author: Hogeboom, J. Denio, Ch. J.

text:
    William T. Graff, Receiver, &c., Appellant, v. Patience Bonnett and others, Executors, &c., of Peter Bonnett, deceased, Respondents.
    In general, property held in trust for the debtor and for his benefit, may be reached through the agency of a court of equity, and applied to the satisfaction of his debts; but not property held in trust for hito upon a trust, or arising out of a fund proceeding from a third person, designed to secure to the debtor personally, a support.
    But a trust arising out of a fund proceeding from a third party, is not absolutely exempt from equity jurisdiction, but is subject to the same conditions under which other trust property may be enjoyed by a debtor secure from attacks from his creditors.

      lb seems, that in such case, only so much of the trust fund would be subject to the demands of creditors, as would remain a surplus after providing for the proper support of the cestui qui trust.

    Therefore, in an action seeking to recover such fund by the creditor, &o., the complaint must show by proper averments, the existence of such surplus.
    This is an appeal by the plaintiff from a judgment of the Superior Court of the city of New York, in favor of the defendants, rendered upon a demurrer to the complaint.
    The complaint alleges that by virtue of certain proceedings supplementary to execution, the plaintiff was, prior to the commencement of this action, appointed receiver of all the debts,, property, equitable interests, rights and things in action, of William H. Bonnett.
    (William H. Bonnett is made a party defendant in this action as one of the executors of Peter Bonnett, deceased, but not as the judgment debtor.)
    That Peter Bonnett, the father of William H. Bonnett, by his will, dated November 20, 1849, gave to said William H. Bonnett, the interest of $15,000, to be paid to him during his life; and by said will directed, that said sum of $15,000 be kept invested on bond and mortgage and the interest paid to said William H. Bonnett during his life. That the will was duly proved before the surrogate of New York, on the 12th of September, 1850; and letters testamentary therein duly issued to the defendants.
    It is then alleged that the plaintiff, by virtue of his appointment as receiver of the property of William H. Bonnett, is entitled as such, to receive from the defendants as executors, the interest accruing on said $15,000, from the time of his appointment.
    That the defendants have collected the interest thereon since his appointment as receiver, and although requested to account to and pay the same over to the plaintiff, they have neglected and refused to do so, and judgment is demanded that the defendants account for said interest since October 9th, 1858, and pay the same to the plaintiff.
    It is not alleged in' the complaint that any part of the income or interest of the $15,000 was in the hands of the defendants, or was due and payable when the plaintiff was appointed receiver of the property of William H. Bonnett.
    To this complaint the defendants demurred, on the ground that» it did not state facts sufficient to constitute a cause of action.
    Upon this demurrer judgment was given for the defendants, and the plaintiff now appeals to this court.

      John Aitkin, for the plaintiff, appellant.

      John H. Reynolds, for the defendants, respondents.
   Hogeboom, J.

Although the terms of the will are not set forth in the complaint with any degree of detail, there is enough stated to justify the conclusion that the fund from which the annuity to William H. Bonnett is payable, was given to the executors m trust for that purpose, to invest the same and to make such payments to the annuitant from the income thereof during his life. The executors are the trustees of this fund, and William H. Bonnett is the cestuñ que trust, and it is a «trust of personal property. The theory of the complaint unquestionably is, that the interest of the cestui que trust in this fund is alienable/ that it is a vested interest in possession, and that an assignment to the receiver passes the debtor’s interest in the fund, even though there was no interest or income in the hands of the executors at the time of the appointment of the receiver, and none then due and payable. Hence the allegations in the complaint are, not that the executors had any income in their hands at the time of the appointment of the receiver, or that any had then become due, but that they have collected interest on the fond accruing since such appointment, and have refused to pay it over to the receiver; and that the latter is entitled to all the interest which has accrued since the date of his appointment. This presents the first question which is raised by the defendants in the case, to wit, that nothing passed to the receiver as property of the judgment debtor except the installments of interest which had already become due at the period of his appointment; that future installments which might or might not ever become due, had not that characteristic of fixed and ' determinate interest which entitled them to the denomination of property, such as would pass to the receiver under an order made in supplementary proceedings. There are some cases which tend to such a conclusion, and such seems to have been the opinion of the court below; but I think that court failed for the moment to recall a distinction which is made between different classes of cases on this subject, and which is founded upon the alienability or non-alienability of the debtor’s interest in the fond. If this interest is not alienable so far as it is necessary for the support of the cestui que trust, 'then I think it has been well held, in several of the cases, that it will not pass to a receiver until it has actually become due, and perhaps not until it has been in some way determined that there will be a surplus over and above the inalienable right of the judgment debtor to a support; for it is only such surplus which is liable to the claims of creditors; and this surplus, it has been held, is not properly ascertainable under supplementary proceedings- to discover and appropriate the debtor’s property to the satisfaction of the judgment, but only in a suit or proceeding where the issue is directly made upon the amount necessary for the debtor’s support, and to which the trustees and cestui que trust are parties. But if the debtor’s interest in this fund is vested and certain, though the time of payment may not have arrived, it strikes me it has about it those elements of property which would enable it to pass to a voluntary assignee or to an assignee under the insolvent laws, or to a receiver in supplementary proceedings. It is an interest to which the debtor is absolutely entitled under the will, of which nothing but the law can deprive him, which is necessarily to continue during his life, and which would have an appreciable value, dependent upon his probabilities of continuance in life, if exposed for sale. It is a fixed life interest in a specific fund, and the circumstance that the income or interest has not become due, does not seem to me to destroy the positiveness and absoluteness of the interest, even if it should be held to detract slightly from its value in the market. We are therefore necessarily driven to examine the other and more material question on the case, to wit, the alienability of this interest by the judgment debtor. If it is so far within his power that he can effectually transfer it to another person, then it is also, I think, accessible to the claims of his creditors.

The determination of this question must depend upon the construction which should be given to our statutes, in regard to limitations of, and interests in, personal property, and in regard to the exemption of certain trusts from the claims of creditors.

It is undeniable that if this were an interest in a trust, for the receipt of the rents and profits of lands, it would not be assignable; and it -has been held in several cases, that the statute which provides that limitations of future or contingent interests in personal property, shall be subject to the statutory rules prescribed in relation to future estates in land, was, in effect, a legislative application of the same principles and policy to both classes of property; and that, even if the provisions of the statute were not sufficiently comprehensive, absolutely to require as a peremptory injunction of statute law, their application in all their length and breadth, and in the same degree, to both classes of property, the argument to be derived from the general similarity of the legislative enactments, in regard to both classes of property, from the similar, if not equal mischiefs to be remedied, and from the general policy of the law, would authorize a court of equity, in the exercise of its acknowledged powers, to apply the same rule of construction to both. I am aware that Mr. Justice Cowen, in Kane v. Gott (24 Wend., 641), and Assistant Vice-Chancellor Saítfoed, in Grout v. Van Schoonhoven (1 Sandf. Ch., 336), have contended for the contrary doctrine, in arguments of much ingenuity and force; but I think the great preponderance of authority is in the opposite direction, and that the rule has been recognized and acted upon for so long a period, and with such general acquiescence, that it has become a law of property and ought not now to be invaded; and I confess, if the question were an original one, I should be of opinion that essentially the same rule should obtain as to the inalienability of estates and interests in both classes of property, and in the rents and profits and income thereof, as otherwise the restrictions imposed upon the enjoyment and transmission of interests in one class of property, might be readily evaded by a testator by directing its conversion into the other. For myself, therefore, I feel inclined to adhere to the rule as I think it is generally recognized, and to leave it to the legislature to sanction a departure from it, if it shall be deemed advisable.

If the view of the case thus far taken be correct, it becomes unnecessary to consider the further question which would otherwise arise, to wit, whether the clause in that section of our Revised Statutes, concerning the power to decree satisfaction of a debt out of property belonging to a debtor, or due to him, or held in trust for him, which excepts from the operation of such a power, the case “ where such trust has been created by, or the fund so held in trust has proceeded from some person other than the defendant himself,” interposes an insuperable barrier to the relief sought by the plaintiff, if he were otherwise entitled to it. One theory is, that this provision was designed to protect the interest of a beneficiary in a trust, whose object it was to provide for his maintenance and support, and to the extent necessary for such purpose only. Another theory is, that the exception exempts from the jurisdiction'of a court of equity in this respect, all trusts, of whatever description, which proceed from, or are created by some person other than the debtor himself. A third theory is, that the exception applies to property held in trust for the debtor, not belonging to or coming from him, but proceeding from a third person, though created for the debtor’s benefit, and in all such cases preserves the trust fund intact. My own opinion is, that the true reading of the statute is this: That as a general proposition, property held in trust for the debtor, and for his benefit, may be reached through the agency of a court of equity, and applied to the satisfaction of his debts, but not property held in trust for him upon a trust, or arising out of a fund proceeding from a third person ; which last named trust property is to be exempted from equity jurisdiction, not wholly or absolutely, but to the same extent, and under the same conditions under which trust property may be enjoyed by the debtor, secure from the attack of his creditors, under other and general provisions applicable to trust property. In other words, it was a legislative declaration, in language intended to be explicit,'but possibly liable to some misconstruction, that property held in trust for the debtor, when such trust proceeded from himself, was in no case to be protected for Ms benefit; but where the trust or the fund proceeded from some other source, the liability of the property to, or its exemption from judicial seizure, was to depend upon the general provisions of law applicable to trust property.

It was not the intention of the legislature to exempt every species of trust property originated by a tMrd person from liability for the debts of the beneficiary, nor to declare in this connection the condition and circumstances upon which such liability was to depend, but to qualify the comprehensive language employed in a previous part of the section and partially limit its otherwise apparently umversal application.

The decision of tMs question is not, however, necessary to this case, in the view which I have taken of it; for if the interest of the debtor in tMs property is only subject to .the claims of his creditors in a particular contingency, and then only to a limited extent, to wit, on the report of a surplus over and above an amount necessary or proper for Ms maintenance and support, we cannot infer that such surplus existed, and it was the office and duty of the pleader, by proper averments, to present such fact in the complaint, even if it were possible in the present proceeding to do so without new and distinct issues, or additional parties. The omission to state any of these facts" in the complaint, I regard as a substantive defect, properly availed of by demurrer.

I am, therefore, of opinion that the judgment of the court below was right, and should be affirmed.

Selden, Davies, Ingraham and Mullen, JJ., also for affirmance.

Denio, Ch. J.

This was an appeal by the plaintiff from a judgment of the Superior Court of New York, in favor of the defendants, rendered upon a demurrer to the complaint.

The complaint stated that the plaintiff had, pursuant to' certain proceedings supplementary to execution, in two certain actions wMch were mentioned, and in each of wMch William H. Bonnett was one of the parties defendant, been appointed receiver of all the debts, property, equitable interest, rights and things in action of the defendants in each of those actions; the date of the first appointment being October 9th, 1838, and of the other June 3d, 1863; and that the plaintiff was duly invested with all rights and powers as such receiver, and that the defendants had notice of these appointments. The next averment was' as follows: The plaintiff further shows that Peter Bonnett (the brother of William H. Bonnett), late of the city of ¡New York, deceased, in and by his last will, dated ¡November 20th, 1860, gave and bequeathed the interest on the sum of $15,000, to be paid to the defendant, William H. Bonnett, during his lifetime; and in and by said will it is directed that said sum of $15,000 shall be kept invested on bond and mortgage, the interest whereof to be paid to said defendant, William ¡H. Bonnett, during his lifetime.” It was then averred that the will had been proved before the surrogate of the county of ¡New York, and that letters testamentary had been issued to the defendants in this suit, one of whom was the said William H. Bonnett, as executrix and executor of Peter Bonnett, at different dates in September, 1850, and October, 1851, and that they had duly qualified.

The plaintiff claimed that he, as such receiver, was entitled to receive from the defendants the interest accruing on the $15,000 from the time of his appointment; and he averred that “ the defendants, as executrix and executor as aforesaid, had collected said interest on said $15,000 since the plaintiff was appointed receiver as aforesaid, and that, although the plaintiff had requested the defendants to render an account and to pay said interest to the plaintiff, they had neglected and refused to render such account, and to pay the interest or any part thereof to the plaintiff. The prayer was that the defendants render an account of, and pay the interest to the plaintiff, and for general relief.

The demurrer alleged that the plaintiff did not state in the complaint facts sufficient to constitute a cause of action against the defendants.

The judgment in favor of the defendants was affirmed at a General Term, upon which this appeal was brought by the plaintiff.

The general questions raised by this appeal are, first, whether the interest of* the judgment debtor, William H. Bonnett, under the will of his late father, Peter Bonnett, was such an interest as could be aliened or disposed of by him; and if it was, then, secondly, whether it could be subjected to the payment of his debts, by a proceeding in imroii/wm, of the character instituted by the plaintiff?

1. The fund of $15,000, out of which the interest was to accrue, must be taken to consist of money and personal estate. The will is not set forth at large, and it may be that the fund was to be created by the sale of real estate. But no such fact appears by the averments of the complaint; and if it did, the fund must still, upon the doctrine of equitable conversion, be considered and treated as personal. (Kane v. Gott, 24 Wend., 641; Savage v. Burnhama, 17 N. Y., 561.)

The article of the Revised Statutes which treats of uses and trusts, contains the following provision: “ho person beneficially interested in a trust, for the receipt of the rents and profits of lands, can assign, or in any manner dispose of such interest; but the rights and interest of every person, for whose benefit a trust for the payment of a sum in gross is created, are assignable.” (Vol. I, p. 730, § 63.) There is no difficulty, I think, in considering the leaving a sum of money in the hands of executors, to invest on interest, with directions to pay the interest as it accrues to an individual a trust. But the statute speaks only of the rents and profits of lands, and does not in terms at all apply to the interest of money, or the income of personal property. But it has been said that the provision prohibiting alienation is made applicable to trusts of personalty, by another provision of the Revised Statutes, contained in the title relating toaccumulation of personal property, and of expectant estates in such property.” (1 R. S., 773, §§ 1, 2.) After declaring, in the first of these sections, that the absolute ownership of personal property shall not be suspended, &c., except during the continuance of two lives in being at the date of the grant, or the death of the testator, if it be a will, it proceeds, in the second section, as follows: “ In all other respects, limitations of future or contingent interests in personal property, shall be subject to the rules prescribed in the first chapter of this act, in relation to future estates in lands.” The reference obviously is to the first article of the second title of that chapter, which treats of the creation of estates in lands. (1 R. S., 721.) The greater part of the article is devoted to the definition of, and to the rules regulating estates in expectancy, which are divided into estates commencing at a future day denominated future estates, and reversions. (§§ 7 to 42, inclusive.) A variety of rules, as is well known, are laid down as to the creation of such estates. The term used in the law of real estate, to denote the act of prescribing by deed or will the commencement, the duration and the termination of such estates, is the lÁmvvbi/ng them, and the completed act by which they are thus created is called a limitation / and one or the other of these words is used in that sense, in nearly every one of the thirty-five sections included in my quotation. These are the rules which, by section two, above mentioned, are attached to limitations of future and contingent interests in personal property. The provisions of the article concerning uses and trusts, in which the provision restraining alienation is found, relate to quite a different subject, and do not touch the subject of limiting future estates. They commence by abolishing uses and trusts of real estates, except as authorized and modified by that article; and they declare that every estate and interest in lands shall be deemed a legal right, cognizable as such in courts of law, except when otherwise provided in that chapter. (1 R. S., 727, §§ 45, 46.) The provision first cited, declaring the non-alienability of the beneficial interest of a trust for the receipt of the rents and profits of lands, is found among those provisions relating to uses and trusts in lands. The argument which would annex this provision to trusts of personal property, would be equally strong to bring that species of property within the influence of all the provisions of the article concerning uses and trusts; and upon that position no trust of personal property could be created for purposes not within the scope of the fifty-fifth section of the article of uses and trusts. But the rule is notoriously otherwise. The vice of a tendency to a perpetuity is made equally fatal to disposition of both species of property by force of separate express' enactments, contained in the provisions applicable to each (1 R. S., 723, § 15; id., 773, § 1); but independently of this restraint, trusts may be created of personal property, for any purpose not unlawful by the general principles of law. (Gott v. Cook, 7 Paige, 521; Kane v. Gott, supra; Leggett v. Perkins, 2 Comst., 297; Bidwell, arguendo, at p. 305, and Gardiner, J., at p. 313; Savage v. Burnham, 17 N. Y., 561; Brown v. Harris, 25 Barb., 134; Van Vechten v. Van Vechten, 7 Paige, 104; DePuyster v. Clendenning, id., 295; Everett v. Everett, Court of Appeals, June Term, 1864.)

Hence, I conclude that there is nothing in our statute law which restrains the alienability of the interest of the beneficiary in a trust to receive and pay over the interest of money or of personal property. If it should be asked upon what policy I conceive the legislature to have proceeded in the discrimination thus made between thé two species of property, in respect to arrangements which "are otherwise of so similar a character, the answer would be, in the first place, that we are dealing with the positive prescriptions of the written law, where the will of the legislature stands for the reason of its enactments. It may be further observed, that it was a leading object in the enactment of the Revised Statutes to simplify the law of real estate, and to prevent the title from being vested in one person while the right of enjoyment was in another. This was considered a public evil in respect to estates in land, and it had become a standing complaint, that titles were sometimes so complicated by the employment of trusts that creditors and purchasers were frequently misled and defrauded. The title to personal property was rarely made the subject of trust dispositions of any intricacy. Its changeable and fluctuating character offered little temptation for making it the subject of settlements requiring the interposition of trusts. It was, therefore, no departure from the system of the revisers to leave trusts of personal estate as it found them.

There was another reason for rendering trusts for receiving and distributing the rents and profits of land inalienable, as to the interest of the beneficiary, which had no application to trust of money or personal property. The 55th section of the article of uses and trusts, as reported by the revisers and enacted by the legislature, authorized trusts of this description only for receiving the rents and profits of lands, and applying them to the education and support or either, of any person during the life of such person. (Subd. 3.) This would embrace only a limited class of transactions, as it would naturally be confined to the cases of infants and indigent persons, who had wealthy friends desirous of making a permanent provision for their bringing up and maintenance; and these were objects which would commend themselves to the special favor of the legislature. I have no doubt but that it was these considerations which ' led the authors of the system to exempt the income of land devoted to such meritorious'purposes from the general proscription of trusts in land, and, at the same time, to exempt the income of such trust estates in lands from the general policy of the law which renders all property of an individual liable to be appropriated to the payment of his debts. One provision was a counterpart of the other. The general principles established, by the new system were relaxed in both instances in the interest of minors and destitute persons. Trusts for their benefit were tolerated, and at the same time a safeguard against the improvidence of the beneficiaries was provided by rendering their interest inalienable, and consequently not liable to be taken for their debts. The scope of the third subdivision was enlarged about a year after its passage, and a few weeks after it took effect, by substituting the word me for education and support (Laws 1830, p. 386); and the provision, as thus amended, has been construed so as to embrace trusts for the direct and unqualified payment of the rents and profits of lands to the beneficiaries. (Leggett v. Perkins, 2 Comst., 297.) In giving a construction to any portion of the system as originally enacted, any reference to other parts, which its elucidation may require, must be to such other parts as they stood when the system as a whole was first adopted. The abolition of trusts, except as authorized by the 55th section, and which embrace only trusts of real estate, and the provision inhibiting the alienability of the interest or the cestui que trust, are parts of one system, and the latter is restricted to the same species of property as the other.

Plain as this conclusion seems to me to be, it has been the subject of some conflicting decisions. In Hallett v. Thompson (5 Paige, 583), a legacy of $4,000 was held liable to the satisfaction of a judgment against the legatee, though the principal was to remain in the hands of the executors and interest only to be paid to the legatee until he should require the capital to be paid. The chancellor said that a creditor’s bill would reach only so much of the interest of personal property held in trust, as was not necessary for the support of the judgment debtor, by analogy to the 57th and 63d sections of the article of uses and trusts of land. But the case was decided on the' ground that an uncontrollable interest in the $4,000 was bequeathed.

The case of Gott v. Cook came before Chancellor Walworth in 1839. An estate composed of real and personal property was put in trust, the rents, profits and interest being disposed of in a manner creating, as it was claimed, an unlawful perpetuity. As to the part which was personal, the impediment to the absolute ownership consisted in the alleged inability of the beneficiaries to alien their interests. The chancellor held the trust unlawful as to both species of property, and predicated his judgment upon the section of the article of uses and trusts which forbids the alienation of the interest of the cestui que trust, in a trust to receive the rents and profits of land (§ 63); and this he held to be attached, by reference, to trusts of personal property by the second section of the title concerning expectant estates in personal property, which I have referred to. (7 Paige, 521.) The case was heard on appeal, in the court for the correction of errors in 1840, under the name of Kane v. Gott (24 Wend., 641), where the chancellor’s decree was affirmed; but not at all on the ground on which it was placed by him, which, on the contrary, was expressly repudiated. The only opinion given was that of Hr. Justice Cowen, who demonstrated, in an argument of marked ability, that “ it was not possible for one to create a trust of personal property in such terms as to render the interest of the parties entitled to receive the income inalienable, and that there was nothing in the statutes which either directly or by reference warranted such a position. 'The case of Hone v. Van Schaick (7 Paige, 222), was decided in the Court of Chancery a little earlier than that of Gott v. Cook. Property, real and personal, was put in a trust which was to continue for an absolute term of twenty-one years, and the income and interest were disposed of to the descendants of the testator in a manner not material to be stated. The devise of the real estate was clearly void, since it had been held that no suspension of the powers of alienation could be allowed for any period except during a hfe> or lives in being; and the estate of the trustees and of the beneficiaries in trusts of land were both inalienable by the express provisions of the statute; and as to the part which was personal, the chancellor held it to be void by importing the provisions of the 63d section of the article of uses and trusts into trust dispositions of personalty by means of the reference which has been mentioned. The decree was affirmed in the court of errors on the single opinion of Hr. Justice Bronson. He refrained, however, from committing himself to the position of the chancellor respecting the inalienability of the interest of the cestnd que trust in trusts of personal property; for he remarks upon that subject, “no distinction was made on the argument between the real and personal property included in the trust ” (p. 567). The same question was again presented in the Court of Chancery, in Clute v. Bool, reported in 8 Paige, p. 83. . A father had by his will directed his executors to set apart, out of his personal estate, a sum sufficient, at six per cent, to raise an annuity of four hundred dollars, which annuity he directed to he paid to his son for life, in quarterly payments. A judgment creditor attempted to subject this annuity to the payment of his judgment; but it was held to be an inalienable interest, and hence not liable to the debts of the annuitant. The chancellor conceded that section 63, as it stands in the article of uses and trusts, related and was confined to the income of real estate only; that it was made applicable to a similar interest in the income of personal estate by section 2, so often referred to, which directs that limitations of future and contingent interest shall be subject to the rules prescribed in relation to future estates in lands. The learned chancellor stated the principles which governed him in the following language: “ All dispositions of the rents and profits to accrue and be received subsequent to the execution of the instrument, that is, subsequent to the death of the testator, where such disposition is made by will, are considered future estates, and to be governed by the same rule” (p. 85). I have already observed that future estates, as defined by the Revised Statutes, and as understood in the law of real estate, are prospective and future in quite a different sense than the one thus given. If the chancellor’s definition is correct, I do not see but that a fee simple conveyed by deed or devised by will would be a future estate; but yet it is perfectly certain that this is not what was meant by the statute. This decision was made about one year prior to that of the court of errors in Kane v. Gott; and the one in Hone v. Van Schaick was still earlier. I cannot but think that if the learned chancellor-had enjoyed the advantage of perusing the argument of Judge Gowex, a different determination would have been made. He, however, in a subsequent case, reiterates the position that the income arising upon trusts of personal property is inalienable by analogy to the provision in that respect in the 63d section of the article relating to trusts in land. But the case did not call for an opinion on that point, the trust being, as was held, for the payment of a gross sum.

In Grout v. Van Schoonhoven (1 Sandf. Ch., 336), decided in 1840, the question we are considering came before the late assistant vice-chancellor of the first circuit, and was examined with great care. It is obvious that he had before him the several cases upon that question which had then been adjudged and to which I have referred. His conclusion is expressed as follows: “It is thus perfectly plain that the provisions against the aliening of trust interests in lands have no application to a vested interest in possession under a trust of personal estate. I have perhaps been more minute in the demonstration than was necessary, because in one or two instances where trusts of real and personal property were created by the same deed the courts have blended them together without discrimination in speaking of the inalienability of trusts.”

The principle involved in this discussion is one of very gréat practical importance. It is no less than this: whether it is in the power of owners of personal property to dispose of the whole beneficial interest in it, in such a manner that the grantee or donee may hold and enjoy it without its being- liable for his debts. The statute does not limit the amount which may thus be held in trust, and takes no account of the circumstances or needs of the beneficiaries. Fortunes of any amount may thus be conveyed, and their beneficial owners, if they will spend his income as it is received, no matter in what kind of luxury or extravagance, or give it away, may put their creditors, who will probably have trusted them upon the credit which their apparent circumstances have inspired, at defiance. It may be said that this may be done where the subject of the trust is real estate; and that is true. I have endeavored to show that this is the result, not of any intelligent legislative intent, but of an inadvertence in omitting to alter the provision as to inalienability of trusts, when the purposes for which trusts of lands were tolerated were changed from provisions for education and support, into an unlimited control of the income. But I do not maintain that it is competent for the courts to deny the consequence which results from the declared inalienability of the interest of the beneficiary in trusts of land, though they may see ever so clearly that the provision as it stands was the result of an oversight on the part of the legislature. But in regard to trusts of personalty, I do not fiad any such provision in the statutes.

By the common law and the doctrines of courts of equity, the interests of the beneficiary in such trusts were the subjects of the resort of their creditors. They would pass under the bankrupt and insolvent laws and might be reached by the creditors by proceedings in equity. (Bryan v. Knickerbocker, 1 Barb. Ch., 409, and see the cases cited by the Chancellor from the English courts of equity.) It is against the policy of the law and the interests of trade to protect such property where the legislature has not in terms shielded it from the pursuit of creditors.

2. But there is another provision of the ¡Revised Statutes, by which, at first, I felt more embarrassed than by those which I have thus far considered; but which, after a good deal of consideration, I have concluded does not stand in the way of the plaintiff. The statutory provision enabling judgment creditors to reach the choses in action, and personal property of the debtor, and property held in trust for him, is in the article relating to the jurisdiction of the Court of Chancery. (2 R. S., 173, §§ 38, 39.) The first of these sections provides for a bill for discovery of the debtor’s property, money or things in action, or held im, trust for him, and for an injunction restraining him from disposing of it, “ except where such trust has been created by, or the fund so held in trust has proceeded from some person other than the defendant himself.” The next section empowers the court to decree satisfaction of the judgment, “ out of any personal property, money or things in action belonging to the defendant, or held in trust for him, with the exception above stated&c. The exception in each section was inserted by the legislature, the draft reported by the revisers containing no exception. (3 R. S., 2d ed., p. 669.) I am of opinion that the authority which the courts now possess, to subject such property to the payment of judgments, is derived horn this legislation.. Though, the better opinion may have been that courts of equity had an inherent power over the subject before the statute, it was not a settled point, the decisions being contradictory. (3 R. S., 2d ed., p. 669; Hadden v. Spadder, 20 Johns., 554; Donovan v. Finn, Hopk., 59.) When, therefore, the legislature came to define the cases, and to prescribe the manner in which intangible personal property should be compulsorily subjected to the satisfaction of the debts of the owner, the provision ought to be considered exclusive of any other authority for effecting the same object. If, by the true construction of the language of the exception, the interests of the beneficiary, in trusts of personal property, are excluded and exempted from the scope of this remedy, there is an end of the question, and such interests cannot be reached in any manner. But the cases have strangely confused this question. In Hallet v. Thompson, already referred to, the chancellor held the exception, in regard to trusts both of real and personal property, to be limited to so much of the income as should be necessary to the support and maintenance of the beneficiary, and that the creditors might subject the overplus. The exception, he said, “was unquestionably intended by the legislature to protect the beneficial interest of the cestui que trust, in trusts of this description, and in such only to the extent of a fair support and maintenance, out of the trust property which had been invested in trusts by some other person for his benefit.” It was supposed that the 57th section of the article of uses and trusts authorized this modification of the general language of the 38th and 39th sections of the article concerning the jurisdiction of the Court of Chancery. The first mentioned section is in these words: “Where a trust is created to receive the rents and profits of land, and no valid direction for accumulation is given, the surplus of such rents 'and profits, beyond the sum which may be necessary for the education and" support of the person for whose benefit the trust is created, shall be liable in equity to the claims of creditors of such, person, in the same manner as other personal property which cannot be reached by an execution at law.” The difficulty of applying this provision to the case of a trust of personal property, is the same which we experienced in connecting the section declaring the inalienability of the rents and profits of land with" trusts of personalty. It is confined by its language to trusts of lands, and is found among the series of provisions which regulate trusts of real estate, and have nothing to do with personal property; and the section assimilating limitations of future and contingent interests in personal property to those limiting future estates in lands is, as we have seen, foreign to the question. But what was said by the chancellor in the case of Hallett v. Thompson, was obiter, as has been mentioned. In Graff v. Mason (4 Sandf. Ch., 357, anno 1846), where it was sought, in a creditor’s suit, to reach an annuity of $2,500 per annum, payable to the judgment debtor, out of a trust embracing real and personal estate, the vice-chancellor gave up the position, which he considered perfectly plain, in Grout v. Van Schoonhoven, and yielded to the authority of the chancellor’s doctrine, that both the 57th and 63d sections are applicable to the income of personal as well as real estate, and that these sections should be held to qualify the exceptions in the 38th and 39th sections of the article respecting the jurisdiction of the Court of Chancery. The immediate question was upon inserting the substance of the exception, in the injunction. The case came before the chancellor in 2 Barb. Ch., 79, where the principle of the decision of the vice-chancellor was adhered to. It is to be remarked, that what was said by him upon this point» was obiter, the order which would have raised the question not having been appealed from.

The effect of sections 38 and 39 was again spoken of by the chancellor in Degraw v. Clasen (11 Paige, 136). The question arose upon the settlement of the form of an assignment upon a judgment creditor’s bill. The interest, which it was the design of the suit to reach, was an annuity of $700 a year charged by a will, in effect, upon real estate of the deceased in the hands of his devisees. The master» had directed an exception to be inserted in the instrument excluding the annuity from its operation. The chancellor held that it should not have contained any exception, but have been absolute, because there was no trust to bring the case within the sections. In his observations on those sections, he considered them to embrace only such interests as were declared by the 63d section of the statute of uses and trusts to be inalienable, and said that neither law or sound policy would allow an absolute, and unconditional right to property to be vested in a person which he might use and dispose of as he pleased, by anticipation or otherwise, but in relation to which property he might set his creditors at defiance.

The Supreme Court, under our present system, has taken a different view of these sections. In Stewart v. McMartin (5 Barb., 438), the debtor was entitled to the income ' of a trust fund created by a deed of her father, executed in Scotland long before the enactment of the Revised Statutes. The court held that the sections in question prohibited its being subjected to her debts. In a very elaborate opinion prepared by Judge Paige, it was shown that bnt for the sections in question, the income under consideration would have been liable to the pursuit of the creditor. He denied the soundness of the doctrine that these sections were only operative in cases where the interest sought to be reached was made inalienable by the Revised Statutes; and the judgment given could not be sustained without overruling that doctrine, as the trust was one not at all under the influence of these statutes.

A single other case upon these sections remains to be mentioned, Bramball v. Ferris, recently decided in this court (14 N. Y., 81). The debtor was entitled, under the will of his father, to a share in the income of the residue of the testator’s estate during fife. The residue had all become personal by the execution of a power of sale. There was a codicil providing that if a judgment should be rendered against the son upon a creditor’s bill, the payments of income to him should cease, and the executors were thereafter to expend it for the benefit of his family. The only question discussed was as to the effect of the codicil. Two opinions were delivered respectively by Judges Comstock and Mitchell. They concurred in holding that the codicil operated to extinguish the power of the creditor to assert his claim against the income; and the judgment of the Supreme Court in favor of the defendant was affirmed. Judge Comstock held the judgment right in another aspect, viz., that the 38th and 39th sections of the article, relative to the jurisdiction of the Court of Chancery, precluded the plaintiff from enforcing his claim by creditor’s bill. He said that was the construction the statute had generally received, and quoted Clute v. Bool, and Stewart v. McMartin. It cannot be said that this was more than the opinion of a single judge; and'I conceive that it was virtually opposed to the judgment of the court of errors in Kane v. Gott, and that it was an extension of the statute to a case which was not within any reasonable construction of its language.

I am of opinion that neither of the theories upon which it has been attempted to construe these sections is sound. The exception is general, embracing both kinds of property, and it cannot therefore refer to and be limited by the provision rendering inalienable the interest of cestui que trust in trusts of real estate. There is no such language as would confine it to the surplus beyond what might be needed for the education and support of the beneficiary. These suppositions are pure conjectures. What, then, is the meaning of the exception in the 38th and 39th sections ? In my opinion it is simply this: that where a trust has been created by some other person than the defendant, or funds held in trust have proceeded from some other person than the defendant, satisfaction of the creditor’s judgment is not to be decreed out of such trust funds. In other words, the trust is not to be subverted or destroyed, and the property or money so placed in trust is not to be taken by the creditor where it has proceeded from another party. If a debtor will make a conveyance of his own money or lands in trust for himself, the property so put in trust, or, in the words of the statute, so held in trust for him, is to he applied to the payment of his debts; but if a relative or other person will create a trust for his benefit, though the property is in a legal as well as a popular sense held in trust for him, as it was not his property before being embraced in the trust, it is not to be disturbed. It was to guard against a possible construction of the general words which would allow the trust fund itself to be taken, that the exceptions were introduced by the legislature. There is not one word said respecting the income of the trust funds. It is a common device of fraudulent debtors to convey their .property upon trusts for their benefit, and one branch of the statute of frauds is aimed at that practice; and hence this statute, in terms, subjects all property and things in action, held in trust for the debtor, to the satisfaction of the judgment; but as a trust created by another for his benefit, would fall within the general words of the act, the trust fund was, by abundant caution, protected by the introduction of the exception. A construction which should embrace the income which belongs absolutely to the debtor, within the exception, would form an anomaly in the law. The most enormous incomes could be held and enjoyed with a perfect immunity against the ordinary liability which the law imposes upon every other person, of having his property taken for the payment of his debts. Ho one can deny that it would violate all legal analogies of the law of debtor and creditor, and the soundest principles of public policy and morality, to give this effect to the sections of the statute in question. I do not think their language requires, or will permit it.

My conclusions upon the whole case are the following:

1. This being a trust of personal property, is not within the statute of uses and trusts of land. The provision establishing the inalienability of the interest of the beneficiary in that class of trusts, has, therefore, no application.

The continued existence of such a provision, in respect to „rusts of lands, since it has been determined that such trusts may be created to pay over the rents and profits, is the result of inadvertence; but it is an inconvenience that cannot be remedied by the courts.

2. The sections of the statute relating to the jurisdiction of the Court of Chancery, which except trust property from being reached by creditor’s suits, refer to the property itself which is held in trust, and not to the interest or income which by its terms belongs to the beneficiary.

3. The plaintiff is entitled to have his judgment satisfied, out of the interest payable to William H. Bonnett, upon the sum of $15,000, held in trust for his benefit; but the title and interest of the executors, as trustees, is not to be interfered with, and the trust fund is not to be touched. ;

If these positions are sustained by the judges, the judg-' ment of the Superior Court must be reversed, and judgment rendered for the plaintiff; the record to be remitted, to enable the Superior Court to proceed in the case according to law and the practice of that court.

Johnson, J., concurred with Denio.

Judgment affirmed.

       29 N. Y., 39.


source: Caselaw Access Project

license: Public Domain

text:
    The British Commercial Life Insurance Company v. The Commissioners of Taxes and Assessments in New York.
    The place for assessment of a foreign corporation, doing business in this State, for the purposes of taxation, is where the principal business of the corporation is transacted.
    The plaintiffs were incorporated by an act of parliament of the United Kingdom of Great Britain and Ireland, in 1821. They had a number of agencies in this State, for the purpose of receiving applications for insurance. These applications for insurance are submitted to the directors of the company in England; and if the risk is approved, policies are made out and transmitted to these agencies here, who receive the premiums thereon and remit them to England. All losses are paid through these agents. This company made the necessary deposits with the comptroller, in pursuanee of the act of 1853 (pp." 888, 889, §§ 6, 1). The principal office of the company is in Hew York (1st ward). Under the act of 1855 (p. 44), the commissioners of taxes, &c., assessed the plaintiff's upon the amount deposited with the comptroller.
   This court held the company to be properly assessed, in Uejv York city, upon the amount of its bonds deposited with the comptroller, &c., and that such bonds were included under the term personal estate,” as used in the statute, &c.

(See the report of this case in 2,8' How. Pr., 41.)


author: Hogeboom, J. Davies, J.

text:
    The Marine Bank of the City of New York, Respondents, v. Nelson Clements, Appellant.
    The facts that a negotiable note is payable to an insurance company, and is indorsed by its president, and presented for discount only three days before its maturity, are not of a character to require the party discounting such note to make inquiries into the manner in which the party presenting it for discount obtained it, when notes of the like character and indorsement have frequently been discounted in the like manner, for the benefit of the insurance company.
    A uniform practice by such company, for a period of several months prior to the transfer of the note in suit, of raising money upon its notes, upon the indorsement of its president for the purpose of passing title, maybe given in evidence to the jury, and will warrant the jury in finding that the indorsement of the note in suit was upon sufficient authority to make it binding in favor of plaintiffs.
    To make the transfer of a note by an insolvent corporation void in the hands of a Iona fide holder for value, it must appear that the transfer has been made, not only when the corporation was insolvent or contemplating insolvency, but also with intent of giving a preference to a particular creditor, &e.
    Appeal from judgment of Superior Court of Hew York, affirming a judgment in favor of the plaintiffs.
    The action was upon a subscription note for $1,000, made by the defendant to the International Insurance Company, and of which the plaintiffs claimed to be the holders. The answer set up that the note was indorsed to the plaintiffs without authority; that it was assigned by the president of the insurance company, with others of its effects, amounting to over one thousand dollars, without any previous resolution of the board of directors; and that the company was then insolvent, and that the assignment was made to a creditor of the company, with intent to prefer Mm to its other creditors ; and that the plaintiffs, if they ever became holders of the note, became so with notice, &c.
    The case was tried on these issues, before Woodruff, J., and a jury, on the 21th January, 1859.
    It appeared in evidence, that the note on which the action was founded, together with other assets of the insurance company, amountmg in the aggregate to $5,002.50, was transferred by its president to McCready, Mott & Co., on the 8th day of May, 1856, as collateral security for a loan of $3,500, made by that firm to the company, on that day, at a rate of interest of 24 per cent per annum.
    The company executed its stock note for this loan of $3,500, pledging the above mentioned assets as collateral.
    There was no previous resolution of the board of directors authorizing this loan, or the transfer of this note and the other assets.
    It was conceded upon the trial, that this loan and stock note were invalid, and the only questions, therefore, that arose upon the trial, were: 1. Whether the plaintiff's were chargeable with notice of the invalidity of the transactions ; 2. Whether the company was insolvent, when the note was transferred, and whether the transfer was made with intent to give McCready, Mott & Co., a preference over the other creditors of the company; and, 3. Whether the president had authority to transfer the note.
    The material facts relating to the question of notice, are as foEows: The note. shows, upon its face, that it originally belonged to the assets of the International Insurance Company.
    Fish purchased the note of McCready, Mott & Co., on the 12th of August, 1856, and had notice at the time, that they held it as coHateral security for a loan made by them to the insurance company; on the next day (the 13th), the first of the three days of grace allowed for the payment of the note, Fish, being then a director of the plaintiffs, presented it to the president and cashier of the bank, and requested them to pass it to the credit of his firm, which was done. Fish did not indorse the note. The president asked if Clements was good. About the time the note fell due, the president asked Fish to pay it. Fish replied, “ Sue the maker of the note •, if you cannot get it of him, look to us.”
    The facts proved upon the question of insolvency were: That about the end of January, 1856, when Ogden, the vice-president, took charge 'of the affairs of the insurance company, he found a considerable amount of notes deficient, and “that they were in the hands of Mr. Avery, former president, on account of which he claimed as charter expenses, fixed by the financial committee at $25,000that the absence of these notes compelled him to make constant negotiations to raise money, and to pledge collaterals, frequently to double the amount of the loans, but that he did not have to postpone any claims against the company until about May 1st, 1856. On the 16th June, 1856, all payments were stopped by an injunction, at the suit of a stockholder, which was soon after vacated. That about the 7th July, 1856, an injunction was served at the suit of the attorney-general, the company went into the hands of a receiver; and that “on the 8th day of May, 1856 ” (the date of the loan by McCready, Mott & Co.), “if the losses that had then occurred had been known in the company, the probability is, that the company’s assets could not have paid them.”
    In this connection, the defendant offered to prove by the receiver, that he had got into his possession all the assets of ■the company, so far as he had been able to ascertain and reach them; that those assets were not worth over $500; that the undisputed liabilities exceeded $92,000; that among the assets were $60,500 in notes of different parties, made payable at different banks; that none of these parties were known at these banks, and that he could not ascertain the residence or existence of any of them-except one, and he was totally irresponsible. This evidence the court excluded.
    After the evidence was concluded, the defendant’s counsel requested the court to give to the jury certain instructions contained in the case. To prevent the giving of these instructions, the plaintiffs’ counsel stated to the court that he rested his claim to recover, “ not upon the validity of the loan of the $3,500 and of the stock note, but on the facts that, the plaintiffs are dona fide holders of the note in suit, for value, and that the indorsement is proved to have been so made; that the company is bound thereby to the plaintiffs, although it be conceded that the stock loan was not authorized nor valid; and that it is proved that notes were from time to time indorsed by the president of the company, and

      that loans were made by negotiating such notes, and that this note was indorsed and transferred in the only mode in which the company ever negotiated the note.”
    The court then, after stating certain facts conceded by the counsel, being in substance those hereinbefore stated, and also the following: that the note in question passed by successive transfers from McCready & Go. to the plaintiffs; that the plaintiffs received such note and discounted the same in the regular course of its business, three days before its maturity, gave to the jury the following instructions, each of which was excepted to by the defendant’s counsel:
    “ That the circumstances proved do not amount to notice to the plaintiffs of the circumstances under which McCready, Mott & Go. received the note, however invalid the loan made by them was, as in fact it is conceded to have been.
    “ That, if they should find that for a succession of several months prior to the transfer of this note by the company, it was the usage of the company to borrow money for the purposes of its legitimate business, and negotiate its notes for the purpose of raising money for such purposes, and the moneys so borrowed were so used, and such notes, when negotiated, were uniformly indorsed in the same form as the note now in question was indorsed, that is evidence enough to warrant the jury in finding that the indorsement of this note was by sufficient authority to make it binding in favor of these plaintiffs, so as to give them title to this note, so far as such authority is in question.”
    Each of these instructions was separately excepted to.
    The judge refused to submit to the jury the question, whether the company was insolvent when the note was transferred by the company.
    And to such refusal the defendant’s counsel excepted.
    The jury found a verdict for the plaintiffs for the amount of the note in suit, with interest, §1,169.
    And in pursuance of a direction to find specially upon the facts next mentioned, which direction was given by request of the respective counsel, the jury also found specially:
    1. That the plaintiffs are bona fide holders of the note in suit, for value paid in due course of business before the maturity thereof, and without any notice of the circumstances under which the note was transferred to McCready, Mott & Co., or of any want of authority in the president of the company to indorse the note for the company, or of other facts impairing its validity.
    2. That the president of the company had authority to indorse and transfer the note in the manner and form in which it was indorsed.
    The court thereupon ordered, that the defendant’s exceptions be heard in the first instance at the General Term, and that the judgment be in the meantime suspended.
    Judgment having been rendered at the General Term in favor of the plaintiff, the defendant appealed to this court.

      J. L. Jernegan., for the appellant.

      First. The court erred in instructing the jury that the circumstances proved did not amount to notice to the plaintiffs of the circumstances under which McCready, Mott & Co. received the note.
    I. I cannot better express a part of the grounds on which I believe this instruction to be erroneous, than in the language of the learned chief justice who delivered the opinion at General Term: “I cannot resist the conclusion that the facts tend to show, though not at all conclusively, that the plaintiff’s officers who passed this note to the credit of the firm of which Mr. Fish was a member, had reason to believe, and that it is not improbable they did believe at the time, that the whole object in procuring a formal discount of the note was to make the plaintiffs apparent indorsers for value, and thus discourage an attempt to defend a suit brought by them, when one would be attempted to a suit brought by Fish.
    “ The evidence does not disclose that the firm of Mr. Fish had any present use for the money passed to their credit, or that they have not at all times since had on deposit a larger sum to their credit in the bank than the nominal proceeds of the discount of the note. The accommodating conduct of the hank in suing Clements and forbearing to sue Mr. Fish, furnishes some evidence in favor of this view.”
    II. The note bearing upon its face the evidence that it had been transferred by the International Insurance Company, and that it originally belonged to that company; that was sufficient notice to put the plaintiffs on inquiry, and to prevent their setting up the want of notice.
    1. In Smith v. Story (2 Hill, 241, 245), which was an action by indorsees against indorsers of a bill, in which the defendants set up that the bill was illegal and void, as having been issued in contravention of the act of 1840, prohibiting the issuing by associations formed under the general banking law, of any bill or note not payable on demand, the court held, that the fact that it appeared on the face of the bill that it was issued by a bank, was sufficient to put the holder upon inquiry whether the bank was organized under that law, and was therefore sufficient evidence of notice to him of the illegality of the bill.
    2. That such notice as will put the party on inquiry is sufficient, I presume will not be disputed. (Brewster v. McCardell, 8 Wend., 478; Geffeken v. Slingerland, 1 Bosw., 449; Woodruff v. Wicker, 2 id., 613; Williamson v. Brown, 15 N. Y., 354.)
    3. The interest of the plaintiffs is identical with that of Fish, from whom they obtained the note, and who is chargeable with notice. The plaintiffs have no real and substantial interest in the result different from that of Fish; notice to Fish is notice to them; and to permit him to protect himself from the consequence of notice under the nommis umbra, of the bank, would be to sacrifice the substance to the form of law. (Lewis v. Cosgrave, 2 Taunt., 2.)
    4. The General Term, while conceding that the above facts should have been left to the jury as evidence of notice, affirmed the case on this point, on the ground that the case did not assume to set out all the instructions, and that they would presume “ that the instructions pertinent to a proper disposition of the special question first submitted, were given and were satisfactory to both parties.”

      No such objection was made by the plaintiffs’ counsel in the argument before the General Term, and we submit:
    (1.) That it appears from the case, that it contains all the instructions of the court on the question of notice. The words are, “The judge thereupon stated the foregoing concessions to the jury, and among other things, instructed them: Upon the question whether the plaintiffs were bona fide holders of the note in question for value paid before maturity without notice; that ” (here follows the instruction;) “And upon the question, whether the transfer of the note was made by sufficient authority, the judge charged the jury” (here follows the instruction on that point.) The whole context shows that the words “ among other things,” were intended to, and do relate to instructions connected with other parts of the case, and not to instructions connected with the specific points mentioned.
    (2.) The instruction on the subject of notice entirely withdraws from the jury the question of fact; under that instruction, they could not take into consideration any of the facts proved on this subject; and no modification or even contradiction of it could prevent its misleading effect upon the jury, so long as it remained as an obligatory direction upon them, and was not entirely withdrawn.
    (3.) No authority has been cited, nor, after a pretty extended examination, have I been able to find any, to sustain the position, that where an instruction is clearly erroneous, and it appears that the whole charge is not set out in the case or bill of exceptions, the appellate court will presume that that part of the charge not set out, contained something to relieve the instruction excepted to, from error.
    On the contrary, in Carver v. Jackson ex dem. Astor et al. (4 Peters, 1, 80, 81), Mr. Justice Stoby condemns the practice of setting out the whole charge, and observes that the exception should be strictly confined to the misstatement of law complained of. And the case of Dams v. The State (17 Ala., 415), is an express authority for the position that if a bill of exceptions states enough to put the court clearly in error, the court, if consistent with the facts, should insert enough to put itself right, and, if it fails to do so, no presumption can he indulged in support of its judgment.

      Second. The court erred in refusing to submit to the jury the question whether the company was insolvent when the note was transferred by the company.
    I. Because the defendant was entitled to show that the transfer of the note was void under the 8th section of the act to prevent the insolvency of moneyed corporations.
    II. , McCready was a creditor of the company previous to and at the time of the transfer of the note, and therefore; both within the letter and the spirit of the statute.
    1. Within the letter, because he became a creditor at the moment when the company executed to him its note, for the money loaned. It was to secure this debt that the collateral notes were transferred; and it makes no difference whether he was a creditor of six months, one month, one week, one day, or ten minutes standing, he was still a creditor of the company, and the transfer of the notes gave him a preference to other creditors.
    2. Within the spirit, because•„
    (1.) If not, it is within the power of such corporations wholly to avoid the effect, and defeat the policy of the statute. The company may receive advances from a creditor whom it intends to prefer, and secure his advance by the transfer of any amount of its assets as collateral, or the whole assets of the institution may be frittered away by disposing of them as collateral securities for loans, from which the company may not receive half the value of the securities themselves. The remarks of several of the judges in Curtiss v. Leavitt (15 N. Y., 9), to the effect that the transfer of, assets to secure new advances, is not within the statute, are mere dicta, and are even as such, limited to cases where the money “ is actually appropriated to the uses of the company in the prosecution of its legitimate business.”
    (2.) Because the object of the statute, as judicially declared by the Court of Appeals, is to declare “ the absolute right of every creditor to share j?ro rata in the assets of the company,” and not to “ suffer this right to be defeated by any act of the corporation or its officers.” (Browwer v. Harbeck, 5 Seld., 589, 593.) That right can obviously never be protected, if transactions like the present are to receive legal sanction.
    III. The company having been insolvent at the time of the transfer, it is not necessary to bring home to the plaintiffs knowledge of that insolvency, as the transfer is absolutely void. (Browwer v. Harbeck, 5 Seld., 589, 593.)
    IY. The defendant had the right to show the insolvency of the company, in order to test the question, whether or not the transfer of the note to secure a loan, at a rate of interest of twenty-four per cent, when the company was in a state of insolvency, was “ in the course of their business,” within the meaning of the 12th section of their charter.
    Y. The evidence offered to prove the insolvency of the company, was material and competent, and the court erred, in excluding it.

      Thi/rd. The court erred in the instruction relating to the authority of the president to transfer the note.
    I. In the consideration of this question, two important elements are to be taken into account: 1st. That the loan, to secure which the note in question was given, was invalid, and so conceded to be on the trial, and, consequently, the original indorsement of the note by the president was an invalid act; 2d. That the indorsement shows upon its face, that it was made by an agent, the president of the company.
    II. Hence it was necessary for the plaintiffs, before they could recover, to prove not only that the president was authorized to indorse notes for his principal, the company, but that this note was, in fact, indorsed in the legitimate business of the principal, and for the principal’s benefit; in other words, that the president not only had the apparent authority to indorse the note, but that the indorsement was actually made for the benefit, or in the legitimate business of the company. (Exchange Bank v. Monteath, 24 Barb., 371; Mechanics' Bank v. N. Y. & N. H. R. R. Co., 3 Kern., 599.)
    III. The instruction of the court, therefore, that evidence that it was the usage of the company for several months prior to this indorsement, to borrow money for its legitimate business, and to negotiate its notes for the pm-pose of raising money for such purposes, and that such indorsements were in the same form as the one under consideration, was sufficient evidence of the authority of the president to indorse this note, was erroneous. Such evidence was sufficient evidence of the general authority of the president to indorse notes in the course of the legitimate business of the bank, but no evidence of the authority of the president to make an indorsement conceded to have been beyond the scope of such legitimate business.
    TY. I submit that- the above cited cases are authority for the position, that in such cases the evidence must go further", than merely to show a general authority of the agent to indorse notes; the party seeking to recover when he has notice of the fact, that the indorsement is by procuration, must also show that it was made in the course of the legitimate business, and for the benefit of the principal.
    Y. The case of Farmers’ and Mechanics’ Bank of Kent Co. v. Butchers’ and Drovers’ Bank (16 N. Y., 125), is not inconsistent with this position. That case held the bank, whose check was certified by its teller, liable for the amount of that check, on the ground that the bank was bound by the false representation of its agent, the teller, and that the certificate was a representation that the drawer of the check had that amount of funds in bank. But here, there was no representation whatever by the president, either express or implied.

      Waldo Hutchins, for the respondents.
    Action to recover the amount of a promissory note, made by defendant, dated August 14, 1855, for $1,000, payable twelve months after date, to the order of the International Insurance Company.
    The note, before it became due, was discounted by the plaintiffs in the regular course of business.
    The note in question was a subscription note for premiums in advance, and as such was made and delivered to the International Insurance Company.

      I. The note in suit was given upon a good and sufficient consideration, was used by the International Insurance Company in the course of its business, and in a manner authorized by its charter. (Sess. Laws, 1844, ch. 156; id., 1855, ch. 295.)
    II. The proceeds of the note, on the discount of it, were paid to the said company in cash. By receiving and applying the same in their business, the company ratified the acts of its agents in procuring the money on the note.
    III. But the plaintiffs in this suit are the Iona fide holders of the note, for value taken before the same became due, in the regular course of business, and without any notice of a defense to the same, either legal or equitable, on the part of the defendant. Under these circumstances, the plaintiffs are entitled to judgment. (1 Sandf. S. C., 165.)
   Hogeboom, J.

I am of opinion that there was no valid exception to the instruction of the court, that the circumstances proved did not amount to notice to the plaintiffs, of the circumstances under which McCready, Mott & Co. received the note. This was a question of fact which the defendant’s counsel did not ask to have submitted to the jury, and upon which, without such request, he is concluded by the finding of the judge. Having allowed the judge to be substituted in the place of the jury on that question, and there being evidence to sustain the conclusion at which the court arrived, the matter of fact involved therein is not the subject of exception, nor reviewable in a court which passes only on questions of law. I have expressed my opinion on this question in a reported case, Davis v. Rush (28 Barb., 180), and refer to the cases there quoted to sustain it. (Jackson v. Packard, 6 Wend., 415; Jackson v. Zimmerman, 12 Wend., 299; Barnes v. Perrine, 2 Kern., 22, 23; People v. Cook, 4 Seld., 78; Beekmom v. Bond, 19 Wend., 444; Hunter v. Trustees of Sandy Hill, 6 Hilt., 410.)

Moreover, the question appears, after all, to have been submitted to the jury, and at the request of the respective counsel they found specially upon it, and such finding was, that the plaintiffs were Iona fide holders of the note in suit ■for value paid in due course of business, before maturity and without notice of any circumstances to affect its validity or throw suspicion upon it. It is said that this question was submitted to them under the instruction before mentioned; but if the question was submitted to them, then there was no positive and absolute direction to them on the subject, and nothing more than the holding of the judge on the question of fact.

But if the question be an open one and the exception proper for consideration, I am of opinion that there was no error in the instruction. The note was presented for discount in the usual way. Very shortly before maturity, it is true, but that was not unusual with the plaintiffs, and is not, I think, a circumstance which obliges a party to refuse discount without minute inquiry into the circumstances under which the holder, who offered the note for discount, obtained it. The only other circumstance calculated to past suspicion on the note is the fact that it was made payable to an insurance company. I am not prepared to require a bank which discounts paper, otherwise unobjectionable, from that single circumstance alone, to institute cautious inquiries as to its origin and history before it ventures to discount paper of that description at the peril of being deemed mala fide holders of the paper. (Bobcock v. Beman, 11 N. Y., 300; Bank of Genesee v. The Patchin Bank, 19 N. Y., 312; Paush v. Wheeler, 22 N. Y., 494; Thompson v. Tioga R. R. Co., 36 Barb., 80; Buffett v. Troy and Boston R. R. Co., 36 Barb., 427; Steinhart v. Baker, 34 Barb., 436; Davis v. McCready, 17 N. Y., 230.)

Moreover, in this case it was expressly conceded by counsel, “that said plaintiffs received such note and discounted the same in the regular course of its business, three days before its maturity.” This is nearly or quite, equivalent to saying that it was a Iona fide holder for value.

There was no error in the charge that a uniform practice of the company for a succession of several months prior to the transfer of this note, in case of notes negotiated for the purpose of raising money to carry on its legitimate business, where such notes were payable to the company, to have them indorsed by its president for the purpose of passing the title, would warrant the jury in finding that the indorsement of this particular note was by sufficient authority to make it binding in favor of these plaintiffs.

The fact of such uniform practice would, it would seem, abundantly justify an inference of competent authority for such a purpose; and the proposition, I think, is abundantly warranted by adjudicated cases. (Farmers’ and Mechanics’ Bank of Kent Co. v. Butchers’ and Drovers’ Bank, 14 N. Y., 634; 16 N. Y., 125; 20 How. U S., 345; 34 Eng. L. & E., 131; Bank of Genesee v. Patchin Bank, 3 Kern., 318.) See, also, the case of Wood v. Wellington, decided in this court at the June Term, 1864.

There was no error in refusing to submit to the jury the question whether the company was insolvent at the time of the transfer of this note by the company. The question was immaterial. To make the note absolutely void, even in the hands of a bona fide holder for value, it was necessary that the transfer should have been made, not only when the institution was insolvent or contemplating insolvency, but with the intent of giving a preference to a particular creditor over other creditors of the company. (1 R. S., 591, § 9; Brouwer v. Harbeck, 5 Seld., 589, 593.) The preference must therefore be to a creditor — to an existing creditor; the act of transfer must be to one to whom the company is owing a duty, and who is unjustly preferred over others to whom it owes the same duty. The reason of the provision does not apply to one who only becomes for the first time a creditor by the very act of transfer, and for which the company receives an ample consideration paid at the time. The question is, however, decided. (Curtiss v. Leavitt, 15 N. Y., 112, 142, 175.)

This disposes of all the questions raised in the case, and the result is that the judgment must be affirmed.

Davies, J.

This action is prosecuted to recover the amount of a promissory note made by the defendant, dated Hew York, August 14,1855, for the sum of $1,000, payable, twelve months after date, to the order of the International Insurance Company, at the Bank of Commerce, in Hew York. The note was indorsed, “For International Insurance Company, Alanson Marsh, President.” The jury found a verdict for plaintiff, and specially:

1. That the plaintiffs are bona, fide holders of the note in suit for value paid, in due course of business, before the maturity thereof, and without any notice of the circumstances under which the note was transferred to McCready, Mott & Co., or of any want of authority in the president of the company to indorse the note of the company, or of other facts impairing its validity.

2. That the president of the company had authority to indorse and transfer the note in the manner and form it was indorsed.

Upon the trial the following facts were agreed upon by the counsel of the respective parties:

1. That the note in question was a subscription note, and as such was made and delivered to the International Insurance Company.

2. That in the month of January, 1856, Alanson Marsh, the then president of the said insurance company, in his official character, as such president, placed his indorsement upon such note with a view to negotiating the same for such company. That after such indorsement the said note was again returned to and remained with said company, as the holder thereof, until passed to McCready, Mott & Co., as hereinafter stated.

3. That on the second day of February, 1856, the said Marsh ceased to be president of such company.

4. That Moses Starbuck became the president of such company in the place of said Marsh. That said Starbuck, while being such president, and assuming to act as such, negotiated said note so indorsed to McCready, Mott & Co., who loaned said company the sum of $3,500, taking at the same time from said president a stock note of the company therefor, together with the note in question and other notes to the aggregate of about $5,000, held by such com pany as collateral security for such loan. There was no note of the hoard of directors, authorizing the above loan, or the giving of such collaterals.

5. That the note in question passed by successive transfers from said McCready, Mott & Co. to the plaintiffs. That the said plaintiffs received such note and discounted the same, in the regular course of its business, three days before its maturity. The judge thereupon charged the jury, that upon the question whether the plaintiffs were bona fide holders of the note in question, for value paid before maturity without notice, the circumstances found did not amount to notice to the plaintiffs of the circumstances under which McCready, Mott & Co. received the note, however invalid the value made by them was, as in fact it is conceded to have been. To this instruction the defendant’s counsel excepted.

And upon the question whether the transfer of the note was made by sufficient authority, the judge charged the jury that if they should find that for a succession of several months prior to the transfer of this note by the company, it was the usage of the company to borrow money for the purposes of its legitimate business, and negotiate its notes for the purpose of raising money for such purposes, and the moneys so borrowed were so used, and such notes when negotiated were uniformly indorsed in the same form as the note now in question was indorsed, that the same is evidence enough to warrant the jury in finding that the indorsement of this note was by sufficient authority to make it binding in favor of the plaintiffs, so far as such authority is in question. And to this instruction the defendant’s counsel also excepted.

The judge refused to submit to the jury the question whether the company was insolvent when the note was transferred by it, and to such refusal the defendant’s counsel also . excepted.

The exceptions were directed to be heard, in the first instance, at the General Term, which overruled the same, and gave judgment for the plaintiffs on the verdict, and the defendant now appeals to this court.

Upon the first exception to the judge’s charge, that the circumstances proved were insufficient to bring home notice to the plaintiffs of every defect of the plaintiffs’ title, it is to be observed that the force of this charge and of the exception is destroyed by the finding of the jury on the question of fact submitted to them, namely, ,that the plaintiffs were bona, fide holders of the note for value, paid in due course of business, before maturity, without any notice of the circumstances attending its transfer to McCready, Mott & Co. The charge of the judge upon these questions submitted to the jury are omitted from the case, and therefore are to be assumed to be unexceptionable. If, however, we are to regard what was said by the judge in the light of an instruction to the jury, upon the first question of fact submitted, it would appear that other things were also said to them, and the inference might well be, that the jury were governed by what was thus omitted, in coming to the conclusion which they arrived at on the first question submitted. In the examination of the testimony, I cannot discover that Fish, who transferred the note to the plaintiffs, had any notice of the circumstances under which McCready, Mott & Co. obtained the note. If his testimony is to be credited, and I see nothing to contradict it, he purchased the note in good faith and for a valuable consideration. I do not see that he had any notice of the circumstances under which McCready, Mott & Co. obtained it, or any circumstance which should have put him on inquiry. At any rate, if Fish was not a bona fide holder, it does not follow that the plaintiffs were not. They discounted the note before maturity, in the usual course of business, and passed the proceeds to the account of J. D. Fish & Co. It does not appear whether this amount had been drawn from the bank by that firm; but the usual course of business being to draw moneys from the bank standing to the credit of its customers, it is a natural inference that the money was drawn in the present instance. The facts disclosed do not indicate that the plaintiffs had any knowledge of the circumstances under which McCready, Mott & Co. received the note, or that anything was disclosed that should have put them upon inquiry.

In any aspect, therefore, I see no reason for holding that the first exception to the charges can be sustained.

The jury having found that the plaintiffs were Iona fide holders of the note, their title is not impaired by the want of a resolution of the board of directors of the company, authorizing its transfer, as required by the eighth section of the Revised Statutes, relating to moneyed corporations. (1 R. S., 591.) The authority of the president to indorse the note, is conceded in cases where the indorsement was made in the legitimate business of the company. I think it may be well maintained here that the indorsement was made in such legitimate business. The company needed money to pay its losses, or otherwise to discharge its liabilities. It cannot be successfully maintained that for such purposes it cannot lawfully borrow money, and if it can do so it can pledge the assets of the corporation for its repayment. To make such pledge effectual a transfer of such assets can be made by its president, and where necessary to a valid trans'fer, he may indorse notes payable to the order of the company. The principle of this instruction is directly within the doctrine of the Farmers' and Mechanics’ Bank, Kent Co., v. Butchers’ and Drovers’ Bank (16 N. Y., 125), and was therefore correct.

The judgment should be affirmed.

All concur in affirming the judgment except Mullin, J., who was for reversal.

Judgment affirmed.


author: Davies, J.

text:
    Bethilda Glass, Respondent, v. Benjamin McAllister, Jr., Appellant.
   Davies, J.

No points have been furnished by the appellant. The action was for work and labor, furnished by the plaintiff for the defendant, and upon the facts found by the referee, there is no legal objection to the recovery. Bo question of law is presented for review in this court, and the judgment should therefore be affirmed with costs.