Clark v. Stanton

Cornell, J. It is contended by appellant that the jurisdiction over assignments for the benefit of creditors, and proceedings thereunder, which is given by chapter 44, Gen. Laws 1876, is vested solely in the several judges of the district courts of the state, and not in the courts themselves as-such; that in using the expression, “judge of the district court,” in designating by whom the powers conferred are to> be exercised, the statute recognizes a distinction between the judge and the court, and indicates the former and not the latter as the sole depositary of such powers. Hence, it is claimed that the district court can take no cognizance of any proceedings instituted under it; and inasmuch as the district judge, in exercising the authority which it confers, acts solely as an officer, deriving all his powers from its provisions, he can only exercise such as are especially conferred. The statute is a remedial one, to be liberally construed with reference to its declared purpose, which is “to protect the creditors of assignors, and to regulate the duties of assignees.” By it every assignment or conveyance of the character indicated, together with the statement specified in section 2 of the act, is required to be filed with the clerk of the district court of the county wherein the debtor making it resides. The bond which the assignee is required to execute before entering upon his duties must be approved by the judge of the district court and filed with its clerk, and the court is authorized to grant leave to any creditor to prosecute the bond on a breach of any of its conditions, and to apply the proceeds in satisfaction of the debts. Section 8 distinctly recognizes the fact that such filing of the assignment, bond and inventory, with the clerk is a filing in court. The processes which are — 241 — authorized to be used in aid of the powers conferred, to-wit, a citation, attachment and summons, are such as appropriately belong to a court to enable it to subject parties to its jurisdiction, and to enforce a performance of its judgments or orders.. The general power of supervision and control given over the proceedings, together with the authority to fully investigate the same, and to make any and all orders that may be proper1 and necessary to insure a faithful performance of the trusts created by the assignment, and a speedy close of the same by a final decree of distribution in accordance, with the purposes, of the assignment, necessarily involves the exercise of judicial power of such a nature as only a court having jurisdiction in equity as well as law can enjoy and exercise. Under our constitution district courts are the only ones competent to take and exercise, originally, a jurisdiction of this character. To give effect, then, to the provisions of this statute in respect to all powers of this character, which it assumes, in terms, to confer upon the “judge of the district court, ” it must be presumed they were intended to be vested in the court itself, to be exercised by the judge as the authorized officer, by and through whom its judicial functions are to be administered. That the proceedings herein, therefore, were commenced and prosecuted in the district court furnishes no ground for alleging error. The respondent petitioner was one of the parties who made the assignment. He was “a person interested in the estate,” within the meaning of section 10 of the statute, and a proper party to file the petition showing a default on the part of the assignee in not filing his report according to the provisions of that section. The petition showed such default, and was sufficient authority for the court to issue its citation, to show cause, to the assignee, and for the subsequent proceedings which were had, whereby his report was caused to be filed and the investigation was instituted. The object of the investigation, as allowed by the statute, was to obtain the requisite information to enable the court to.' — 242 — act advisedly in making such orders as might be “necessary to insure a faithful performance of the trusts, and a speedy close of the same by final settlement and distribution of the estate.” Its conduct was largely in the discretion of the court, as no particular mode of procedure is prescribed. Its scope was only limited to an inquiry into such facts as were pertinent and material to the purpose of the investigation, which was to inform the conscience of the court, so that its supervisory jurisdiction over the proceedings under the assignment might be properly and judiciously exercised. Within this limit it was in the discretion of the court to allow the examination to be carried to any extent, irrespective of the specific charges contained in the petition, or the wishes of either the assignors or the creditors. It was immaterial, therefore, whether the co-assignor, Wm. H. Clark, or any of the creditors, became parties to the investigation or not, as the legitimate scope of the examination was not thereby necessarily affected. Hence the ruling of the court in allowing some of the creditors to file replies to the report of the assignee in no way prejudiced him, as it opened no new field of inquiry, and did not in the least change the character of the investigation, which it was the duty of the court to make, irrespective of such replies. It was within its jurisdiction, of its own motion, the appellant being properly before it, to make full inquiry into his conduct, dealings and transactions as assignee, in order to ascertain the manner in which the trusts were being performed, and whether he was a suitable person to be longer continued in their administration. Evidence tending to show bad faith on the part of the assignee towards his cestui que trusts; that he purchased of them demands against the trust estate at a large discount, for his own benefit ; that, in making such purchases, he concealed from them the actual value and condition of the trust property, and misrepresented the purpose and effect of the assignments which he procured, was clearly competent, upon the question of his integrity and fitness as assignee. None of the evidence — 243 — received in this case seems to us open to any valid objection, as being beyond the legitimate scope of the examination. The permission which was given to the creditors to file replies to the report of the assignee, and to take part in the proceedings, was, in our judgment, a proper exercise of discretion, under the circumstances. The allegations therein contained, if true, tended strongly to impeach the honesty and integrity of appellant as assignee, and the validity of the assignments which he obtained from the creditors upon the settlement and transfer of their claims against the estate. Under these circumstances it was proper to give them a hearing, for if the facts therein alleged- were proved, and the invalidity of the settlements and transfers established as to any of the creditors, such creditors would have a right to be con- ' suited in the future management and disposition of the trust estate, as still having an interest therein. The fact that appellant had transferred the demands which he had so purchased did not preclude the court, in the adjustment of his claims and accounts as assignee, from examining the character of such purchases and assignments, and adjudicating upon their validity as between him, as assignee, and the estate. That the assigned property was ample, under proper management, to fully satisfy and discharge all indebtedness against it, together with the expenses of executing the trusts, and leave a surplus for the assignors; that the administration of such trusts was being unnecessarily and unreasonably delayed ; that the assignee had misused his position and knowledge as trustee to speculate in claims against the estate for his own benefit, and had improperly employed a portion of the trust funds for that purpose; that in purchasing such claims he grossly violated his duties and obligations as trustee, by concealing from the creditors a correct knowledge of the value and condition of the trust estate, and thereby and by misrepresentations induced a belief in its insolvency, and secured to himself advantageous bargains and transfers, under the false pretence and impression that the estate alone was to receive — 244 — the benefit of the transactions, instead of himself: are facts fully established by the evidence and findings, and constituted sufficient grounds for his removal, if the court possessed the power, and for a full settlement and adjustment of his accounts and dealings with the estate as assignee. That this power of removal for adequate cause is vested in the district court, as a court of equity, and may be exercised in a proper action brought for that purpose, is undoubted. Goncelier v. Foret, 4 Minn. 1, (13;) Gen. St. c. 43, §§ 8, 26, 27. No good reason is perceived why it may not also be exercised in proceedings under the statute in question, whenever it becomes necessary, in order “to insure a faithful performance of the trust, and a speedy close of the same by final decree of settlement and distribution. ” During the administration of his trust the assignee bought claims against his assignors amounting to $10,163.28, for the sum of $6,160.24, and took assignments thereof from the creditors, in his own name. In making these purchases he advanced of his own funds $2,542, the balance being taken out of moneys belonging to the trust estate. In the settlement of his accounts as assignee the court credited him with the amount of his advances and interest during the time the estate had the benefit of them, but disallowed his claim to be treated as a creditor of the estate in respect to such demands, and to be paid their full par value and interest. The utmost honesty, integrity, and good faith are required of an assignee in trust in all his dealings with the trust property, and his cestui que trusts. He is held to a strict accountability for any act of negligence or abuse committed in the administration of his trusts, and for any misappropriation of trust funds to purposes unauthorized by the instrument of assignment. The fiduciary character of his position precludes him from taking any advantage of his influence asassignee, or of any information acquired while acting in that capacity for purposes of personal gain or profit. Every agreement having such an object, made with his assignors or — 245 — ■with any of their creditors, especially if not communicated to and approved by all, is looked upon by the courts with great suspicion and distrust, and if tainted with the slightest evidence of fraud, concealment, or misconduct on the part of the assignee in its procurement, will be set aside as inequitable and unjust, and he will not be permitted to reap any personal advantage therefrom. These are general principles, too well settled to require the citation of authorities. Perry on Trusts, §§ 209, 427, 430. Upon the findings and the evidence herein it is evident that the bankruptcy proceedings, which were threatened and instituted by a portion of the creditors, were caused by the misconduct and culpable delay of the assignee in the execution of his trusts, and the apprehensions of loss to the trust estate thereby reasonably excited. If, therefore, it was necessary to purchase the claims of these creditors, to stop these proceedings, it was owing to the fault of the assignee. As to all the purchases made and discounts obtained, the creditors acted under like apprehension of loss,' occasioned by the misconduct of the assignee in studiously concealing from them the real condition and value of the trust property, procrastinating a settlement of the estate, and in' most, if not all the cases, inducing them to believe that all compromises ■effected would enure solely to the benefit of the estate. Neither did he inform them of the existence of any arrangement or understanding between him and either of the assignors, whereby he was to derive only personal benefit to himself from such purchases. Under these eircumstaneés the court was clearly right in disallowing his claim, especially in view of the written protests against it on the part of the defrauded creditors. Though both assignors had joined in asking its allowance, it ought not to have affected the result. It was unnecessary to consider the validity, as between themselves, of the alleged written agreement between the assignee and his assignors, in order rightly to adjudicate upon the claims and accounts of the former under the assignment, for — 246 — such adjudication depended wholly upon the terms of the assignment — which neither could modify — the doings of the assignee under it, and those equitable principles which are applicable to such cases. The proper adjudication of this question did not require the court to determine how much and what portion, if any, of the trust estate would remain after the fulfillment of the trusts to be reconyeyed to the assignors, and to ascertain their respective interests therein, and make apportionment accordingly. Its entire jurisdiction in these proceedings was to see that the trusts created by the assignment were fulfilled by satisfying the expenses incurred thereunder, the debts fastened upon the trust estate, and restoring the residue of the property, if any, to 'the authors of the trusts. The appellant assignee is the only party bringing this appeal. He can only be heard to urge such objections to the judgment as affect his interests alone. The only respect in which he is affected by it is in his removal as assignee, and in the adjustment of his accounts and claims as such assignee against the estate. Whether the creditors or assignors are properly protected by it or not, in their respective interests under the assignment, is a matter of no concern to him, and cannot be considered on this appeal. Judgment affirmed.