Barney vs. Griffin and others

Barney vs. Griffin and others. An assignment by an insolvent debtor of all his property, [consisting in this casa of a large real estate,] in. trust, to pay certain specified creditors, and then, without making provision for other creditors, in trust to reconvey the residue to the debtor, is fraudulent and void, as to creditors not provided for in the deed. Such an assignment is void upon its face, and it cannot be made good by showing that there will be no surplus for the debtor after paying the creditors provided for. So held upon bill and answer in equity, where the answer denied all fraudulent intention, and alleged that there would be no surplus. And per Bronson, J. an assignment by an insolvent debtor of his estate, is fraudulent and void, where by the terms of the deed, the trustees are authorized to sell the property on credit. A debtor who assigns his property to pay creditors, cannot provide for the trustees a higher rate of compensation than is allowed to executors, administrators and guardians for similar services. I’e.r Bronson, J. Barney v. Griffin, 4 Sandf. Ch. 552, affirmed. Appeal from the late court of chancery. Hiram Barney filed his bill in the first circuit against Francis Griffin, William C. Wetmore, Charles G. Havens and others, stating, among other things, that on the 5th of April, 1844, one Lewis recovered judgment in the supreme court against Hamilton H. Jackson and others, for the sum of SI013,90, on which execution was duly issued and returned unsatisfied in September of the same year ; that on the 16th day of September, 1846, the complainant became the assignee and owner of the said judgment which remained unpaid at the filing of the bill; that on the 28th day of March, 1844, the said Hamilton H. Jackson, being insolvent, but possessed of a large and valuable real estate situated in the city of Brooklyn and elsewhere, and having no personal property liable to execution, for the purpose of hindering, delaying and defrauding his creditors, executed to the defendants, Griffin, Wetmore and Havens, a conveyance and assignment of all his real estate in said city and elsewhere, for the purposes and upon the trusts therein expressed as follows viz: (1.) To sell the said real estate, oi so much thereof as should be necessary, to satisfy the trust therein declared, at public or private sale, for cash or upon credit, or partly for cash and partly upon credit, and generally upon such terms as the said assignees should think most advantageous. (2.) Out ol the proceeds of such sales to reimburse themselves for all costs, charges and expenses incurred in the execution of the trusts, and to retain a commission of six per cent, on the gross amount of moneys received and paid out by them. (3.) To pay all taxes and assessments against the estate, and to relieve the estate from all sales which had been or should thereafter be made for taxes and assessments. (4.) To pay certain judgment creditors of the assignor named in a schedule thereto annexed, in the order of their legal priority. (5¡) To pay another creditor named, the balance of his account against the assignor for money advanced, being $11,138,59. (6.) To pay the holders of certain promissory notes made by the assignor and endorsed by other persons, amounting to over $30,000, and in case there should be a deficiency then to pay them pro rata. (7.) To pay to two other persons the sum of $20,000, due them foi money lent a.nd advanced: “ and finally, upon the further trust to reconvey to the assignor, his heirs or assigns, after the trusts before mentioned should be duly executed and performed, so much of the said real estate as should be left undisposed of.” The bill charged that the said conveyance was illegal, fraudulent and void, and prayed, among other things, that the same might be set aside ; that the trustees might be directed to convey the property to a receiver, and the complainant paid the amount of his debt, &c. The assignees answered, admitting the assignment as set forth in the bill, but denying all fraud in fact, or in intention, and insisting that the conveyance was legal and valid. In regard to the final trust to reconvey to the assignor, the answer stated, that it was inserted in the instrument in good faith, and without any intention to impair or prejudice, in any way, the rights of the complainant, or any of the creditors of the assignor, and (as the defendants believed and insisted,) without having any such effect; that the clause was so inserted merely in accord-dance with approved forms, and for greater caution, to express what it was deemed the assignor would be entitled to upon the performance of the trusts, and so as to remove the cloud from the title to such part of the real estate as should remain unsold after the debts should be paid. The answer also denied, in substance, that the proceeds of the estate assigned would go farther than to pay the debts provided for in the assignment; and it alleged that if provision had been made therein for all the creditors of the assignor, including the complainant, none of them, other than those actually provided for, would have received any sum whatever from the property assigned. The answer also alleged, that the estate assigned consisted chiefly of vacant and unproductive lots in the suburbs of the city of Brooklyn ; that the property was heavily encumbered in various forms; and that, but for the assignment, it would have turned out insufficient to pay the incumbrances, so that no creditor, who had not obtained a lien, would have received anything upon his demand; and that the assignment, as the defendants believed, was executed with the bona fide design of making the estate available in the utmost degree, for the benefit of creditors who had not obtained such liens. The pleadings contained other allegations not necessary to be here stated. The complainant moved before the vice chancellor that a receiver be appointed of the property mentioned in the trust deed, and of the proceeds thereof in the hands of the defendants. The defendants made at the same time a cross-motion to dissolve the injunction which had been issued on the filing of the Bill. Both motions were founded on the hill and answer, and upon the argument thereof, the question was submitted whether the assignment was fraudulent and void as to the complainant. The vice chancellor granted the complainant’s motion for a receiver, and denied the motion to dissolve the injunction. He also declared the assignment fraudulent and void,' The assignees appealed to the chancellor, who affirmed the order, and they then appealed to this court. D. Lord, Jr. for appellants. I. The assignment executed by H. H. Jackson to the appellants was valid, under the provisions of the revis-ed statutes- authorizing express trusts, “ to sell lands for the benefit of creditors,” (1 R. S. 728, § 55, sub. 1,) or “ for the purpose of satisfying any charge thereon.” (Sub. 2.) The law permits preferences among creditors; (Reviser’s notes to § 55, 3 R. S. 2d ed. p. 585; Murray v. Riggs, 15 John. 583, and cases there cited; Hendricks v. Robinson, 2 John. Ch. R. 290, 303, 306, &c.; 4 id. 685; 5 John. 427; Mackie v. Cairns, 5 Cowen’s R. 548; Waterbury v. Sturtevant, 18 Wend. 364, 5;) and does not require all creditors to be provided for. (Wilkes v. Ferris, 5 John. 335; U. S. v. Hooe, 3 Cranch, 73; Tompkins v. Wheeler, 16 Pet. 107, 116, 117.) The principle that the giving even of unauthorized powers to such trustees, (without intentional fraud,) will not vitiate an assignment, was fully established in Darling v. Rogers, (22 Wend. 483 to 498; 7 Paige, 273.) The appellants, as trustees, took a legal estate ; but only to the extent of satisfying the valid trusts to pay debts. Beyond that, the legal estate remained in the assignor, and might be sold by other creditors under judgment and execution. It is not true, therefore, that the residuary interest of the assignor was placed beyond their reach. The residuary clause in the assignment is unimportant, the legal effect being the same as if omitted. (1 R. S. 728, §§ 47, 49, 60, 61, 62, 67; 2 id 367, § 27; 4 Kent’s Com. 310, note a.) Such a clause, in respect to personal property, is not always objectionable ; Wilkes v. Ferris, 5 John. 335, 345;) although a residuary interest in personal property cannot be reached by execution, (Pickstock v. Lyster, 3 Maule & Sel. 371; 8 Wend. 347; 1 Comst. 20 and 295,) and one of real estate can. (4 Wend. 462; 13 John. 340.) A trust of personal property, for the use of the assignor, is declared void, as against creditors, by statute. (2 R. S. 135, § 1.) Not so of real estate. An attempt to create one of real estate is simp'y ineffectual. (1 R. S. 728, § 49.) It cannot, by any thing on the face of a deed, place the debtor’s interest, whatever it is, beyond the reach of an execution. Only intentional fraud vitiates. A mortgage, with a power of sale,. genei ally contains such a residuary clause; and a trustee, to pay debts, is like a mortgagee in possession. His estate ends when the debts are paid. (Phyfe v. Riley, 15 Wend. 248.) Doubtless, the same right to redeem exists. (2 Sumner, 490, 533, 540, 542.) A trust deed is- the common form of security in some of the other states. (Hogan v. Lepetre, 1 Port. Ala. R 392; Wiswall v. Ross, 4 id. 321; Sims v. Huntly, 2 How-Miss. R. 896. II. There was no actual or intentional fraud. The charges of the bill, in this respect, are upon belief only, not verified, and must be disregarded. (15 John. 582; 7 Paige, 157; 9 id. 305.) The denials of the answer are ample, and all the circumstan ces are consistent with the utmost fairness. Geo. F. Comstock, for respondent. ' I. The assignment of Hamilton H. Jackson is void, because it authorizes the sale of the assigned property at private sale, on credit, and “ generally upon such terms as the assignees shall deem most advantageous.” (1.) The assignment embraces a large amount of real estate, (being in terms all that the assignor possessed, and in fact all his property,) in which the assignor had a legal estate, and which, therefore, creditors had a right to seize upon and sell in satisfaction of their debts. An assignment, therefore, which takes from them this right, can only be tolerated upon the ground that it devotes the property immediately and uncondi tionally to the payment of those debts. (Grover v. Wakeman, 11 Wend. 189, 195, 200, 201, 202; 5 Cowen’s Rep. 547; 6 Hill, 438.) (2.) But this assignment, while it withdraws all the assignor’s property from the reach of legal process, does not leave it where the creditors can reach it in any other manner, except in the unlimited discretion of the assignees. The assignees can place the creditors at defiance until they shall have converted the property into the means of payment, at private sale, on credit, on such terms as they shall deem advantageous. The power to sell at private sale, on the most advantageous terms, involves a right to delay the sale as long as the assignees think proper. The sale may then be made on any terms of credit which they think best, and thus the creditors may be indefinitely “ hindered and delayed.” (Grover v. Wakeman, sup.; Meacham v. Sternes, 9 Paige, 406. II. The assignment is void because it conveys all the rea. estate of the assignee in trust to pay certain creditors named, and to reconvey so much of the property as shall remain unsold by the assignees, to the assignor, leaving the complainant and other creditors not named in the assignment wholly unprovided for. (Grover v. Wakeman, supra; Goodrich v. Downs, 6 Hill, 438, and cases there cited; Boardman v. Halliday, 10 Paige, 229, 230.) (1.) The assignment, by its express pro vis ions, withdraws all the property from a portion of his creditors, until the assignees, in their own time and discretion, shall have performed all the specific trusts, and reconveyed the residue of the property to the assignor. (2.) There is, in the mean time, no legal or equitable estate left in the assignor which the creditors can reach. (1 R. S. 729, § 60.) JNor can they proceed against the assignees for the enforcement of the trusts, because the trusts are not created for their benefit. The necessary result is, therefore, an indefinite postponement of all remedies as to creditors not provided for in the assignment. (3.) The trust to hold a property for an indefinite period, and then to reconvey a portion of it to the assignor, is a trust for the benefit of the assignor and not of creditors, and is therefore fraudulent and void. (4.) Such a trust is also in direct contravention of the statute permitting only certain specified trusts in real estate. (1 R. S. 728, §§ 45, 55.) The statute only allows a simple trust “ to sell lands for the benefit of creditors ” not to sell a portion of the land for the benefit of one class of creditors, and to reconvey to the assignor another portion m fraud of another class of creditors. III. Another objection to the assignment is, that it provides for the payment of all costs, charges, disbursements and expenses for which the assignees shall or may become liable, and a commission of six per cent on the gross amount of the moneys received and paid out by them. [MAJORITY — Bronson, J.] Bronson, J. This was an assignment by an insolvent debtor of all his property, in trust to pay certain specified creditors, and then, without making any provision for other creditors in trust to reconvey the residue of the property to the debtor. We need go no further to see that this was a fraud upon the plaintiff, and the other creditors who were not provided for by the deed. The property was placed beyond the reach of their judgments and executions, in the hands of men who weie not accountable to them, and upon a trust which was in part for the benefit of the debtor. * The courts have very reluctantly upheld general assignments by an insolvent debtor, which give a preference among creditors (Boardman v. Halliday, 10 Paige, 227, 230), and they can only be supported when they a make a full and unconditional surrender of the property to the payment of debts. The debtor can neither make terms nor reserve any thing to himself, until after all the creditors have been satisfied. This question was considered upon authority in Goodrich v. Downs (6 Hill, 238), and we think the case was properly decided. The deed was void upon its face; and it cannot be made good by showing that there will be no surplus for the debtor after paying the preferred creditors. The parties contemplated a surplus, and provided for it; and they are not now at liberty to say that this was a mere form which meant nothing. And although it should ultimately turn out that there is no surplus, still the illegal purpose which destroys the deed is plainly written on the face of the instrument, and there is no way of getting rid of it. The cases already cited of Goodrich v. Downs and Boardman v. Halliday are in point upon this question. It is also an unanswerable objection to the deed, that the assignees are authorized to sell the property on credit. An insolvent debtor cannot, under color of providing for creditors, place his property beyond their reach, in the hands of trustees of his own selection, and take away the right of the creditors to have the property converted into money for their benefit without delay. They have the right to determine for themselves whether the property shall be sold on credit; and a conveyance which takes away that right and places it in the hands of the debtor, or in trustees of his own selection, comes within the very words of the statute; it is a conveyance to hinder and delaj creditors and cannot stand. This question was considered by the chancellor in Meacham v. Sternes (9 Paige, 405-6), and his views fully accord with my own. There is a third objection to the deed. The property is not only charged with the payment of “ all costs, charges, disbursements and expenses ” in executing the trust, but the trustees are also to have “ a commission of six per cent, on the gross amount of the moneys received and paid by them.” If the debtor can provide for any thing more than the necessary expenses of executing the trust, I think he cannot go beyond the commissions allowed by law to executors,, administrators and guardians for similar services, (see Meacham v. Sternes, 9 Paige, 398,) which, considering the magnitude of the estate, is much less than the trustees are to receive. (2 R. S. 93, § 58 ; p. 153, § 22.) It may be very true, as the answer alleges, that the commissions allowed by the deed are “no more than a just, fair and proper compensation ” to three men “ all actively engaged in professional pursuits.” But unless something was to be done besides winding up the estate, without delay, for the benefit of creditors, it was not necessary to have three trustees; and a competent agent might have been found who would not have required a very large commission on account of the value of his time for professional pursuits. If an insolvent debtor should be allowed to give a large reward to the friends whom he selects and puts in the place of the process and officers of justice, it would not only divert a portion of the property from those who ought to have it, but it might induce the assignees to consult the interest of the debtor at the expense of the creditors. This objection, standing alone, may not go beyond the excess of commissions. But we think the deed wholly void or. the other grounds which have been mentioned. Decree affirmed. Nicholson v. Leavitt, 6 N. Y. 510; 10 Ibid. 591; Burdick v. Post, 6 Ibid. 522; Porter v. Williams, 9 Ibid. 142; Kellogg v. Slauson, 11 Ibid. 302.