Opinion
May Term, 1901.
T.B. Merchant, for the appellants.
Harvey D. Hinman, for the respondent.
This action grows out of a struggle between two creditors of an insolvent firm in an effort to obtain priority in the payment of their claims out of the assets of the insolvents. The claimed indebtedness to the creditors, respectively, is just and honest. An insolvent debtor has the right to sell and transfer the whole or any portion of his property to one or more of his creditors in payment of, or to secure, his debts when that is his honest purpose, although the effect of the sale or transfer will be to place his property beyond the reach of other of his creditors and render their debts uncollectible. That right existed at common law as an incident to the right of property. It was as complete and perfect as the right to acquire and enjoy it. ( Tompkins v. Hunter, 149 N.Y. 117.)
If, however, a transfer is made by debtors upon the trust that the grantee shall convert the property into money, and from the proceeds pay the indebtedness of the grantors, it is a general assignment and must be executed in conformity with the statutes relating to assignments for the benefit of creditors. ( Britton v. Lorenz, 45 N.Y. 51.) Scott Clark did not own any real estate. The writing purports to sell "all the fixtures and goods of every kind and description belonging to said firm, * * * together with all the personal property of every kind and name belonging to said firm." Another paper was executed after the levy by the defendant purporting to transfer the accounts of said firm to the plaintiffs. It does not appear why the subsequent transfer of the accounts was made as the first writing would seem to include the accounts. (18 Am. Eng. Ency. of Law, 408.) That it was the intention of the parties to include the accounts is shown by the fact that the plaintiffs took the books of account into their possession on December twentieth and removed them from the factory. The writing does not purport to be a mortgage, and the plaintiffs do not now claim that it was given as a collateral security. It purports to be a sale. That it was intended as a transfer of the title appears from the fact that there was a complete surrender by Scott Clark of all the property to the plaintiffs. One of the plaintiffs immediately after the delivery of the writing told the foreman of the factory that he had purchased the place and that he would stop work for the time being. In the morning when the levy was made by the defendant one of the plaintiffs said to the defendant, "You have no right to this place; this belongs to me. Scott Clark have no interest in it." At the sale by the defendant the attorney for the plaintiffs forbade the sale upon the ground that the property belonged to Young Newman. When this action was commenced the plaintiffs alleged in the complaint, under oath, that they were the owners of the property therein specifically described, being the property in dispute. The plaintiffs have only received $58 from the book accounts. The total amount of the property of Scott Clark, exclusive of the book accounts, was inventoried by the plaintiffs at $2,140.74. One of the plaintiffs on this trial testified: "The inventory taken by me there at that time is the fair market value of the property. * * * The property inventoried there was worth at that time the values that were placed on it to a cent."
The determination of this case depends upon the legal effect of the writing so given to the plaintiffs. Sales are transfers in the ordinary course of business; assignments commonly grow out of the embarrassments or suspension of business. A sale is usually for a consideration actually paid or agreed to be paid and created or passing simultaneously; an assignment is in most cases for a consideration already executed as for a precedent or subsisting debt. An important distinction between the two modes of transfer arises out of the character of a trust which belongs to an assignment. A sale is, on delivery of the thing sold and receipt of the consideration a complete transaction, passing absolutely and irrevocably all the seller's interest in the subject of it without reversion or return under any circumstances. An assignment is likewise an absolute conveyance by which both the legal and equitable estate is divested out of the grantor, but the title vested in the assignee is subject to the uses and trusts in favor of the creditors. (Burrill Assign. § 4.) It is not essential, however, that a trustee should be named as such in the instrument. And when the creditor undertakes under an agreement with the assignor to sell the property and apply the proceeds to the payment of his own and other debts of the assignor, and refund the surplus, he becomes a trustee, and the transaction amounts to a voluntary assignment. (Burrill Assign. § 3.) A sale has been generally distinguished from an assignment by the absence from it of the trust element which is essential to assignments. In a sale of property there is a fixed price, but no trust; while in an assignment there is a trust and no fixed value given to the property. (3 Am. Eng. Ency. of Law [2d ed.], 13.) There is a broad and well-defined distinction between a general assignment for the benefit of creditors and a deed or bill of sale. The former is a transfer by a debtor of his property to another in trust to sell and convert into money and distribute the proceeds among his creditors and it implies a trust and contemplates the intervention of a trustee. The others import an absolute sale and transfer of the title to be held and enjoyed by the purchaser without any attending trust. ( Tompkins v. Hunter, 149 N.Y. 117. ) A general assignment in its ordinary legal significance means an assignment by a debtor transferring all his property in general terms to an assignee in trust for all his creditors. ( People v. Mercantile Credit Co., 55 App. Div. 594.) A reference to some of the authorities relied upon by the plaintiffs as sustaining the writing here in controversy is necessary for the purpose of showing that they were each decided by reason of the existence of facts differing radically from the facts shown in this case. In Kelly v. Babcock ( 49 N.Y. 318) there was a transfer of property for a fixed price, part of which was applied to pay an indebtedness due to the grantees, and it was provided in the instrument that the balance might be paid to and among the creditors of the firm, and the surplus if any to the firm. It was held by the court that the sale was an absolute one, and that the balance remaining unpaid of the purchase money could be reached by creditors, and that the sale was valid and legal. In Brown v. Guthrie ( 110 N.Y. 435) a debtor and the defendant, a creditor, entered into an agreement in and by which it was recited that the debtor owed the defendant $980.79, and that the debtor was also indebted to other persons in a large amount, and that he owned personal property worth $2,500, unincumbered, and that he desired an additional loan of $1,200, and it was therein agreed that the debtor would execute to the defendant notes to the amount of $2,400, and secure them by a chattel mortgage on all the goods and chattels owned by him. The creditor was to cancel the old notes of $980.79, and to furnish to the debtor an additional loan of $600 within twenty days, and assume payment of, and thereafter pay, such notes and accounts then owing by the debtor to other parties as the debtor should direct, to the amount of $619.21. The notes and chattel mortgage were executed, the old notes were canceled, and defendant advanced the $600, and a statement was made by the debtor to the defendant of the persons to whom he was indebted, and whom he desired should be paid said amount of $619.21, and the defendant paid thereon $401.28. The court held that this was not a general assignment; that it was in form an absolute sale upon a chattel mortgage given for a fixed and agreed consideration; that the material and essential characteristic of a general assignment is the presence of a trust; the assignee is merely a trustee, and not absolute owner; he buys nothing, and pays nothing, but takes title for the performance of trust duties; that there was no such element in the transaction between these parties.
In Hine v. Bowe ( 114 N.Y. 350) a firm executed to the plaintiff a bill of sale of the firm property at an agreed price, and the plaintiff executed an instrument in return by which he agreed to cancel his indebtedness against the defendant and pay other debts of the firm not exceeding the sum named. Held not to be a general assignment.
In Manning v. Beck ( 129 N.Y. 1) an insolvent debtor gave to his son a bill of sale in payment of a debt due the son and his assumption of certain indebtedness of the father which he agreed to pay and also the payment of a small amount in cash to the father. The consideration of the bill of sale was ample, and the son was solvent. The following day the father made a general assignment. The son had no knowledge of the contemplated assignment or of any fraudulent intent. The bill of sale was upheld.
In Maass v. Falk ( 146 N.Y. 34) insolvent debtors transferred to three banks all the goods, wares and merchandise, stock in trade and fixtures of Falk Brothers Co., in their store, "To have and to hold to the said banks as security for the said indebtedness to them respectively, with authority to the said banks to hold and sell the same at public or private sale * * * and after payment of the expenses of such sales, and the said indebtedness to said banks with interest in full or ratably * * * to render the overplus to said firm or its assigns." Held, that this was a valid transfer notwithstanding that subsequent transfers were made including all the property of debtors.
In Tompkins v. Hunter ( 149 N.Y. 117) an insolvent debtor transferred to a creditor all of his property, real and personal, of an agreed value of $21,790.70 in payment of indebtedness to the creditor to the extent of the amount of the agreed value of the property transferred. The transfer was upheld.
In Dodge v. McKechnie ( 156 N.Y. 514) an insolvent debtor transferred to a banking firm and to his wife all his stock of goods in a specified place by an instrument which purported to convey an absolute title and directed that from the proceeds the banking firm be first paid, and that his wife have the balance then remaining. It was not shown that there was more than sufficient property to pay the honest debts of the grantors in the bill of sale, and the transaction was upheld.
In Delaney v. Valentine ( 154 N.Y. 692) a debtor executed a chattel mortgage to a creditor to secure her debt and also the indebtedness of certain other specified creditors, and empowered her, in default of payment, to sell the mortgaged property and out of the proceeds of the sale to pay the debts mentioned and interest, and the expenses of the sale, rendering the overplus, if any, to the mortgagor. On the same day he transferred to another person, being one of those named as a creditor in the chattel mortgage, certain accounts or choses in action as collateral security for the payment of a portion of the debts secured by the said chattel mortgage and also to secure the debts of certain other named creditors. All of the debts mentioned were honest debts of the mortgagor, and the mortgagor was then insolvent. The chattel mortgage and transfer was upheld.
It will be seen that these transfers are upheld either by reason of their being intended as collateral security or, in cases where they were not intended as collateral security, a price was fixed for the goods sold and a definite agreement made as to how the same should be paid. In this case we have an absolute transfer of property that the plaintiffs admit was worth much more than their claim. It was not made as a collateral security but for their own benefit and the benefit of the other creditors. No price was agreed upon for the property, and it was not made for the purpose of paying specified claims. It was a transfer of all the firm assets for the benefit of all the firm creditors, and it seems to us to be exactly such a transaction as the General Assignment Law (Laws of 1877, chap. 466) was intended to reach and make impossible except in the way pointed out by such statute.
The judgment is affirmed, with costs.
Judgment and order unanimously affirmed, with costs.