What Preferences are Unlawful. allowing the bare right to make an assignment for the benefit of all creditors, but forbidding any preference or favor of one over another.(d) An assignment with preferences must be drafted in such a manner that none of its provisions can be seen to create or involve any unnecessary delay, hindrance, or embarrassment to the general right of the creditors as a body, to have the assets of the debtor converted into money, and that money applied, as far as it will go, in discharge of his debts. If this right is injuriously affected by the instrument, it will be adjudged void.(e) Thus it is held that any clauses in an assignment which confer any power or privilege upon the assignee inconsistent with the simple duty of converting the assets promptly into cash, and distributing it among the creditors, or which give him a compensation or advantage therein not allowed by law, operate to defraud creditors, and render the assignment void. But clauses which merely express in terms powers or rights which the law would confer upon the assignee were they not expressed, are unobjectionable.(f) Thus, again, provisions which tend to secure some ultimate surplus or other benefit or advantage to the assignor, render the assignment void.(g) dences, the sums due to them respectively, the consideration of each debt, and any collateral security held for it; and containing also an inventory of all the debtor's estate, stating encumbrances upon it, vouchers and securities appertaining to it, and its value; that the assignee must give a bond with sureties for the faithful performance of his duty, and that an accounting may be compelled, in due season, by legal proceedings for that purpose. (d) Thus in Connecticut, the act of 1853 (Comp. of 1854, 512) makes all assignments for creditors void, unless made in writing, and for the benefit of all creditors in proportion to their demands; and they must convey all property of the assignors, except property exempt from execution, real property out of Connecticut, and (in the case of sole assignors) the value of $100. See many of the American statutes cited in Burrill on Assignments, 19. (e) Upon this ground assignments have often been condemned. For instance, for giving the assignee power to name his successor (Planch v. Schermerhorn, 3 Barb. Ch., 644); for giving him an extended time within which to perform his duty of sale and payment (Woodburne v. Mosher, 9 Barb., 255; D'Ivernois v. Leavitt, 23 Ib., 63; compare Bellows v. Partridge, 19 Ib., 176); for providing in effect that he should not be personally liable for losses resulting from a mere want of ordinary diligence (Litchfield . White, 3 Seld., 438; Olmstead Herrick, 1 E. D. Smith, 310; with which compare Van Nest v. Yoe, 1 Sandf. Ch., 4; Jacobs v. Allen, 18 Barb., 549); for providing a compensation beyond that allowed by law (Nichols v. McEwen, 17 N. Y., 22); and for enabling him to vary the order of preferences. Barnum v. Hempstead, 7 Paige, 568; Boardman v. Halliday, 10 Ib., 223; Strong v. Skinner, 4 Barb., 546. (f) As, for instance, a provision that he may employ agents (Mann . Whitbeck, 17 Barb., 388; Van Dine v. Willett, 24 How. Pr., 206, and 38 Barb., 319); that he may advertise for demands, and pay those presented within a certain time (Ward v. Tingley, 4 Sandf. Ch., 476); that he may pay insurance premiums, and mortgage interest upon the property (Whitney v. Krows, 11 Barb., 198); or rent and taxes (Van Dine v. Willett, 24 How. Pr., 206, and 38 Barb., $19; Morrison v. Atwell, 9 Bosw., 503); or a provision for his compensation which allows of its being adjusted at a sum within his legal commissions (Keteltas v. Wilson, 36 Barb., 298; 23 How. Pr., 69; Halstead v. Gordon, 84 Barb., 422; Campbell v. Woodworth, 33 Barb., 425; 24 N. Y., 804); or directions as to sale or distribution which leave him at liberty to comply with the requirements of the law. Wilson v. Robertson, 21 N. Y., 589; 19 How. Pr., 350; Ogden v. Peters, Ib., 23; Griffin v. Marquadt, Ib., 221; Jessup v. Hulse, Ib., 168; Stern v. Fisher, 32 Burb., 198; Halstead v. Gordon, 34 Ib., 422. (g) See Goodrich v. Downs, 6 Hill, 488; Strong . Skinner, 4 Barb., 456; Barney v. Griffin, 2 Comst. (2 N. Y.), 365; Leitch v. Hollister, 4 lb., 211; Lansing v. Woodruff, 1 Sandf. Ch., 48; Clark v. Dowlings, What Preferences are Unlawful. Thus, again, any language in an assignment, which enables the assignor to exercise a future preference among his creditors, avoids the instrument. h) Thus, again, all provisions which disclose an endeavor to empower the assignor to impose conditions upon creditors, before paying their demands, avoid the assignment.(i) Thus, again, any directions to the assignee to deal with the estate in a given way, to increase the amount to be realized from it, avoid the assignment, whenever they operate to delay a sale.(j) 1 Hill & D., Supp., 105; Mackie v. Cairns, 5 Cow., 547; Sheldon . Dodge, 4 Den., 217; Barnum v. Hempstead, 7 Paige, 568; Hooperman v. Suckerman, 3 Sandf., 311; Johnson v. Gardner, 4 N. Y. Leg. Obs., 424; Collumb v. Caldwell, 16 N. Y., 484; Wilson v. Robertson, 21 Ib., 387; 19 How. Pr., 350; Smith v. Howard, 20 Ib., 121. This rule, however, under which an assignment is held void which reserves a surplus to the assignor, does not apply to the following cases: 1. Cases in which property is assigned direct to a particular creditor, as a means of securing payment of his demand. Such an assignment, being in the nature of a mortgage for the particular demand, a trust to pay the surplus to the assignor is held to result from the nature of the instrument; and whether it is stated in the instrument or left to implication, is immaterial. Leitch v. Hollister, 4 Comst., 24; Hendricks v. Robinson, 3 Johns. Ch., 284; affirined, 17 Johns., 438; Dunham . Whitehead, 21 N. Y., 181; McLelland . Remsen, 36 Barb., 622; 14 Abbotts' Pr., 381; 23 How. Pr., 175. 2. Cases in which the surplus directed to be returned is only such as may remain after paying all creditors in full. Where a surplus results under such circumstances, the law implies a trust to repay it to the assignor. Hence a direction to repay a surplus in an assignment will not avoid it, if the instrument in effect empowers the assignor first to pay all creditors in full, in case assets are sufficient. Wintringham v. Lafroy, 7 Cow., 735; Van Rossum . Walker, 11 Barb., 237; Ely v. Cook, 18 Ib., 612; Taylor v. Stevens, 7 How. Pr., 415. 8. Cases in which particular items of property are excepted from the assign them. Carpenter v. Underwood, 19 N. Y., 520. (h) Examples are, when the instrument preferred the creditors who should be named in a schedule to be thereafter made out and affixed (Averill v. Loncks, 6 Barb., 470); when it directed that, in a certain contingency, debts enumerated in a later class should be preferred to those mentioned in an earlier one (Sheldon v. Dodge, 4 Den., 217); and where it directed that, if certain creditors should refuse to release the assignor, then such creditors should be preferred to them as the assignor should appoint. Compare Bernard v. Graydon, 39 Barb., 548; Powers v. Graydon, 10 Bosw., 630. (2) As, where certain creditors are directed to be preferred upon the condition that they execute releases of their demand (Hyslop v. Clark, 14 Johns., 458; Austin v. Bell, 20 Ib., 442; Grover v. Wakeman, 11 Wend., 187; Armstrong v. Byrne, 1 Edw., 79; Lentillhon v. Moffat, 1 Elw. Ch., 451; Searing v. Brinckerhoff, 5 Johns. Ch., 829; Hone v. Henriquez, 18 Wend., 240; Gasherie v. Apple, 14 Abbotts' Pr., 64); or where the assignment authorizes a surplus to be divided among those who will execute a release, Grover. v. Wakeman, 11 Wend., 187; Mills v. Levy, 2 Edw., 188; but see De Caters v. De Chaumont, 2 Paige, 49; Hastings v. Belknap, 1 Den., 190. See, also, upon the same general principles, Berry v. Riley, 2 Barb., 307; Bellows e. Partridge, 19 Ib., 176; Oliver Lee & Co.'s Bank v. Talcott, 19 N. Y., 146; Bank of Silver Creek. Talcott, 22 Barb., 550; Jewett v. Woodward, 1 Edw., 195; Van Nest v. Yoe, 1 Sandf. Ch., 4; Spaulding v. Strong, 86 Barb., 310. (j) Dunham v. Waterman, 17 N. Y., 9; Van Nest v. Yoe, 1 Sandf. Ch., 4; 2 N. Y. Leg. Obs., 70; Schlussel v. Willett, 34 Barb., 615; 12 Abbotts' Pr., 897; 22 How. Pr., 15. Effect of Assignment. Thus, again, any permission given in the assignment to the assignee to sell upon credit, although with a view to realize a larger sum for ultimate distribution, avoids the assignment.(k) It is also necessary to the validity of an assignment that it should be made in good faith, without any actual intent to defraud any one. And there are some restrictions relating to the classes of persons who may make preferential assignments.(1) A general assignee for the benefit of creditors stands in no better position, and has no higher rights in respect to enforcing choses in action transferred by the assignment than those of his assignor. He is not to be regarded as a purchaser for a valuable consideration.(m) Notwithstanding an assignment is originally invalid as against creditors generally, for such defects as are pointed out above, it is valid as between the parties to it, and as against all creditors who have assented to it, or in any way ratified it. (k) As a sale upon credit necessarily protracts the ultimate distribution until the term of service expires, such a sale is held a fraud upon the right of the creditors to have the assets converted into money, and the money divided without delay. Rogers v. De Forest, 7 Paige, 272; Barney v. Griffin, 2 Comst., 865; 8 N. Y. Leg. Obs., 68; and 9 lb., 106; Nicholson v. Leavitt, 2 Seld., 510, and 6 lb., 591; Burdick v. Post, 2 b., 522; Houghton v. Westervelt, Seld. notes, No. 1, 32; Porter v. Williams, 5 Seld., 142, and 12 How. Pr., 107; Lyons v. Platner, 11 N. Y. Leg. Obs., 87; Rapalee v. Stewart, 27 N. Y., 310. But as in the case of clauses conferring other powers on the assignee, so in respect to the terms in which the power to sell is expressed, if they do not necessarily import discretionary power to sell upon credit, inconsistent with the legal duty of the trust, but may be construed as consistent with an immediate conversion into money, the assignment is not rendered invalid. Kellogg v. Slauson, 1 Kern., 302; Whitney v. Krows, 11 Barb., 198; Southworth v. Sheldon, 7 How. Pr., 414; Bellows v. Partridge, 19 Barb., 176; 12 N. Y. Leg. Obs., 219; Clark v. Fuller, 21 Barb., 128; Nichols v. McEwen, Ib., 65; Wilson v. Ferguson, 10 How. Pr., 175; Clapp v. Utley, 16 Ib., 384; Meacham v. Stearns, 9 Paige, 898; Wilson v. Robertson, 21 N. Y., 589; 19 How. Pr., 850; Ogden v., Peters, Ib., 23; Griffin v. Marquadt, Ib., 121; Schufeldt . Abernethy, 2 Duer, 533; 12 N. Y. Leg. Obs., 173; Murphy v. Bell, 8 How. Pr., 468; Townsend v. Stearns, 80 N. Y., 209. And a clause forbidding the assignee to sell upon credit, though superfluous, does not affect the assign ment. Carpenter v. Underwood, 19 N. Y., 520; Van Rossum v. Walker, 11 Barb., 287; Stern v. Fisher, 82 Ib., 198. (1) In New York, moneyed corpora tions and limited partnerships are disabled from making preferential assignments. 1 Rev. Stat., 391, § 9; Ib., 766, §§ 20, 21; Robinson v. Bank of Attica, 21 N. Y., 406. So an infant is incompetent to assign. Fox v. Heath, 21 How. Pr., 884. (m) Matter of Howe, 1 Paige, 125; Mead v. Phillips, 1 Sandf. Ch., 83; Marine and Fire Ins. Bank of Georgia v. Jauncey, 1 Barb., 486; Leger v. Bonaffe, 2 Barb., 475; Warren v. Fenn, 28 lb., 333; Van Heusen v. Radcliff, 17 Ib., 580; Bliss v. Cottle, 32 Barb., 322; Reed v. Sands, 87 Ib., 185; Maas v. Goodman, 2 Hill, 275; Schieffelin v. Hawkins, 14 Abbotts' Pr., 112. Thus he takes evidences of debt subject to any offset which existed against his assignor (Chance v. Isaacs, 5 Paige, 592; Maas v. Goodman, 2 Hill, 275); and merchandise subject to any right of stoppage in transit (Harris v. Hunt, 6 Duer, 606; Harris v. Pratt, 17 N. Y., 249), or to any vendor's lien (Haggerty v. Palmer, 6 Johns. Ch, 437), which might have been enforced against his assignor. And he cannot impeach previous transfers of property made by his assignor which were binding upon the latter, although they may be voidable for fraud, at the instance of creditors. Van Heusen v. Radcliff, 17 N. Y., 580; Brownell v. Curtis, 10 Paige, 210; Storm v. Davenport, 1 Sandf. Ch., 135; Osborne v. Moss, 7 Johns., 161; Averill v. Loucks, 6 Barb., 470; Mills v. Argall, 6 Paige, 577; with which compare Bayard v. Hoffman, 4 Johns. Ch., 450. 1 312. Inventory (required by the New York statute of 1860).... 142 813. Petition for an accounting by assignee (under same statute). 143 314. Bond of assignee (under same statute)...... 144 815. Approval of county judge, to be indorsed on the preceding statnte.. 816. Summons to assignee (under same statute) 144 145 307. Assignment by an Individual, Without Preferences. INDENTURE made this day of 18, between A. B., of , party of the second part. party of the first part, and Y. Z., of WHEREAS the party of the first part owes divers debts, which he is unable to pay in full, and is desirous to provide for the payment of the same, as far as in his power, by an assignment of all his property for that purpose. NOW THIS INDENTURE WITNESSETH: That the party of the first part, in consideration of the premises, and of one dollar to him paid before the sealing and delivery of these presents, the receipt of which is hereby acknowledged, has granted, bargained, sold, assigned, transferred, and set over, and by these presents does grant, bargain, sell, assign, transfer, and set over, unto the party of the second part, his heirs, executors, administrators, and assigns, all and singular the lands, tenements, hereditaments and appurtenances, goods, chattels, stocks, promissory notes, debts, choses in action, evidences of debt, claims, demands, property, and effects of every description belonging to the party of the first part, wherever the same may be situated;(n) the same being more fully and particularly enumerated and described in a schedule thereof hereto annexed, marked Schedule A.(0) TO HAVE AND TO HOLD the same, and every part thereof, in trust for the uses and purposes following: 1. To take possession of the said property, and to sell and dispose of the same, with all reasonable diligence, either at public or private sale, and for the best prices that can be obtained therefor, and to convert the same into money; and also to collect all such debts and demands hereby assigned, as may be collectable. And with and out of the proceeds of such sales and collections: 2. To pay and discharge all the just and reasonable expenses, costs, and charges of executing this assignment, and of carrying into effect the trust (a) Such phraseology as this is held broad enough to embrace all assignable property of the assignor. It will pass his title to goods previously ordered by him to be manufactured in a foreign country, and on their way hither at date of assignment. Van Dine v. Willett, 88 Barb., 819; 24 Hono. Pr., 206. effect of the assignment to property explicitly mentioned in the schedule. All the property of the assignors will pass, the reference to the schedule being construed as intended not for the purpose of restricting the conveyance, but to identify the property conveyed. Platt v. Lott, 17 N. Y., 478; Turner v. Jaycox, 40 Barb., (0) This last clause will not restrict the 164. Individual Assignment without Preferences. hereby created, including the lawful commissions of the party of the second part, for his services in executing the said trust. 3. To pay and discharge in full, if the residue of said proceeds is sufficient for that purpose, all the debts and liabilities now due, or to become due, from the said party of the first part, and which are particularly mentioned and described in the schedule annexed, marked Schedule B, together with all interest moneys due and to grow due thereon. And if the residue of the said proceeds shall not be sufficient to pay the said debts and liabilities, and interest moneys in full, then to apply the same, so far as they will extend, to the payment of the said debts and liabilities and interest moneys, proportionably to their respective amounts. And if, after payment of all the costs, charges, and expenses attending the execution of the said trust, and the payment and discharge in full of all the lawful debts owing by the said party of the first part, of any and every description, there shall be any surplus of the said proceeds remaining in the hands of the party of the second part, then, Lastly, to repay such surplus to the party of the first part, his executors, administrators, or assigns. And for the better and more effectual exécution of these presents, and of the trusts hereby created and reposed, the party of the first part doth hereby make, constitute, and appoint the party of the second part his true and lawful attorney irrevocable, with full power and authority to do, transact, and perform all acts, deeds, matters, and things which may be necessary in the premises, and to the full execution of the said trust; and for the purposes of said trust to ask, demand, recover, and receive of and from all and every person and persons, all the property, debts, and demands belonging and owing to the party of the first part, and to give acquittances and discharges for the same; and to sue, prosecute, defend, and implead for the same; and to execute, acknowledge, and deliver all deeds and instruments of conveyance necessary or proper for the better execution of the trust hereby created; and also for the purposes aforesaid, or for any of them, to make, constitute, and appoint one or more attorneys under him, and at his pleasure to revoke the same; hereby ratifying and confirming whatever the said party of the second part, or his substitute, shall lawfully do in the premises. And the party of the second part doth hereby accept the trust created and in him reposed by these presents; and doth for himself, his heirs, executors, and administrators, hereby covenant and agree to and with the said party of the first part, his executors, administrators, and assigns, that he, the said party of the second part, will honestly and faithfully, and without delay, execute the same according to the best of his skill, knowledge, and ability. IN WITNESS WHEREOF, the parties to these presents have hereunto set their hands and seals, the day and year first above written. Sealed and delivered in presence of [Witnesses' names.] A. B. [Seal.] Y. Z. [Seal.] |