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Leitch v. Hollister

Court of Appeals of the State of New York
Dec 1, 1850
4 N.Y. 211 (N.Y. 1850)


December Term, 1850

S. Stevens, for appellant.

Geo. F. Comstock, for respondents.

It has been decided in this state, that a general assignment of property for the benefit of a particular class of creditors, made by an insolvent debtor, containing a trust for his own benefit, is fraudulent and void as against creditors. It is immaterial, whether the purpose to transfer all his property in effect appears upon the face of the assignment, or is established by extrinsic evidence; in either case, the whole trust is void. ( Barney v. Griffin, 2 Comst. 370; Goodrich v. Downs, 6 Hill, 438, and cases.)

The effect of such an assignment as to withdraw the property of the debtor from legal process, and to compel creditors to await the execution of the trust, before they can reach the surplus, reserved to the former. As those creditors who are excluded from the benefits of the assignment can not enforce its execution, they are necessarily hindered and delayed, and consequently in legal contemplation defrauded. It is of no consequence whether the surplus is large or small, or whether any thing remains after the payment of the preferred creditors. The creation of the trust shows that a surplus was in the contemplation of the parties, and its reservation for the benefit of the assignor is a fraud upon creditors, which is consummated the moment the deed containing the provision is executed and delivered.

The assignment may be avoided by any creditor, whether provided for or not, who has not voluntarily become a party to the trust, or by his own act ratified and confirmed it. ( Hone v. Henriquez, 13 Wend. 243.) It must, when executed, bind all or none of the creditors of the assignor. Otherwise the condition of one, for whom a provision was made, by a fraudulent trust without his agency, would be worse than if he had been excluded altogether.

These principles, for aught I can perceive, apply to every case of an express trust created by an insolvent for the benefit of a part of his creditors, whether the trust included the whole or a part only of his property. Insolvency implies that all the assets of the insolvent, if honestly appropriated, will be insufficient to pay his debts.

If part of the fund is assigned for the benefit of preferred creditors, and a trust as to the surplus after their payment, created for the use of the assignor, it is obvious that the creditors who are excluded, some or all of them, must be delayed and injured: as the whole fund would be insufficient for the payment of all the claims upon it, the dividend of those excluded from the assignment must be diminished by just the amount of the surplus secured to the debtor. In the mean time, the whole interest in the property from which it is to be raised, vests in the trustees, and is withdrawn from the reach of process, and the creditors thereby delayed, until the winding up of the trust. Cases of this kind, it seems to me, are within the spirit as they certainly are within the letter of the statute, which declares "that all conveyances, transfers or assignments of goods or things in action made in trust for the use of the person making the same, shall be void against creditors, existing or subsequent." (2 R.S. 135, § 1.)

Neither the principle to which I have adverted, nor the statute, applies to assignments made in good faith, of a part of a debtor's property to creditors themselves, for the purpose of securing particular demands. The conveyance, whatever may be its form, is in effect a mortgage of the property transferred. A trust as to the surplus results from the nature of the security, and is not the object, or one of the objects, of the assignment. Whether expressed in the instrument, or left to implication, is immaterial. The assignee does not acquire the entire legal and equitable interest in the property conveyed, subject to the trust, but a specific lien upon it. The residuary interest of the assignor may, according to its nature, or that of the property, be reached by execution or by bill in equity. The creditor attaches that interest as the property of the debtor, and is not obliged to postpone action until the determination of any trust. He is, therefore, neither delayed, hindered or defrauded in any legal sense.

In the case before us, the property assigned to the respondents was a chose in action. The complainant acquired a lien upon the interest of the assignor the moment his bill was filed. He was then at liberty to redeem, or require a sale of the judgment, subject to the rights of the respondents, or compel an application of the surplus upon his own debt, when the judgment was collected. He has, therefore, not been hindered, or sustained any other injury, than that he has been postponed to other creditors equally meritorious with himself.

The decree of the supreme court should be affirmed.

Decree affirmed.

Summaries of

Leitch v. Hollister

Court of Appeals of the State of New York
Dec 1, 1850
4 N.Y. 211 (N.Y. 1850)
Case details for

Leitch v. Hollister

Case Details

Full title:LEITCH vs . HOLLISTER and others

Court:Court of Appeals of the State of New York

Date published: Dec 1, 1850


4 N.Y. 211 (N.Y. 1850)

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