In re the Assignment of Allen Straus & Co. , 31 N.Y. Sup. Ct. 408 ( 1881 )

Talcott, P. J.

This is an appeal from an order made under section 22 of chapter 466 of the Laws of 1877, as amended by chapter 318 of the Laws of 1878, entitled “ an act in relation to assignments of the estates of debtors for the benefit of creditors.” On the 15th day of August, 1877, Allen Straus & Co., who had been engaged in the clothing business at Rochester, made a general assignment of all their estate to W. W. Parsells for the benefit of their creditors, providing for an equal pro rata distribution to and among them without any preferences.

Parsells accepted the trust, qualified and entered upon the discharge of his duties under the assignment. He has received and still holds assets as such assignee amounting to $8,528.89 less expenses and commissions.

On the 21st of August, 1877, proceedings in involuntary bankruptcy were commenced against said Allen Straus & Co., apparently upon the ground that such assignment to Parsells was an act of bankruptcy, and they were decreed to be bankrupts by the district court of the United States for the north-" ern district of ¡New York.

Prior to the 7th of January, 1878, the said Allen Straus & Co., filed their petition with said' district court for the composition of their debts in the manner directed by the seventeenth section of the amended bankrupt act, approved June 22, 1874. ¡No assignee was ever appointed in the said bankruptcy proceedings. But the fact of the said assignment to Parsells it appears was brought to the notice of the said court in bankruptcy by the petitioning creditors to the county court, in this case, who, as it appears, claimed in the bankruptcy court that the assets assigned to Parsells should be administered and applied by the said Parsells in pursuance of his trust. Parsells did not appear in the court in bankruptcy, and took no part in the proceedings in that court. Several meetings of the creditors were held under the said section 17 of the amended bankrupt law of 1874; but no proceedings were ever taken in the bankruptcy court or otherwise to have the assignment to Parsells set aside, and the proposition of Allen Straus & Co., for a composition was finally accepted by the requisite number and amount in value of their creditors as prescribed in the said section 17 of the amended bankrupt act. The proposition of Allen Straus & Co., which is not specially set forth in the papers in this case as is inferable from statéments contained in the papers, was to pay to all their creditors thirty per cent of their debts, which' proposition is inferred to have been in the language of said section 17 of the amended act, that the composition proposed should be accepted by the creditors “ in satisfaction of the debts due to them from the debtor.”

The proposition, having been accepted by the requisite number of the creditors in amount and value, was approved by the court in bankruptcy and duly recorded as provided by section 17, and the thirty per cent provided for in the composition was duly paid to the creditors, and the petitioning creditors in this case received and accepted the dividend of thirty per cent offered by the said proposed composition. Afterwards certain of the creditors filed their petition in this matter, addressed to the county court of Monroe county, alleging that Parsells had never accounted in relation to his trust either in the bankruptcy court or elsewhere, and praying that a citation be issued to the said Parsells, as such assignee, to show cause why he should not account for the money which came to his hands as such assignee. ■

On the return day of the citation to Parsells he appeared' by attorney, and filed his petition addressed to the county court of Monroe county, setting forth the history of proceedings in bankruptcy and the making and acceptance of the composition, also setting forth a partial account showing a balance of $7,935.89 in his hand as such assignee, and praying that he may be authorized to release to the assignors the assets so assigned, and that his account be settled and he be discharged from his said trust, whereupon a citation was issued to all parties interested in the assigned property, as creditors or otherwise, which citation having been duly served, the petition of creditors and of Parsells came on to be heard at the same time before the said county court, which after-wards, on the 20th day of January, 1879, made an order, judgment and decree whereby, after reciting in substance the foregoing facts, ordered, adjudged and decreed that the said assignee Parsells be discharged from all further liability to the compounding creditors of the assignors, and that said assignee be authorized to release the assets in his hands to the said assignors. Prom which order and decree of the county court the petitioning creditors appeal to this court.

This brings up a question as to the effect of a composition in bankruptcy as provided for by the seventeenth section of the amended law, which cannot be solved by the express provisions of that section.

It is to be noticed, however, that the thing provided for is a “ composition ” of all the debts of a bankrupt, and it is provided that all the creditors may resolve “ that a composition proposed by the debtor shall be accepted in satisfaction of the debts due to them from the debtor.” The creditors, therefore, are presumed to have accepted the composition proposed by the debtor in “ satisfaction of the debts due to them from the creditors,” as the act makes no provision for an acceptance of the proposition except in satisfaction of the debts.

The statute (sec. 17) also contains the further provision, viz.: “ Every such composition shall be subject to priorities declared in said act, provide for a pro rata payment or satisfaction in money to the creditors of such debtor in proportion to the amount of their unsecured debts, or then’ debts in respect to which any such security shall have been duly surrendered and given up.”

There is nothing in the case before us to show whether the court in bankruptcy considered and treated the assignment to Parsells as a partial security to the creditors or not, or whether in the proceedings in bankruptcy the creditors proved their debts as provided by the bankrupt law, or not; or if they did prove them, whether they proved for the whole face of the debt, or what deduction was made, if any, on account of the assigned property. Section 5075 of the bankrupt law (U. S. Revised Stat.) provides as follows, viz.: “ When a creditor has a mortgage or pledge of real or personal property of the bankrupt or a lien thereon foi' securing the payment of a debt owing to him from the bankrupt, he shall be admitted as a creditor for only the balance of the debt after deducting the value of such property to be ascertained,” &c.

The priorities specified in that part of section 17 above quoted are supposed to be those specially provided for in section 5101 (U. S. Rev. Stat.), and therefore do not embrace, so far as appears, any of the debts due to the petitioning creditors in this case. But the question still remains whether, by virtue of the assignment creating a trust for their benefit, the creditors did not have a lien upon the estate assigned to Parsells for the security of their debts pro tanto.

Equitable liens are supposed to be as much within the statute as legal liens, unless there is some prohibition in the state law, which renders them invalid (Parker agt. Mugridge, 2 Story, 334; Fletcher agt. Morey, Id., 555 ; Peck agt. Jenness, 7 How., 612; Davis, assignee, &c., 2 Bank Reg., 392). The assignment to Parcells was not void under the laws of the stategper se (Haas agt. O'Brien, 66 N. Y., 508).

Whether it would have been held to be void in an action commenced by an assignee in bankruptcy to have it set aside, or could have been decreed to be void by any proceedings in the bankrupt court, on the ground that such an assignment was in hostility to the bankrupt law and tended to defeat that law, because providing for the administration of the assets by a different agency from that prescribed by the bankrupt law (See Maryerd et el. agt. Hellman, 91 U. S. [1 Otto], 496). If a composition under the bankrupt law has been duly ratified, it confines the creditor to his security and discharged the debtor from liability (In re Lyth, 14; Nat. Bank Reg., 459). But it has been held in many cases that the creditor can pursue any collateral remedies for the collection of his debts (See Haas agt. O'Brien, 66 N. Y., 59 ; Thrasher agt. Bently, 59 N. Y., 649).

In a proceeding before the líew York common pleas, in a case where the debtor bald made a composition in bankruptcy, an. assignee was. on the petition of creditors, ordered to account, notwithstanding such composition, it not appearing that he had delivered the assigned estate to the assignors with the approval of the bankrupt court (In the matter of Hermann, 53 How. P. R., 377).

As it does not appear whether the proposition for a composition embraced as a part of it that the security, which the creditors already held by and under the assignment to Par-sells should be relinquished, and does not appear whether the petitioning creditors, in proving their debts, made any deduction from their face on account of any security they had by virtue of the assignment to Parsells, and especially as it does not appear whether the bankrupt court, in approving of the composition, took into consideration the amount to be realized from the assigned property, or estimated that as a part of the thirty per cent, which was to be paid by the composition and was agreed to be accepted in satisfaction, or whether the proposition for a composition provided that the security to which the creditors were equitably entitled under the assignment should be relinquished.

And as it does not appear that the bankrupt court has authorized Parsells to deliver back the assigned property to the assignors, we think the county court erred in refusing the application of the petitioning creditors and releasing the assignee Parsells from his liability to account to his cestui que trusts and authorizing him to deliver back to the assignors the assigned estate.

In other words we think the right to an accounting by the assignee, feannot be diverted by the mere fact of a composition in bankruptcy, unless that right is in some way relinquished by the creditors or shall be divested by the order of the court in bankruptcy, as when a composition has been made and accepted, and the terms of the composition have been complied with, the bankruptcy court will order the property in the hands of the assignee in bankruptcy to be surrendered to the bankrupt.

The order, judgment and decree of the county court appealed from is reversed, with costs to the appellant to be paid out of the trust funds, and the assignee, W. W. Parsells, is ordered to account as prayed for in the petition in behalf of Fenno et al. agt. Creditors of Allen Straus, &c., in the county court, to which court the proceedings are remitted.