Tompkins v. Hunter

• Decision Date: 07 April 1896
• Citation: 43 N.E. 532,149 N.Y. 117
• Parties: TOMPKINS et al. v. HUNTER et al.
• Court: New York Court of Appeals Court of Appeals

149 N.Y. 117

43 N.E. 532

TOMPKINS et al.

v.HUNTER et al.

Court of Appeals of New York.

April 7, 1896.

Appeal from supreme court, general term, Fifth department.

Action by Charles M. Tompkins and others against Charles Hunter, the First National Bank of Penn Yan, and another, to have a conveyance by the first to the second named defendant set aside as in fraud of plaintiffs, and for other relief. From a judgment of the general term (28 N. Y. Supp. 1132) affirming a judgment in favor of defendants (24 N. Y. Supp. 8), plaintiffs appeal. Affirmed.

ASSIGNMENT FOR BENEFIT OF CREDITORS-PREFERENCES.

A transfer by an insolvent of all his property to one of several of his creditors, to be applied to the payment of a bona fide debt, is valid, not being a general assignment for the benefit of creditors, within the meaning of Laws 1887, c. 503, providing that, in all general assignments of the estates of debtors for the benefit of creditors, no preference shall be valid, except to the amount of one-third of the value of the assigned estate. 28 N. Y. Supp. 1132, affirmed.

William F. Cogswell, for appellants.

Harris and John T. Knox, for respondents.

MARTIN, J.

On and prior to April 19, 1890, Charles Hunter was engaged in business as a grocer and produce dealer in the village of Penn Yan, N. Y. The plaintiffs obtained judgments against him, and issued executions thereon, which were returned unsatisfied before the commencement of this action. The judgments were for debts which had accrued before the 19th of April, 1890. On that day Hunter had determined to discontinue his business, and proposed to the president of the First National Bank of Penn Yan to sell and convey to the bank all his property, real and personal, not exempt from levy and sale on execution, in payment of his liabilities to it, so far as it was sufficient for that purpose. This proposition was accepted, and on the 21st day of the same month Hunter conveyed to the bank all his real estate by deed, and transferred to it, by a bill of sale, all his personal property not exempt from levy and sale upon execution, including all the debts which were due or owing to him. The bank received this property at the agreed price of $21,790.70, applied that sum upon the debts of Hunter, and surrendered to him his notes therefor, except as to an overdraft for a small amount, and the sum of $1,636.33, which was applied in part payment of a note for a larger amount. The negotiations between Hunter and the bank, which preceded the execution of the deed and bill of sale, had reference to a sale by him to it of the property therein described, and the transfers made by him were intended as an absolute sale and transfer thereof by Hunter to the bank in payment and satisfaction of his indebtedness to it to the extent of the value of the property transferred. The price agreed to be paid was the full value of the property. The bank immediately took and continued in the possession of the property. The defendant Hunter did not make, and at no time contemplated making, any general assignment for the benefit of his creditors. The negotiations which resulted in the execution of the deed and bill of sale, as well as the deed and bill of sale, were made in good faith, and only with a view to the sale of his property by Hunter to the bank in payment of his indebtedness. When the negotiations for the purchase and sale of this property took place between the bank and Hunter, the latter had determined to discontinue his business, to give up the dominion of his property to the bank in payment of his liabilities to it so far as it would go, and so stated to its president. Hunter was at the time insolvent, and the president of the bank knew his financial condition.

This action was in the nature of a creditors' bill, and was brought to set aside the conveyances made by the defendant Hunter to the defendant the First National Bank of Penn Yan. The alleged grounds of action were: (1) That the conveyances and transfers mentioned were made and received with an intent to hinder, delay, and defraud the creditors of the defendant Hunter; (2) that they were made as a part of a collusive and fraudulent conspiracy to prevent the collection of the plaintiffs' judgment; and (3) that they were, and each was, intended as a fraud upon or evasion of chapter 466 of [149 N.Y. 120]the Laws of 1877, as amended in 1887, and were given and received with an intent to give the bank an unlawful preference. On the trial the sole ground relied upon by the plaintiffs was that these conveyances effected a preference, which is forbidden by the general assignment act, and were void, so far, at least, as the property transferred exceeded the value of one-third of all the property owned by Hunter at that time. The court, however, held that they did not constitute a preference forbidden by that act, but were valid, and directed a judgment dismissing the plaintiffs' complaint, with costs.

The appellants strenuously insist that the statute of 1887 was intended, and should be construed, to include any and every transfer or conveyance made by an insolvent debtor, entirely independent of the question whether he, at the time or subsequently, made or intended to make a general assignment for the benefit of his creditors, and hence that both the trial court and the general term erred in holding that the conveyances in question were valid. The appellants argue that the act of 1887 is a remedial statute, which should be reasonably construed to accomplish its intended purpose; and that its purpose is to prohibit an insolvent debtor from preferring his creditors to an amount in excess of one-third of his estate, although no general assignment is made or contemplated. The substance of their claim is that this act should be construed as in the nature of a bankrupt law, and so as to apply to the estate of an insolvent debtor, without regard to the character of the transfer made. The statute, so far as material to this question, is as follows: ‘In all general assignments of the estates of debtors for the benefit of creditors hereafter made any preferences created therein * * * shall not be valid except to the amount of one-third in value of the assigned estate left after deducting, etc. * * *’ Laws 1887, c. 503. That this act should receive a reasonable construction, and one which will accomplish its intended purpose, there can be no manner of doubt. Thus, at the threshold of this examination,it becomes necessary to ascertain its real purpose and effect. In determining that question, it is proper to consider the condition of the law upon the subject when the amendment of 1887 was passed, and thus ascertain the mischief or defect it was designed to remedy. At common law, as it existed before there was any statute on the subject in this state, an insolvent debtor possessed the right to make a voluntary assignment for the benefit of his creditors, and to prefer such of them as he deemed best, without any limitation or restriction whatever. The first statute in this state which related to this class of assignments was passed in 1860. Laws 1860, c. 348. It was several times amended, and, as amended, remained in force until 1877, when a new and somewhat more comprehensive act was passed, and that of 1860, as amended, was repealed. Laws 1877, c. 466. Neither of these statutes in any way limited or restricted the right of an insolvent debtor to prefer such of his creditors as he desired. The first and only direct limitation of that right is contained in the amendment of 1887. The statutes of 1860 and 1877 recognized the right of a debtor to make such an assignment, provided the manner in which it should be executed, established a course of procedure for carrying into effect and enforcing the trust thereby created, but did not contain any substantive law. In 1884 the statute of 1877 was amended by adding a new section creating a preference in favor of employés for their wages, and in 1887 the amendment in question was enacted. Prior to the amendment of 1887, an insolvent debtor had 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 was his honest purpose, although the effect of the sale or transfer would be to place his property beyond the reach of other of his creditors, and render their debts uncollectible. Murphy v. Briggs, 89 N. Y. 446, 452;Knapp v. McGowan, 96 N. Y. 75, 86; Paper Co. v. O'Dougherty, 36 Hun, 79, affirmed 99 N. Y. 673; Williams v. Whedon, 109 N. Y. 333, 337,16 N. E. 365;Bank v.Williams, 128 N. Y. 77, 28 N. E. 33;McNaney v. Hall, 86 Hun, 415, 419, 33 N. Y. Supp. 518. 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. Indeed, it was upon the principle that a person might acquire, enjoy, and dispose of his property that his right to make a general assignment rested. While the law was in this condition, the legislature amended the general assignment act, which, as its title indicates, was a statute that related solely to voluntary assignments, and to no other transactions or conveyances. It had then become usual for debtors making general assignments to prefer creditors to an extent that was deemed inequitable and unjust, and it was to prevent that mischief that the amendment of 1887 was passed. That act did not, in terms, include any conveyance or transfer other than a general assignment. When it was passed, the character of such an assignment was well understood. There is a broad and well-defined distinction between such an assignment and a deed or bill of sale. The former is a transfer by a...