Isaac Stickney & Co. v. Crane

Poland, Ch. J. The plaintiffs claim to hold the trustee liable for funds that came into his hands by an assignment made by ■the principal debtors to him as assignee for the benefit of their ■creditors. The commissioner to whom this case was sent by the county ■court to ascertain and report the facts, reported “ that said Crane ■& Colcord made said assignment with the purpose and Sitent of preventing and hindering the plaintiffs from getting-their pay on their said debt, either from the property assigned or otherwise, except at the pleasure of said Crane & Colcord, and with the purpose and intent of securing to their other creditors named in the second and third classes of the assignment, in the order of preference there named, their pay so far as the property assigned would answer that end.” The commissioner also reported that the trustee was wholly ignorant, at the time said assignment was made to him, of any such purpose of Crane & Colcord to delay, hinder, or defraud the plaintiffs. The plaintiffs insist that the existence of such unlawful puiv pose and design in making said assignment by Crane & Colcord, — 94 — renders such assignment fraudulent and void as to their creditors, or at least as to the plaintiffs, though the assignee at the time of accepting the assignment was ignorant of such purpose. The authorities which have been produced seem to establish the position assumed. In Rathbone & Dow v. Platner, 18 Barb. 272, it was decided that an assignment made by a debtor, of his property, with the fraudulent intent to hinder, delay and defraud his creditors, is void, although his assignees are free from all imputatioit of participating in his fraudulent designs, and they are themselves bona fide creditors of the assignor, and a^e to take the entire avails of the assigned property, to pay their preferred debts. The same doctrine was also fully held in Wilson v. Forsyth et al., 24 Barb. 105. Gould, J., who delivered the opinion of the court, says, “ It will not do to say that honesty of purpose in the assignee has any effect whatever on that of the assignor, and this latter is the intent with which the assignment is made. He makes the assignment, and no one else, and the making intent is his, and no one’s else.” So in a case in 1 Sandf. Ch. 85, the Vice Chancellor says, speaking of a general assignment in trust for creditors, “ If Phillips made it with the intent to hinder, delay or defraud creditors, it is void, although his assignees were perfectly honest, and entirely ignorant of his designs.” The opinions in these several cases seem to be well supported in their reasoning, upon general legal principles, and by many authorities more or less analogous to the point decided. The same doctrine is also laid down by Mr. Burrill in his work on Assignments, 2nd Ed., 421 and 422. We are satisfied that upon principle, aside from authority, this is the true view of the law. Probably no one would doubt but that when the assignor’s object in making a general assignment, was to avoid payment of all his debts, it would be fraudulent and void; why then should it not be so regarded, when his object is to defraud a single creditor; at least so far as such creditor is concerned ? It has been sometimes attempted (though it is hardly done in the present case) to liken a general assignment to a trustee or assignee for creditors, to a sale to a })gna fide purchaser for value, or to a particular creditor in — 95 — satisfaction of his own debt, in both of which cases, the good faith of the grantee will enable him to hold the property, though the grantor was actuated by a dishonest design to defraud-some creditor. But in the case of a trust assignment, there is really in making the assignment but one party, the assignor; he is ordinarily the only one who has any purpose or motive in the transaction-, and they are often wholly completed without the knowledge of the assignee, and if he has knowledge, he is a merely nominal party, who pays no consideration, and parts ¡with no right in the transaction. The obligation of the assignor to his creditors, and his duty to make payment to them, is a sufficient consideration to support the assignment in trust as a valid contract, if made honestly and in good faith by the assignor, but if the. intent of the assignor be fraudulent and unlawful, there is no countervailing equity, and good faith, like that of a bona fide purchaser for value, to overcome it. It is argued for the trustee, however, that in the present case such unlawful design of the assignors could have no effect because it really was wholly ineffectual, and the same result would have been produced by the assignment if made with ever so honest a purpose ; that as the law when this assignment was made, allowed the assignor to prefer creditors, and say which should be first paid under the assignment, and as the property proved insufficient to pay all, the plaintiffs, who were placed in the lowest class of creditors, would have received nothing, though the assignors might have desired they should ue paid. But it is the dishonest design and intent, which the statute is aimed against; it is the unlawful intent which avoids the contract, and not the mere consequence or result of it. So it is well established, that a conveyance of property is not necessarily void under the statute because its effect may be. to hinder and delay creditors, if there be no dis? honest design to produce such effect in making it. In the early case of Meux v. Howell, 4 East 1, Lord Ellenborough said, “It is not every feoffment, judgment, &c., which will have the effect of delaying and hindering creditors of their debts, &c., that is therefore fraudulent within the statute, for such is the effect pro tanto of every assignment by one who h^s creditors. Every assignment of a man’s property, however good and honest — 96 — the consideration, must diminish the fund out of which satisfaction is to be made to his creditors. But the feoffment, judgment, &c., must be devised of malice, fraud, or the like, to bring it within the statute.” The same distinction has been observed in almost innumerable cases since. See Bürrill on Assignments 404, and several subsequent pages. Upon this ground we are all satisfied that the plaintiffs have the right to treat this assignment by the principal debtors to the trustee as being fraudulent and void. It therefore becomes unnecessary to consider the various other objections taken to it. The assignment, as to the plaintiffs, being illegal and void, whatever was in the trustee’s hands, under it, when the trustee attachment was served, was reached by such attachment and holden by it, as effects and credits belonging to the principal debtors. As the trustee acted in good faith in taking the assignment and in carrying out its provisions, it is not claimed by the plaintiffs, that he can be made liable for any funds he received under it, which he had paid out to the creditors pursuant to the terms of the assignment. The trustee admits that he had in his hands of said assigned property at the time of the service of the plaintiffs’ writ, the sum of $307.27 in money — a note of $40, taken for some of the property sold on credit, and a set of hay scales. We see no reason why the trustee should not be held liable for the $307,27, a.nd also for the hay scales as specific property in his hands. The plaintiffs claim that he should be made liable not only to this extent, but also for various other sums which had passed out of his hands before the trustee suit was brought, upon the ground that they were paid out in violation of the provisions of the assignment, and of his duty as assignee. In this category they claim to hold the trustee for the funds received by him for his own services ; for $100 paid for rent of store ; for the $40 note taken for goods sold on credit; and for the money paid to Rand on notes against the principal debtor, $858.92. The theory of the plaintiffs’ counsel as to these claims is this, though the plaintiffs are only entitled to hold the trustee at — 97 — all, upoü the ground, that as to them the assignment was wholly void and inoperative, and that the property receivéd by the trustee was still the property of the principal debtors, yet that, sujbeeding in this, they are then entitled to take their place, as the sole creditors under the assignment, and call the trustee to account for whatever he received under the assignment, and to hold him liable for any departure from its provisions . It appears to us that this ground is wholly untenable, and entirely at variance with the ground upon which the plaintiffs are allowed to hold the trustee at all; that the plaintiffs can not be allowed to say that the assignment is void, and that the assigned property still belonged to the assignors, and that being granted, to then turn round and claim that the trustee held the property for the creditors, and for them especially, under the assignment, and call for an accounting on that basis. Whether the creditors under the assignment could hold the trustee liable for the money paid to Rand upon the demands which were named in the schedule of first class claims, but which had really been paid by the principal debtors themselves, it is not necessary to decide. As it was done in good faith, with no knowledge that they had been paid by the principal debtors, and it does not appear that the trustee was guilty of any negligence in not knowing it, it would seem at best doubtful, if he could be made liable even upon that basis. But so far as the plaintiffs are concerned, who utterly repudiate the assignment, and claim that the funds all the while belonged to the principal debtors, it seems clear they can not complain of it. If the money had been paid over directly to the principal debtors, before the trustee suit was brought, we do not see how they could well claim to hold the trustee for it. As to the sum paid for store rent, and the sum received by the trustee for his services in the business, these appear to have been assented to by the principal debtors, and the creditors who did not dissent to the assignment, and we do not see how the plaintiffs can complain of them. The $40 note is to be regarded as a note in the hands of the trustee belonging to the principal debtors, but the trustee can not be holden for it, as has been often decided. As the trustee is found to have conducted in good faith an4 — 98 — been guilty of no fraud, we see no ground to deprive him of his costs in the county court. In this court the plaintiffs will be entitled to recover their costs against the trustee, as they succeed in reversing the judgment below. ^ The judgment of the county court is reversed;, and judgment rendered that the trustee is liable for the sum of $307.27 in his hands, and for the hay scales as specific, property.