Reed v. Allerton

The defendant Nussbaum, and one Strauss, were partners in trade, and on the 6 th of January, 1862, they made an assignment of their property for the benefit of their creditors. The defendant Nussbaum had no individual property, or assets, to assign. The firm of Nussbaum & Strauss had some little personal property. Strauss had real estate of his own, which, of course, under the assignment, went to pay the partnership debts. The partnership- debts were all paid or compromised by Strauss. By order of the Supreme Court, after such payment, and by and with the consent of all their creditors, the real estate belonging to Strauss was reconveyed to him by the assignee, and the assignee relieved from all the trusts under the assignment.

The plaintiff herein, after the defendant had been relieved as assignee from all the trusts, and after he had reconveyed the property to Strauss, obtained judgment against Nussbaum for an individual indebtedness, and now he seeks to hold the assignee personally responsible for the amount of said judgment obtained against Nussbaum, because the assignee reassigned the real estate, which originally belonged to Strauss, back to Strauss again.

I fully concur with the chief justice in saying that the plaintiff, in this action, cannot recover, and that the judgment below should be affirmed, for two reasons.

First. When Nussbaum joined in the assignment with Strauss, he had no individual property, and therefore could assign none; consequently, the real estate that reached the hands of the assignee, through the assignment, was the individual property of Strauss, and the judgment by the plaintiff, in this case, being against Nussbaum individually, and not against the firm, "or for a firm , debt, the plaintiff herein has no equity to entitle him to have the individual property of Strauss applied to pay a judgment against Nussbaum.

Second. The order of the Supreme Court relieving the defendant herein from all responsibility as trustee, under the assignment, not having been set aside, or modified, and it having been offered and received in evidence in this case, is a *564complete bar to the action. (See the cases cited in the chief justice’s opinion.)

The case before us is to be considered, so far as the plaintiff is concerned, precisely as' if the assignment in' question were gratuitous, and executed by Strauss, who was not liable to the plaintiff, to pay first the debts due by him jointly with the defendant, Hussbaum, and secondly those due by both separately. There being no obligation by Strauss to pay the plaintiff, the latter is in no better condition by reducing his debt to judgment, than if it had remained at large.

The first question that presents itself is, whether the Supreme Court had jurisdiction to accept the resignation of the defendant Allerton, as trustee, and discharge him from his duties and all liability to account to the plaintiff as cestui que trust under the assignment in question. By the original provision of the Revised Statutes of 1830, (1 R. S. 730, § 69,) the court of chancery was authorized to accept the resignation of a trustee, upon his petition merely, and discharge him from the trust. It was required, also, to establish regulations for the purpose, and determine the terms upon which such resignation should be accepted, having reference to the rights and interests of the persons interested in the execution of such trust. The court of chancery had no such power previously, unless by consent of all parties. (Matter of Van Wyck, 1 Barb. Ch. 565. Matter of Wadsworth, 2 id. 381.) The trustees, by making such application, virtually surrendered the administration of his trust to such court, (see 2 Spence, Eq. Jur. 918,) and deprived the cestius que trust of the power of proceeding against him adversely, until such application was disposed of. (Groshen v. Lyon, 16 Barb. 461.) The better practice sanctioned in such cases, seems to be to order a reference to inquire into the facts and circumstances under which the resignation is offered. (Matter of Miller, 15 Abb. Pr. 277.) But as to the statutory form of proceeding by petition, without notice to any one, it does not necessarily require a litigation inter partes ; the court which acquires jurisdiction can exercise it in any mode it thinks proper, provided it does not transgress its limits; and when exercised, it precludes all the world. It would undoubtedly not follow, that every provision in an order *559discharging a trustee must he valid, because the court has power to accept his resignation; (Matter of Crossman, 20 How. 350;) but any exercise of such power within such jurisdiction, however indiscreet, cannot be corrected in a collateral proceeding, because it does not, by such indiscretion, become void. Where no trustee remains vested with the legal estate, by the discharge of the petitioner, it would seem to be an incomplete exercise of power to leave the subject of the trust without a legal, owner ; but such power of appointment is the subject of a separate provision in the statute just cited. (2 R. S. 730, § 71.) There is nothing to prevent a court having the power to appoint trustees from appointing the original creators of the trust as such. There could have been, therefore, no obstacle, in this case, to the appointment of either Strauss or the defendant Nussbaum, or both, trustees to carry out the trusts of the assignment; it was a matter entirely in the discretion of the court. The Supreme Court has, of course, succeeded to all the authority of the court of chancery in regard to matters of this kind. How far Strauss and Nussbaum became such trustees in place of the defendant Allerton, by the order of the Supreme Court' directing the latter to transfer to the former any unconverted property and the proceeds of any sold, it is perhaps not necessary now to discuss. Clearly, the property itself would not thereby become freed from the trusts. The Supreme Court undoubtedly ordered Allerton to deliver the custody and title to all the property in his hands to the assignors, either as trustees, or else preparatory to the appointment of new trustees. Whether that was or not an indiscreet exercise of authority, it cannot be overhauled in this action, collaterally. It the acceptance of Allerton’s resignation was within the jurisdiction of the court, and completed, he ceased forthwith to have any control over the property, and was not bound to administer the trust any further for the benefit of the plaintiff, or any other person. If the property was left in his hands until a successor was appointed, he was bound to deliver it over to such successor immediately on his appointment. It, therefore, results that Allerton is not responsible to the plain*560tiff for- any property in His' hands when he was discharged, unless the order of the Supremé Court is to be entirely disregarded. ' If it was obtained improperly, or on false suggestions, the remedy of the plaintiff is by an application to that court to set it aside, where the merits of the whole matter can be inquired into. If this' action had been commenced while such application was pending undetermined, under the "authority of the case of Groshon v. Lyon, already referred to, (ubi sup.) this court would have' been bound to stay proceedings in it. I, therefore, fully concur with the learned referee, in this case, in the opinion, that without regard to the effect of the direction in the order of the Supreme Court to restore the property to the assignors, it discharged the defendant Allerton from all liability as trustee, even" if it left the property in hi's hands, to become subject to ;the original trusts, in the hands of his successor. The remedy of the plaintiff was to have applied to the Supreme Court, to appoint a successor to Allerton, (if Nussbaum and Strauss were not made so by such order,) and through him to.have compelled Allerton to deliver over to him the property in his hands. It certainly would be unjust, in any event, to order the plaintiff’s debt to be paid in full,without any allegation or proof respecting the existence of any other creditors of the assignors entitled to an equal sharé. If this were an action for an accounting, all the cestius que trust should be parties, or théir non-existénce should be alleged and proved. •

I think it, however, extremely doubtful, whether, even if the order of the Supreme Court were disregarded, and the defendant Allerton were still a trustee, he could be made .responsible to the -plaintiff for the property handed over to the assignors. The plaintiff had no right in the subject matter of the assignment until the. partnership creditors were satisfied. So long as the property- assigned was not sufficient to pay the preferred debts,- he had no claim. If by any means they were discharged, of course he became interested jointly with other postponed creditors of Nussbaum & Strauss. This operated to relieve such assets from all claim by them, so as to make the plain*561tiff a cestui que trust of what remained. It is to be recollected, however, that part of the agreement of compromise was that the assignment was to be surrendered and canceled ; if that was not done, part of the consideration for the .agreement to discharge failed, and the creditors in question had a right to insist on the full amount of their debts ; in other words, if the plaintiff is entitled to any benefit from the discharge of the preferred debts he is bound to ratify the stipulation which discharged them. The effect of a surrender or cancelment of the assignment, as it was termed in each agreement, was to revest the assignors with the ownership of the assigned property ; for that and their discharge from indebtedness, they gave their notes with new security therefor. Such assignors, and particularly Strauss, were under no obligation to the plaintiff, so far as the property assigned was concerned, to pay their partnership debts off out of other resources, so as to let the plaintiff come in and claim it. There was no legal restriction upon the right of such assignees to buy the assigned assets, except that the possession of them after the assignment might be a badge of fraud in regard to it, of which no complaint is made; the connection, therefore, of the transfer back of such assets, with a discharge of their indebtedness where there was the additional consideration of new notes and security therefor, did not invalidate either. If the partnership creditors chose simultaneously to receive in place of the proceeds of the assigned assets, notes of the assignors, which would in part be a continuation of a part of the same indebtedness, and discharge the latter only from the rest of it, I know no principle of law to prevent them. They were substantially the equitable owners of such assets to the extent of their claims, and could have taken them at their fair value in satisfaction of a similar amount of such claims, and the plaintiff had no right to interfere. I am at a loss to perceive why they would not be entitled to take them, or consent to their destination or to their transfer to any third person, provided they agreed to extinguish as much of their claims as was equal to their value.

*562In the argument presented on behalf of the plaintiff, the discharge of the partnership debts is separated from the transfer by the property, as having previously occurred, instead of being part of one transaction, and simultaneous with, and forming part of, mutual considerations. There would have been no difficulty in their arriving at the same result more circuitously ; namely, by the partnership creditors taking all the assets in satisfaction of their debts, and selling part of them to the assignors for their notes, duly secured, which was exactly what the agreement in question accomplished. The plaintiff would have no right in such case to interfere, and does not acquire it by the same result being reached directly.

The partnership creditors and assignors could by no means which they could resort to destroy or cancel the assignment, so far as rights of any other persons were concerned. The purport, therefore, of surrendering or canceling the assignment must, by the agreement between them, be understood from the whole agreement as meaning nothing more than surrendering the assigned property, which was subsequently carried out, and was sanctioned by authority of the Supreme Court. It may not have been the most felicitous expression they could have used to express such meaning, but such purpose being legal, while the literal interpretation would make the agreement illegal, the former is to be preferred.

The covenant contained in the assignment, by the defendant Allerton, to discharge the trusts contained in it, was not to the plaintiff, and did not enable him to bring any action at law upon it. I am also at a loss to conceive of any mode of reasoning by which the power of the Supreme Court to accept the resignation of a trustee who is an assignee of an insolvent debtor can be superseded impliedly by the powers of a county judge to decree upon petition an accounting and distribution of assets, and prosecution of an assignee’s bond under the statute of 1860. (Laws of 1860, p. 596, §§ 4, 5.)

I, therefore, am of opinion that the judgment appealed from should be affirmed, with costs.

As I understand the evidence, and the findings of the referee, in this case, the defendant Allerton actually received, under and by virtue of the assignment to him, not only lands and real estate of which Strauss was the owner individually, amounting in value to some nine thousand dollars, but, also, a quantity of beef, and some cattle, horses, carts, and wagons, belonging to the firm, together with their books of account containing charges against sundry debtors to the amount, nominally, of seventy-five or eighty thousand dollars.

It is, probably, not very important, however, so far as concerns this case, whether the assigned property was wholly that of Strauss, or in part, belonged to the firm. The assignment purports, by its seal, to have been founded upon a suffificient consideration, and it was valid within the statute, as a trust for the payment of debts. It is entirely immaterial, therefore, whether it was or was not a trust to pay the indebtedness of a person other than the one who furnished the property.

The duty of the assignee, under this trust, was fully expressed in the instrument itself. He was required to convert the whole of the property and assets into money, and to apply the proceeds, in the first instance, to the payment of the debts of the copartnership, and, secondly, to pay over the surplus, or so much thereof as should be necessary, to the creditors of each of the assignors, individually.

An honest departure from a literal compliance with the direction to convert the assets into money, would, doubtless, have been excusable in some supposable cases. If, for instance, the assignee had, under an agreement to that effect with all the creditors of the first class, transferred to them, or to their appointee, the whole or a portion of the assigned property itself, at its fair value, in satisfaction, entirely or pro tanto of their just claims, instead of first converting it into money, such transfer *565would have been held, in equity, a good execution of the trust, to that extent. But that was not done in this case. None of the property covered by the assignment was conveyed or delivered, in specie, to the creditors of the firm, nor, even, was its redelivery to the assignors provided for in the composition deed. But, on the contrary, the assignor paid to them about $9000 in money, which he had received from sales or collections, and, in consideration of that payment, and the execution to them of new notes by the assignors, to the amount of twenty-five per cent of the indebtedness, such creditors of the partnership acknowledged, in writing, a full satisfaction and discharge of their claims, and consented that the assignment be surrendered and canceled, and that an order of court should be made and entered, if necessary, to that effect.

It appears to me that the status of the assigned estate and effects which were in the hands of the assignee at the time of the execution of this composition deed remained, and was, wholly unaffected thereby. No provision was made in that instrument for the application of such assets to the payment of any part of the indebtedness of the firm ; nor, it may be added in this connection, does it appear that they were, in fact, so applied, either in the arrangement between the parties to the deed, or otherwise. The permission given to the assignee to surrender and cancel the assignment was, of course, inoperative as to any of the eestuis que trust, except those who were parties to the deed. Indeed the consent so given by the first class creditors was simply a permission to the assignee to do an act which, so far as they were concerned, he would have been legally entitled to perform without their assent, upon a satisfaction and discharge of their claims, and was therefore quite useless. In its bearings upon this case, therefore, the arrangement between the parties to the composition deed must be considered as intended merely to discharge the indebtedness of the firm to its creditors of the first class, and to release the assignee from further liability to them under the trust, in consideration of the receipt of some nine thousand dollars from the assets, which then belonged in equity *566to those creditors, and a further sum in new promissory notes1 of the assignors themselves, in place of other obligations or liabilities of theirs for a larger amount, which were provided for in the assignment. In a word, the claims of the partnership creditors which remained unpaid by the assignee, were satisfied by the debtors themselves, and not out of the assigned property, nor, I think, by any arrangement which impaired the right of the creditors of the second class to have the trust estate and effects which remained in the assignee’s hands when the composition deed was executed, applied to the satisfaction of their claims ; and it follows that it was the duty of the assignee, notwithstanding such arrangement, to proceed in the execution of his trust for the benefit of those concerned in interest, unless, and until, he should be legally discharged from the obligation he had assumed.

After the composition deed was executed, and when the order of the Supreme Court was made, the assignee held the title to all the real estate covered by the assignment, as well as three horses and some old wagons. The referee has found that the horses and wagons were of but trifling value. It can hardly be supposed that he considered their value so small as to bring them within the maxim “ de minimis non curat lex.” He probably used the term comparatively, and with reference to the aggregate value of all the assigned property. Be that as it may, however, the real estate, certainly, can hardly be deemed liable to such an objection, as it was worth some $3000, at least, over and beyond all incumbrances upon it.

The question then is, whether the order of the Supreme Court, conditionally releasing and. discharging the assignee from all .further duties under the trust, legally empowered him, as against the rights of the plaintiff as a cestui que trust, to reconvey and return the assigned property to the grantors ; or whether, by obtaining that order and making such reconveyance, or either, he has incurred a liability to the plaintiff for which he is answerable in this action.

As a general rule, and except for the statute, (2 R. S. 730, *567§ 88,) a trustee of an express trust, having accepted the same and entered upon its duties, must continue to execute the same, unless excused therefrom by all the parties interested in such trust. (Wood v. Wood, 5 Paige, 596. Shepherd v. McEvers, 4 John. Ch. 136. Cruger v. Halliday, 11 Paige, 314. Diefendorf v. Spraker, 10 N. Y. Rep. 246. Matter of Van Wyck, 1 Barb. Ch. 565.) The reconveyance of the estate by him to the grantor is a violation of the trust. (Diefendorf v. Spraker, ubi sup.) For such a reconveyance, if effective, is the destruction of the trust estate itself j and if it results to the injury of the cestui que trust, the trustee will be liable to him therefor. The justification of the defendant Allerton, if any he has, for the reconveyance of the trust property to his assignors, and the consequent destruction of the estate, must therefore be sought for in the order of the Supreme Court.

The section of the statute upon which that order was founded is in the following words :

“ Upon the petition of any trustee, the Supreme Court may accept his resignation, and discharge him from the trust, under such regulations as shall- be established by the court for that purpose, and upon such terms as the rights and interests of the persons interested in the execution of the trust shall require.” (2 R. S. 730, § 88, [69.] )

The legislature undoubtedly intended, in this section, to empower the Supreme Court to release and discharge a trustee who found it impossible or inconvenient to act further in the execution of the trust; and the power conferred upon the court to settle the terms on which such discharge should be effected, was given for the purpose of enabling it to preserve and protect the rights and interests of the beneficiaries, by the imposition of such conditions, in regard to the settlement of-the accounts of the outgoing trustee, and the disposition of the trust fund and property, &c. as such court should deem necessary for that purpose. It is impossible to suppose they designed to vest the court with the power, upon an ex parte application of the trustee, to which the Gestuis que trust were not parties, to- destroy or to authorize, by its order, the de*568struction of the trust estate itself. That would be entirely inconsistent with the authority given to the court to fix such terms as the rights of the persons intrusted in the execution of the trust shall require ; the only terms, be' it remarked, that the court is authorized by the statute in question to impose. The terms mentioned in the act were intended, as its letter shows, for the protection of the persons interested in its execution ; and not such as would authorize the trustee to destroy the trust estate and, with it, all the rights and interests of the beneficiaries. So much of the order, therefore, as directs “ that the assignee be permitted to surrender the said assignment, and to reassign and restore the assigned property, or the proceeds thereof,” to the assignors, is unauthorized by the statute, and as to the plaintiff, who was not a party to the special proceeding upon which it was obtained; wholly inoperative and void ; and for that reason, such order affords no justification to the defendant Allerton, for the assignment and restoration of the property to the assignors, and the consequent destruction of his estate therein in trust. It may be added, that even had the statute expressly authorized just such an order and reassignment as have been made in this case, upon a mere exparte petition of the trustee, I should find but little difficulty in arriving at the conclusion that the unpaid cestuis que trust could not thus be divested of their- equitable interests in the trust fund; for that would be to deprive them of their property without that “ due process of law ” which the paramount law of the land contemplates.

Again : The order in question does not command or require the assignee to reconvey and restore the property to the assignors, nor declare, in presentí, that he is discharged of his trust; but it simply directs that he be permitted to do so; and declares that, upon the restoration of the property and the surrender of the assignment to the assignors, he shall be discharged from the trust. The order, therefore, left it entirely optional with the assignee to. make such restoration and surrender, while he yet remained the trustee of an express trust, as yet. unexecuted in part, and thereby to destroy the trust *569estate, or to refrain therefrom. It was, at best, but a mere permission to the defendant Allerton to do an illegal act, at his own risk and. hazard.

I am also of opinion that the order of the Supreme Court cannot, in equity, be so construed upon the trial of this action as to authorize a return of the property to the assignors, and the cancelment or surrender of the assignment, so long as the trust remained unexecuted. Being an order in a special proceeding, under a statute, it should be read in the light afforded by the petition of the assignee, on which it was founded, in order to ascertain its object, scope and meaning, as well as the design and intention, not only of the court by whom it was granted, but of the petitioner himself. Now, as the petition of the assignee alleges, in effect, that all the creditors who are interested in the trust have been satisfied and have released the assignors, the order ought, in equity, to be considered upon the trial of this action as having been designed to meet just that case, so presented by the petitioner ; and as authorizing the assignee to return the property to the assignors, and surrender the assignment at a future time, when the facts stated in the petition should really exist, and such surrender and return could be made legally, and without depriving any of the beneficiaries of their rights and equitable interests in the property belonging to the trust estate. The principle of the rule laid down in Haydon’s Case, (3 Rep. 7,) and still adhered to by all courts, authorizes us, I think, to ascertain the intention of the court in the manner above suggested; and “ Omne actum ab ag'entis intentions est judicandum."

If, however, we consider the order as authorizing the return of the property and surrender of the assignment at the time those things were done, although the claim of the plaintiff then remained unpaid, then, it appears to me, we are compelled to hold that the trustee is, in equity, estopped by his petition to claim, upon the trial of this action, that an ex parte order procured by and through his own misrepresentations, can justify an act inequitable in itself, which was not contemplated by the court when such order was made. To decide otherwise *570would be to permit such trustee to obtain an advantage by means of his own wrongdoing ; which is permissible neither at law nor in equity. “ Nullus commodum capere potest injuria sua propria.”

I am of opinion, therefore, that the order of the Supreme Court furnishes no justification for the defendants ; and that, upon the facts found by the referee, the plaintiff was entitled to a judgment.

The judgment appealed from should be reversed, with costs, and a new trial awarded.

Judgment affirmed.