Barnum v. Hempstead

| New York Court of Chancery | May 7, 1839

The Chancellor.

The first objection which is made to the validity of the assignment in this case is, that it contains a provision to pay to Lay, one of the assignees, for his future advances to and future liabilities for the assignors, in preference to, or to the exclusion of the debts which are due to creditors whose debts had been contracted by the assignors previous to the assignment. If I was satisfied that such was the fair construction of the instrument, I should not hesitate for a moment to declare it fraudulent and void, upon that ground alone; as such an attempt to secure a future credit and benefit to the assignors, by means of the assigned property, to the prejudice of their present creditors, could not be sustained in any court. I am inclined to think, however, that this clause of the assignment will bear the construction that the monies therein referred to, which Lay might thereafter pay or become liable to pay on account of the assignors, was only meant to include such as he might pay, or become liable to pay, by reason of endorsements or other contingent responsibilities which he had already made, or incurred, on their account.

The trust, so far at least as the real estate is concerned, appears however to be one which is not authorized by the existing laws of this state. The express trusts which are allowed by the revised statutes appear to be confined to the four classes specified in the fifty-fifth section of the article relative to uses and trusts. (1 R. S. 728.) And the statute is imperative, that where an express trust shall be created for any purpose not enumerated in the statute, no estate shall vest in the trustees. (Idem, 729, § 58.) . The only enumerated trusts, for the benefit of creditors, which can have the legal effect of transferring the estate to the trustees, are simple trusts to sell lands for the benefit of creditors; in which cases the equitable interests of the creditors in the property are such that the legal title, which is conveyed to the trustees, is not capable of being divided into several distinct estates, of which some may be valid although the others are invalid. Amd this court has already decided that if a conveyance in trust, for that purpose, is coupled with other express trusts not enumerated in the statute, and therefore not authorized by law, the title does not pass to the assignees by virtue of the conveyance in trust. An assignment in trust to mortgage or lease real estate, as well as to sell it, for the benefit of creditors, or as in this case to sell or encumber it for the benefit of creditors, cannot be sustained as a légal transfer of the estate, in trust. (Rogers & Sagary v. De Forest and others, In Chan. 4th Dec. 1838.)^(a)

Again; the provision, in this assignment, giving to the assignees a discretionary power to pay off or discharge a certain class of claims against the assignors, or certain small debts due from the latter, in preference to other debts provided for in the assignment, appears to be calculated necessarily to injure, delay and hinder creditors in the collection of their just debts. So long as debtors are permitted to make assignments of their property, in trust, for payment of their debts, without consulting their creditors on the subject, it is absolutely necessary, for the protection of the rights of the latter, that the equitable interests in the assigned property should be fixed and determined by the assignment itself. Neither the debtor, nor his friendly assignees, who are generally selected by himself, should have the power of giving preferences afterwards to any class of debts, or of creditors, whereby such creditors might be induced to relinquish some part of their claims, or to refrain from enforcing the same against the trust fund in the hands of the assignees, in the hope of obtaining a preference in payment on account of such indulgence, or by the relinquishment of a part of their claims. And an assignment which thus places any of the creditors in the power of the debtor, or of his assignees, must have the effect to delay or hinder his creditors in the collection of their debts. This view of the case is fully sustained by the opinion of Mr. Justice Sutherland, in the case of Grover v. Wakeman, (11 Wend. Rep. 203.) He says, “ It has repeatedly been decided that an assignment which does not declare the uses, but reserves to the assignor the power of subsequently doing it, is fraudulent and void. And if the assignor cannot reserve the power to himself of giving preference, he certainly cannot legally confer it upon his assignee : the same objection in principle exists inboth cases.” For these reasons I think the assignment in this case is void as against the creditors who think proper to repudiate the same. The decision of the vice chancellor which was appealed from was therefore right, and must be affirmed with costs.

(a) Ante, p. 172.