Foster Nostrand et al. versus Elihu Atwood et al. and Trustees, 19 Pick. 281

Dewey, J. delivered the opinion of the Court. The question in this case arises upon the validity of the assignment. If it was valid and effectual in law to pass the property to the assignees, their title must prevail, and they will be discharged as trustees in the present suit. To the validity of this assignment two objections are made. 1.

That it contains a stipulation for a release, by all the creditors who may become parties to it, of all their demands against the assignors ; and this, it is alleged, operates compulsorily upon the creditors, and prescribes such conditions for the benefit of the assignors as will render the whole assignment fraudulent and void in law : 2. That all the property of the assignors was not conveyed to their assignees.

Upon the first point, many authorities were cited by the counsel for the plaintiffs, which show that this question has been one elsewhere much litigated, and that the result has been a conflict of opinions in the courts of the different States, in reference to it.

In the view we have taken of the present case, it is wholly unnecessary to consider particularly these various adjudications, or to pronounce any opinion upon the abstract question of the effect of the introduction into an assignment, of a stipulation for a release by the creditors who become parties to it, in a case where such a stipulation might be prejudicial to a creditor indisposed to assent thereto, and who might thus be deprived of receiving his share of the fruits of the assignment.

Our system in relation to assignments by insolvent debtors is doubtless an imperfect one ; and the legal principles in relation to it are somewhat peculiar to this Commonwealth. It has ever been the policy of our laws to hold all the property of the debtor as a fund to be appropriated to the payment of his debts ; and by no conveyance in trust can he divert it from this purpose, or secure any part of it to himself.

But it has been equally a part of our system, that this property may be applied to the payment of any particular debt or debts in exclusion of others ; and this may be effected either by proceeding, on the part of the creditor, by attachment, or the debtor may prefer one creditor to another by payment of his debt in money, or by a conveyance of so much of his real or personal property as will be adequate to the discharge of the debt, or the transfer may be by way of pledge, mortgage, or a conveyance to a third person in trust for the creditor, if done with his consent.

The doctrine has uniformly been, as regards such transfers in trust, that where there were proper parties and a valuable consideration arising from the indebtedness of the assignor, and the creditors assented to the conveyance, the transfer would be eíFec ual, and the property placed beyond the reach of the trustee process, unless where it might be avoided by a stipulation reserving a portion of the property conveyed, for the benefit of the assignor, or by showing some fraudulent intent.

It is equally well settled, that, as respects creditors who have not become parties to a conveyance in trust, by assenting thereto, an attaching creditor will have the priority. But wherever the amount of debts due to the assenting creditors is equal to or exceeds the whole property assigned, the trustee process, as well as any other mode of attachment, becomes entirely ineffectual.

There is nothing for it to operate upon, the property having been appropriated to its legitimate purpose, the discharge of the debts of the assignor ; and though a preference is thus made between different creditors, it is no more injurious to the creditor who is without security, than if the same amount of property had been conveyed by pledge or taken by attachment. The legal principles which have been stated, are fully recognized in various adjudications of this Court. I will only refer to the more recent cases. Russell v. Woodward, 10 Pick. 412; Bradford v. Tappan, 11 Pick. 76; Foster v.

Saco Manufacturing Co. 12 Pick. 453; Everett v. Walcott, 15 Pick. 94. By the answer of the trustees it appears, that the whole amount of debts due to preferred creditors who have accepted this assignment, is $ 19,982-47, and the whole real and personal estate holden by them under the assignment, amounts only to $ 16,710-81, leaving an excess of debts over the whole property conveyed, of $ 3,271 -66, without making any deductions for so much of the property as could not be reached by this process, as the real estate, book debts, &c.

It will be readily seen, therefore, that, in the present case, the stipulation for a release, was one wholly immaterial to the rights of the plaintiffs or any other creditors not named in the first class. There was no property transferred for their benefit. The creditors who had prior rights have a lien on the whole to their exclusive use. Those who have an interest in the property assigned are satisfied with the terms of the assignment, having voluntarily accepted them.

The plaintiffs are not compelled to execute a release of their debt; and their refusal to accept what they call onerous terms, does not deprive them of any security. It is the same thing to them as if the stipulation for a release had not been made a part of the assignment. The question then arises, can a person having no interest in the property conveyed, question the validity of the conveyance because the purchaser or creditor has taken it upon terms too onerous to himself ? We think clearly not.

That debts to the amount of the property conveyed should be charged upon it with the assent of creditors, that there should be no reservation of any part of the property for the benefit of the debt- or, and, generally, that the transaction be bond fide, are holden necessary prerequisites to place the property beyond reach of the trustee process ; but where all these circumstances do ex-.st, it ceases to be liable for other debts of the assignor.

The second question raised by the counsel for the plaintiffs, was, whether by the terms of the assignment the assignees hold an estate in fee, or a life estate, in the real estate, leaving the reversion in the assignor; if the latter, it is contended that it renders the conveyance void, and that it is substantially a reservation for the benefit of the assignor. We have not found it necessary to decide this question ; for we hold, that this objection to the assignment, if it exist, cannot be taken by the plaintiffs.

If any exception could be taken for this cause, it must be by those who have an interest in the assignment; those who as preferred creditors are entitled to share in the proceeds of the property assigned, and who, by accepting this in full discharge of their debts, are precluded from resorting to any property not transferred to the assignees. As has been before shown, the plaintiff has no real interest in the assignment ; and the creditors holding under it are content with the provisions of it.

Why should the plaintiffs complain, that a fund has been left unapplied, to which they may resort directly by the common process of attachment ? Such an objection from such a source, cannot be sustained. Upon the whole matter, therefore, the Court are clearly of opinion, that the trustees must be discharged. It may be proper to remark, that this opinion and the legal principles above stated, are adapted to the state of the law when the present assignment was executed, which was prior to the statute of 1836, c. 238, introducing many new provisions as to future assignments.