Spinney v. The Portsmouth Hosiery Company, and Emery, Trustee, 25 N.H. 9 (1852) - Opinion

This disclosure admits §3,000 in the hands of the trustee. He must of course be charged for it, unless he clearly discharges himself. Wright v. Ford, 5 N. H. Rep. 178; Giddings v. Coleman, 12 N. H. Rep. 156. This he has not done. He says the property of the principal debtor was assigned to himself and the other assignees, in trust for the payment of the creditors; and as to any balance, to be repaid to the defendants. The trustee does not pretend to know or state that there are any creditors of the corporation, or that this money, or any part of it, will be required to pay any of its debts. In the absence of any statement or evidence upon this point, we are bound to regard this fund as held in trust for the corporation, and the trustee as chargeable for it. As by the assignment each trustee is answerable only for himself, he is properly to be charged alone. But as this point, obvious as it is, is not taken before us by the plaintiff’s counsel, we may assume that the trustee may ask leave to know a little more about this trust than he has disclosed, and we therefore propose to look further.

And first, we notice that certain names are written upon this assignment acknowledging notice and assent to the assignment as creditors; yet nothing is said in the disclosure as to the fact, whether' or not they are really creditors; nor whether they subscribed before the service of this writ upon the trustees, or afterwards; neither is it suggested that the trustees were themselves creditors. In the case Leeds v. Sayward, & Jenness, Trustee, 6 N. H. Rep. 83, in 1833, it was decided that the avails of property, assigned for the benefit of creditors, may be attached in the hands of the trustee by the trustee process; and the plaintiff will be entitled to recover any surplus which may remain over and above the amount of the debts of those creditors who have become parties to the assignment before the service of the process on the assignee:.and Parker, J., who delivered the opinion of the court, says it cannot admit of a doubt, that this is a proper process, by which to attach any surplus, which would eventually belong to the debtor; 4 Mason’s Rep. 223; and it would seem equally clear, that all the avails may be holden, in which the creditors had not acquired an interest prior to the service of the process., The question therefore is, whether a creditor who had subscribed the assignment after the service of the trustee process, had by the deed acquired any interest, so that he is entitled to this money in preference to the plaintiff. It may be conceded that he is within the terms of the assignment, but, at the time of the service of the plaintiff’s wait, he had in no way assented to it, nor become a party to it in fact. It has been suggested by eminent authority, that an assignment in such a case, being for the benefit of the creditors, their assent may be presumed. Halsey v. Fairbanks & Trustee, 4 Mason, 214. But after an attentive examination, we are unable to discover any ground upon which we can make such a presumption against a creditor who pursues his remedy at law. Widgery v. Haskell, 5 Mass. 153. Creditors may not deem such an assignment beneficial. It is for the payment of debts, but contains no assurance that the claims of any of the creditors shall be paid in full, except those in which the trustee is interested; and we cannot presume that the creditors would assent to this conveyance, and take a chance of receiving a dividend out of the property, instead of pursuing such other remedy for the recovery of their debts, as the law furnishes them. Nor do we discover any reason why he should attempt to raise such a presumption in favor of one creditor to the prejudice of another, having a bona fide debt, and more vigilant in the assertion of his rights. This is not a case which requires us to apply the doctrine of relation so as to make a subscribing creditor a party ab initio by his subsequent assent, as this would be to the prejudice of another creditor equally meritorious. At the time of the service of this process, it did not appear that any other creditor than those who had aheady executed it, would become a party to the assignment, or consent to be so considered. The principal debtor, then, was at that time, to the extent of the surplus over and above the amount of the claims of the creditors who had subscribed, the party in interest; and this interest was equally liable to be attached by this process, as any overplus which might in any event belong to him. Ingraham v. Geyer, 13 Mass. 146; Ward v. Lamson & Trustees, 6 Pick. 358; Viall v. Bliss & Trustee, 9 Pick. 13.

A statute was passed in July, 1834, which provided that no assignment, made for the benefit of creditors, shall be valid, except the same shall provide for an equal distribution of all real, mixed, or personal estate among the several creditors of the person making the assignment, in equal proportion, according to their respective demands; nor until the assignor has made oath that he has placed and assigned, and that the true intention of his assignment was to place in the hands of his assignees all his property, of every description, except such as is exempted from attachment, &c., to be divided among his creditors, in proportion to their respective demands. This statute is substantially the same as the provision of the Revised Statutes.

In 1839, after the passage of this act, a question arose in regard to the validity of assignments of this kind, in the case of Hurd v. Silsby, 10 N. H. Rep. 108. It was there held, that an assignment to be executed by the creditors, and containing a clause by which they are to accept their several proportions in discharge of their claims, is invalid as against a creditor who institutes a foreign attachment against the assignee, on the ground that the assignment did not in fact provide for a distribution to all the creditors, but only to those who should sign. In this case, the same learned judge says: “ In the present case, the distribution is to be made among those who will become parties and release their demands. It certainly does not appear that all will be willing to do this; and if they are not, — if they do not execute the instrument, — no provision is made for them. An assignment under this statute should have no conditions annexed to it.” And he then adds, perhaps extra-judicially, “ it need not even provide that the creditors should become parties by executing it. If no conditions are annexed, the assignment being for the benefit of áll the creditors, the assent of all may be presumed until the contrary appears.” Halsey v. Fairbanks & Trustee, 4 Mason, 207. But such assent cannot be presumed where a condition is affixed. 4 Mason, 207; Leeds v. Sayward, 6 N. H. Rep. 85.

Where there is no condition, the assent of the creditor being presumed until the contrary appears, the property is well held in trust for the benefit of all the creditors,- until dissent is in some way manifested. It is competent, of course, for any one to dissent, but this will not destroy the assignment. If he causes the trustees to be summoned in such case, he can only take such surplus as may remain, after paying those who do not dissent.

Without controverting the general position, that the assent of the creditors may be presumed, if it appears that the assignment is for their benefit, and no dissent appears, since that is not in question in this case, we think it clear that no such assent can be presumed where the assignment contains any condition or stipulation'which is in any degree calculated to defeat the object of the legislature, in providing for the equal distribution of all the property of the debtor among all bis creditors, in proportion to their claims; but must be clearly shown by direct evidence of assent, or by proof of acts from which it may be fairly inferred.

We have examined the provisions of this assignment, to which the plaintiff objects, and it iseems to us that the introduction of any provision in such an instrument, the effect of which is uncertain, and is matter of professional skill, might well be considered as a good reason for not presuming the assent of creditors without proof. Such a clause is of course designed to change the duties and liabilities of the assignees from those imposed by law, and may be fairly supposed to have in view their exemption from the burdens to which the law would subject them. The first of the provisions objected to is, that “the trustees shall not be liable or accountable for more money or effects than they shall receive.” This changes entirely the point of time at which the liability of the trustee should commence. The object of the statute is to secure the distribution of all the property of the debtor among his creditors. This clause relieves the assignees from the duty of distributing all the property, and will be completely satisfied in terms, if they distribute all they receive. The assignees are usually selected by the debtor, are naturally chosen among his friends, and may be reasonably supposed to be inclined to favor him; but when they have been appointed, their principal duty is towards the creditors, to collect and secure the property of the debtor for their benefit. This is a duty, which, from their position, they require more than ordinary stimulants to perform. This clause exempts them from any obligation to the creditors to use any diligence, or make any effort to obtain the property; and leaves them at liberty, by their indifference, to suffer the debtor to retain any part of the property which he can keep out of their hands. This opens a door for gross fraud, and at the very point at which fraud would be most expected. The rule prescribed by the law is thus laid down in 2 Story Eq. Jur. § 1268: “ A trustee is bound, by his implied obligation, to perform all those acts, which are necessary and proper for the due execution of the trust which he has undertaken;” and in § 1265, “ He is to act in relation to the trust property, with reasonable diligence.” To a provision like this, the assent of the creditors cannot be presumed. By the second clause, to which objection is made, the assignees “ are not to be liable for any loss or damage that shall happen thereto,” that is, to the property they actually receive, “ except the same shall arise by or through their own wilful default.” By the law, the assignees are chargeable not only for wilful acts, but for negligence. 2 Story Eq. Jur. § 1287; and negligence of the assignees, in relation to their duty to the creditors, is the great danger in all such cases. This clause, then, relieves the assignees from their legal and equitable duty, at one of the points where the rights of the creditors ought to be most strongly reinforced. It ought not to be presumed that any creditor, of reasonable prudence, would assent to an assignment by which he is prevented from exercising his own diligence to secure payment of his debt, and the assignees are not bound to exert any in his behalf.

By the third clause objected to, neither of the trustees is to be “ liable or responsible for the neglect, or default, or misconduct of any other trustee.” The general rule of the law is, that trustees are responsible only for their own acts, and not for the acts of each other. 2 Story Eq. Jur. § 1280-1; but this rule has its exceptions, and in cases where the one assignee is not chargeable with any wilful default. Ib. § 1284.. This clause tends, like the others, to relieve the assignees from the obligations of promptness, care and diligence, which are required by honesty and fair dealing in such cases. No assent ought to be presumed to an assignment, which in effect gives license to the assignees to suffer the property to be wasted by neglect. Morrell v. Morrell, 5 Johns. Ch. Rep. 283. The effect of an assignment for the payment of debts must always be to delay, and usually to defeat the attainment of justice by the ordinary course of legal proceedings. It substitutes for the redress the law affords, by recourse to the debtor’s property, the tedious and uncertain remedy against trustees in equity. The jurisdiction of our courts is limited to persons and property, within the reach of their process. The unavoidable effect of an assignment of the property of an insolvent debtor to an assignee resident out of the State, is to transfer the property out of the State, and beyond the reach of our tribunals, which have no mode of reaching either the assignee or the funds. If the debtor may make such assignment to a person in Massachusetts, he has an equal right to do it to one at New Orleans or San Francisco. Such assignments would have the effect to place the property beyond the reach of the creditors, and to enable the debtor to defraud them. We think there can. be no presumption that a creditor has assented to such an assignment; and that if a debtor chooses to select as assignees persons who reside abroad, he necessarily imposes on himself and them the burden of showing that the creditors have in fact consented to the arrangement. This objection must be equally strong, where a part of the assignees reside out of the State, especially where one is not responsible for another, as in this case, since it can no inore be justified to place a part of the property out of the reach of creditors than the whole.

The same principle, that assent is not to be presumed, ought perhaps to be applied where the trustee is grossly disqualified, by his character or situation, properly to discharge such a trust; but no such question arises in this case.

Where the assent of the creditors is not to be presumed, the principles established in Leeds v. Saywood & Trustee must apply in their full force; and the plaintiff must be entitled to recover by this process any surplus which may remain above the debts of the creditors who have assented.

In the present case, as it does not appear that either of the assignees was a creditor, or that any creditor has assented to the assignment, the assignees must be regarded as the mere servants and agents of the corporation, and bound to them alone; and the trustee must be charged, if necessary, to the amount in his hands.