 11 ; Malcolm v. Hodges, 8 Id., 425; Dickson v. Rawson, 5 Ohio N. S., 218; Spring v. Strauss, 3 Bosw., 607 .)

The prominent objections against the assignment in this case is, that by a certain construction of its terms, it contains internal evidence of fraud. It. is claimed that the direction in it, to pay Certain persons named in a schedule annexed, the sums of money which rtiay bé or become due to them irom the assignors, will enable such persons to acquire claims belonging to others, and be paid the same in full; while the direction to pay the rest of the creditors, by confining the payment to such as may become due them, excludes the payment of what was due at the time of making the assignment.

There might be some doubt whether the mere fact of naming certain persons to be preferred, provided they should become creditors, would, of itself, make the assignment fraudulent on its face, because the law does not interfere with preferences, provided the debtor does not abuse the right, so as to gain some advantage for himself. The-difficulty would be that some time must be fixed for the acquisition of the claim, or it must be left indefinite; and in either case it would postpone the settlement of the estate and operate to hinder creditors not preferred.

But in this case there is no necessity for such an inquiry;: the terms, of the assignment do not warrant the construction contended' for. By the two parts of the direction for distributing the assets of the assignors, all the creditors, by its terms, are to be provided for.. There- are three general rules of interpretation, which, applied' to this case, show that the intent on the face of the instrument was honest to creditors :• Firstly, that the general intent of the parties is to govern; Secondly, that the leaning of all constructions should be in favor of supporting, and not overthrowing, an instrument;. and, Thirdly, that fraud is not to be presumed, (Kellogg v. Slauson, 15 Barb., 56 ; Kellogg v.. Barber, 14

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Barb., 11 ; Barnum v. Hempstead, 7 Paige, 569; Kuhlman v. Orser, 5 Duer, 250 ; Bank of Silver Creek v. Talcott, 22 Barb., 561 ;) and assignments are subject to no different rules. (Pine v. Rikert, 21 Barb., 469 .) Courts are therefore under no obligation to be astute to destroy them.

The recital in this case is that the assignors desire to distribute their property among their creditors; the last part of the direction is to distribute what remains after paying those intended in the first class, among the rest of the creditors; it could hardly be intended by the words, “may become due,” the assignors intended to exclude claims already due. One of the meanings of “become” is “ be,” and it certainly seems to be used in that sense here; it is used twice before, and must once, at least, have been there employed in that sense. By the first direction the assignees are directed to pay to creditors named in the schedule to the assignment, whose debts are due, “ so much as may “become due;” this would involve a contradiction and absurdity if “ become” implied anything more than “be.” But in the first part, by using both “ are,” and “ may become due,” the assignors meant both those past due, and existing liabilities to become due. Lexicographers make “ due” and “payable ” convertible terms, (see Worcester’s Diet.,) and so they are held to be, legally. (Allen v. Patterson, 3 Seld., 476.) It is difficult, in a single word, to express present liabilities, payable hereafter; but “ due,” and “ to become due,” have, by long usage, come to mean liabilities past due and hereafter to grow due. Besides this, no time is fixed in the instrument for the purchase of the claims ; and in such case it is to be understood as speaking as of its date; and “debts” must mean debts at its date, which were to become due afterwards. The assignment, therefore, is not fraudulent and void on this ground.

It is, however, suggested that, even if the preferred creditors were not at liberty to buy up claims to secure such preference, the assignment is void for securing debts not yet due. I have had occasion heretofore to examine this question in other cases, and, after full reflection, can

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find nothing to justify overthrowing the settled practice in those cases. There is no law which makes a mortgage to secure a surety, by a principal in failing circumstances, void. Whatever debt can be secured by a conveyance direct^ to the surety, may be secured by one to an assignee in trust, nor is there any principle which puts a contingent liability beyond the possibility of being protected. Bor can there be any difference between protecting the surety and protecting the creditor; a principal, desirous of protecting a surety, is not bound, for that purpose, to admit his liability for a debt which he believes himself entitled to resist. The ground upon which the objection is put is fallacious; an assignment to protect a contingent liability no more hinders or delays a creditor than one to pay a debt not yet due, even if the assignees were not authorized to pay such debt before its maturity. The preference given is asserted to be priority in time, and that the assigned estate cannot be distributed until the liability is ascertained, because the assignment says it is first to be discharged. But assignees have a right to retain sufficient in their hands to meet such liability, and distribute the residue, and, after the liability is disposed of, distribute what remains. (Cun ningham v. Freeborn, 11 Wend., 241 ; Hendricks v. Robinson, 2 Johns. Ch. R., 284.) If they refuse to do their duty in this respect, they can easily be compelled to do so by an action.

. It has also been assumed that the defendants, although denying the charge in the complaint, that the assignment in question was made with intent to hinder and defraud -creditors, do not deny the charge that it was made with intent to delay them, and this is founded upon some supposed distinction between delaying and hindering. I should suppose a person who was hindered was effectually delayed; nor do I see how a man can be delayed without being hindered. To hinder any one in his course is, necessarily, to delay him. Hot being able to perceive the distinction, I must hold that none exists. Many such pleon,asms are to be found in old English statutes, where they

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are introduced for caution’s sake, more than with any precise idea as to what they were intended to effect.

All the objections to the proceedings in reference to the inventory filed, and the bond, are mere matters affecting the assignees, and not the assignment. The statute of 1860, (Sess. L., 1860, 594,) does not provide for the consequences of omitting to comply with its provisions ; it does not seem to have been intended to prevent assignments, but rather to protect those interested under them, and, therefore, probably was intended only to lay the foundation for an application to a Court to compel a compliance, under penalty of removal.

But the objections to the inventory are explained, the bond is shown to have been binding, and the justification of the sureties was approved by the County Judge; therefore there does not appear to be any reason for removal of the assignees and substituting a Receiver in their place.

It is not necessary to discuss the questions raised as to the lien of the attachments, as the assignment was valid.

The denial, in the affidavits of the defendants, of the demand by the Sheriff of notes, debts, credits and effects, and of the allegations of the complaint in. relation thereto, and the averment that they had no property at the time of making the inventory, other than what was mentioned in it* I consider sufficiently takes issue on the allegation that the defendants had goods, notes and other articles when the warrants were issued, and the Sheriff demanded possession of one or more of the defendants and they refused to deliver them; their fraudulent concealment, with intent that the Sheriff could not find them, if not denied, is immaterial by itself; it might make such goods liable, if not claimed by the assignee, but not those' assigned and claimed by them.

The assignment, therefore, not being fraudulent on its; face or made so by extrinsic evidence, and there being no-good cause shown for removing the assignees, or appointing a Receiver, the order made at Special Term should be reversed.

In construing an assignment of property in trust for the benefit of the creditors of the assignor, as well as other written contracts, all legal rules resorted to for the purpose of aiding in their interpretation, are subordinate to that primary rule which requires that every such instrument shall be construed according to the intention of the parties.” (Platt v. Lott, 17 N. Y. R., 478, 480; Kellogg v. Barber, 14 Barb., 11 .)

When the language of an assignment can be satisfied by a construction that will support the instrument, it is well settled that a construction shall not be given that will defeat it. (Kellogg v. Slauson, 11 N. Y. R., 302, 305.)

Fraud is not to be presumed, but there must be proof of it; and the onus of proving the assignment to be fraudulent, rests on the party assailing it. (Bank of Silver Creek v. Talcott, 22 Barb., 561 .)

The provision which directs the assignees oto pay to the parties named in Schedule A, hereto annexed, the sums of money, with interest, which are, or may become due to them from the parties of the first part, not exceeding, however, the sums'set opposite the names respectively of those who have a sum set thereto, if so much shall become due to them from the parties of the first part,” can be abundantly satisfied without construing it to authorize the parties named in that schedule to purchase demands, and to protect and prefer them, if purchased.

The object of the assignment, as declared by its recitals, is a division of the property of the assignors among their creditors equitably. The persons provided for by Schedule A, are only those; and the provision preferring those named in it,-includes only those who were creditors when ■the assignment was made, and they are preferred only in respect to debts then owing to them, or in respect to liabilities which they had theretofore assumed for the assignors. The words “or may become due,” when applied to actual debts then owing to any of those persons, mean debts which shall become payable thereafter; and, when applied to persons then under a contingent liability for the assignor,

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mean, sums of money which shall thereafter become payable to them by reason of such contingent liabilities. [Kellogg v. Barber, 14 Barb., 11 ; Bank of Silver Creek v. Talcott, 22 Barb., 550 ; Allen v. Patterson, 3 Seld., 476.) Due, sometimes means payable.

The'fact that a person is protected against a contingent liability, which is, on its face, an undertaking for a third person, does not raise a presumption, when all the provisions of the assignment are considered, that the assignees have appropriated any of their property to pay debts, or indemnify against liabilities, which it was not their duty to pay or satisfy. (Bank of Silver Creek v. Talcott, 22 Barb., 555 -557.)

I do not deem it important to acid anything to the observations of my brother Bobertsoh, in respect to the other objections urged against the validity of the assignment.

On the papers before us, the assignment should not be adjudged invalid, and the assignees should not be interfered with, by an injunction or Beceiver.

The order appealed from should be reversed.