
    DORNEY et al. v. THACHER et al.
    (Supreme Court, General Term, First Department.
    February 16, 1894.)
    1. Assignment fob Benefit of Creditors — Accounting — General Objections.
    On an accounting by an assignee, a general objection to items of the account for counsel fees and disbursements alleged to have been made in the administration of the estate is sufficient. Heywood v. Thacher, 19 N. Y. Supp. 321. 64 Hun, 639, distinguished.
    
      2. Same—Evidence.
    Objections to an assignee’s account are not required to be established, by the person making them, “beyond peradventure.”
    3. Same—Commissions of Assignee.
    Where the assignee wrongfully acquires possession of property which should have been applied to the debts of the assignor instead of being placed in the assignee’s hands, he is not entitled to commissions thereon.
    4. Same—Counsel Fees and Disbursements.
    An assignee is entitled to counsel fees and disbursements in defending an action to set the assignment aside for fraud, where he was not a party to the fraud, and was not aware of any facts which made it reasonably certain that the assignment could not stand against the attacks of creditors.
    Appeal from special term, New York county.
    Action by Charles A. Domey and others against William M. Thacher, impleaded with Richard S. Kingman and others, to set aside an assignment for benefit of creditors made to defendant Thacher by the other defendants. From an order confirming the report of the referee appointed by an interlocutory judgment, charging the assignee with $1,104.55, defendants appeal. Reversed in part.
    Argued before VAN BRUNT, P. J., and O’BRIEN and PARKER, JJ.
    E. C. Cloyd, for appellants.
    A. KLing, for respondents.
   VAN BRUNT, P. J.

It is true that this court, in the case of Heywood v. Kingman, 19 N. Y. Supp. 321, 882, in which action an interlocutory judgment has been entered similar in form to the one in the case at bar, decided that, upon appeal from an order confirming the report of a referee appointed by such interlocutory judgment, this court could reverse such judgment without having before it a scintilla of the record upon which such judgment was founded; but the conclusion then arrived at, it seems to me, should not be extended beyond, the case which was then before the court. The question presented by this appeal is whether the referee erred in his dis-allowance of disbursements made by the assignee and of commissions charged by him. In the consideration of these questions it will not be necessary to state in detail the facts under which they arose. It is urged that the referee erred in disallowing certain disbursements and commissions of the assignee, because no proper objections to the assignee’s accounts were taken; and it is claimed that such objections must be specific, and must sufficiently apprise him of the charge which he has to meet. In support of this proposition, we are referred to In re Mather, 61 Hun, 214, 16 N. Y. Supp. 13, and to the case of Heywood v. Kingman, above cited. It is to be observed that the opinion in Heywood v. Kingman is based upon the case of In re Mather; and the distinction between the nature of the items objected to in these two cases seems to have escaped the attention of the court. In the Heywood Case the objection was a general one to the whole account.. In the case at bar the objection is to specific items of expenditure by the assignee in respect to the management of the estate itself. In Re Mather it was sought to charge the assignee for culpable negligence in failing to bring actions to set aside judgments, under executions upon which goods of the assignors were sold after the assignment, but which executions were levied prior to the same; and the court held that a simple general objection against such an item was insufficient, because it did not call the assignee’s attention to the fact that he was charged with culpable neglect in failing to bring actions to set aside judgments. In the case at bar the items objected to are not of this character. They are the commissions which the assignee charges, his counsel fees, and the disbursements which he claims to have made in the administration of the estate; and, when these items were objected to, he knew perfectly the ground of the objection.

" It is further urged that, if it should be held that sufficient objections were duly filed to the account of such assignee, the plaintiffs did not assume or discharge the burden of establishing «the validity of the objection; and the astounding proposition is advanced that the affirmative of establishing the validity of objections rests with the party making the same, and it must be made to appear beyond peradventure, the assignee having the right to demand that his accounts be declared correct, until the contrary is fairly and clearly established; citing Keily, Insolv. Assignm. 119. With such a rule an assignee has a protection which is denied to any other person, without any exception before our courts. The guilt of a person charged with a capital crime it is not necessary to establish beyond peradventure. The degree of proof to establish such guilt must simply be beyond reasonable doubt, and no further. It is not necessary to combat so remarkable a proposition. Attention is also called in support of the claim of the appellant to In re Frazer, 92 N. Y. 239, which was an accounting of an executor, where it was held that where the executor had paid a claim based upon an alleged contract with the deceased, which was presented and sworn to in the ordinary manner, the burden was upon the contestant to show that it was not a just debt, and, in the absence of such evidence, it was properly allowed,—a case entirely different from the one at bar. Another question would have been presented if the objection had been to disbursements made by the executor for counsel fees and expenses in the management of the estate. We think, therefore, that the objections were sufficiéntly specific to call upon the assignee to show the propriety of the disbursements made by him in reference to the management of the estate, and that the conclusions of the referee upon this point were correct, without further discussion.

As to the commissions of the assignee, it seems to be impossible to imagine upon what ground such commissions could be claimed. The assignee having come wrongfully in possession of property which should have been applied to the payment of the debts of the assignors, instead of being placed in his hands, even though it may be without any wrong of his own, certainly cannot be allowed to deplete the estate by the charging of commissions which are the compensation for the performance of the trust, and which he has not performed or earned, to the prejudice of the creditors who have suecessfully assailed the assignment. It is not a question as to whether the assignee has acted prudently, and in good faith, and according to the best light a man of ordinary prudence could obtain under the circumstances; but he is denied the right to deplete this fund, because he has been fraudulently placed in possession thereof, to the detriment of the creditors who have unearthed and disclosed the fraud. It may be unfortunate that an assignee is, under these circumstances, deprived of the compensation he expected to receive; but, when he accepts a trust of this kind, he takes it cum onere. He must run the risk of the good faith of his assignors in transferring the property to him. The creditors certainly cannot be called upon to pay the assignees commissions on a fund which actually belongs to them; but where an assignee has in good faith executed his trust, or has partially distributed the funds received by him according to the directions of the assignment, before the commencement of the creditors’ action, a different question may arise.

In respect to the counsel fees and the necessary disbursements in protecting the fund, although there is a contrariety of decisions as to whether, in the case of an assignment being set aside, they should be allowed, it seems to us that where the assignee is not a party to the fraud, and is not cognizant of the facts which make it reasonably certain that such assignment cannot stand against the attacks of creditors, his duty requires that he should resist such attacks; and, in order that he may successfully do so, it is necessary that he should employ counsel. And disbursements of this class come within the class allowed to an assignee who is even cognizant of the fraud for the preservation of the estate. The rules governing the disbursements of an assignee in an assignment for the benefit of creditors differ in no respect from those of any other trustee. The trustee, in defense of the trust committed to his care, has always been allowed out of the fund the reasonable counsel fees in protecting the estate, although he may have been unsuccessful, provided he acts in good faith, and as a reasonable and prudent man would do under the circumstances. We think, therefore, that, there being no evidence that the assignee was a party to or cognizant of the frauds for which the assignment was set aside, he was entitled to recover, as part of his disbursements for the preservation of the estate, the reasonable fees which it was necessary for him to pay in order to protect the estate and the trust, and also such- incidental disburse-' ments in connection therewith as he could show to have been necessary. The order appealed from should therefore be so far reversed, and the question as to the allowance to be made to the assignee for his reasonable and necessary disbursements, including counsel fees in the protection of the assignment, referred to the same referee, with costs of appeal to the appellants, and costs of a new reference to be paid out of the estate.

PARKER, J., concurs.

O’BRIEN, J.,

(concurring.) The court at special term confirmed the report of the referee on a reference to pass the account of the defend-out Thacher, as assignee under an assignment for the benefit of creditors. In an action brought by plaintiffs in their own behalf only, the assignment and certain confessed judgments were set aside, on the ground that they created preferences of more than one-third of the assignors’ estate, in violation of chapter 503 of the Laws of 1887. Similar decrees in 11 other actions were entered, which would more than exhaust the property in the hands of the assignee, and which, by the terms of the decrees, after an accounting, were to be turned over to a receiver. This appeal, as now presented, and that of Heywood v. Kingman, 29 Abb. N. C. 75, 19 N. Y. Supp. 321, 882, are clearly distinguished. Here specific objections were filed, and additional exceptions taken to the assignee’s account, by the counsel for the successful judgment creditors. Moreover, there are now a number of judgment creditors who are interested in the proper accounting by the assignee, and who have the right to and did take exception to the assignee’s account, and whose claims will exceed all that has been realized by the assignee. Having been successful in setting aside the assignment, they can question the conduct of the assignee in the management of the assigned estate. With respect to sums paid to stenographers, typewriters, and other clerks and employes of the assignee, as the referee, upon the evidence, held that they were legally indefensible, they were properly disallowed.

The only questions which seem to us to require any comment or discussion relate to the refusal of the referee to allow the assignee his commissions, and sums paid to counsel in defending the assignment against the attacks of hostile creditors. Smith v. Wise, 132 N. Y. 172, 30 N. E. 229, is authority for the proposition that in an action to set aside a general assignment, wherein it was proved and found that there was actual fraud on the part of the assignor and assignee, counsel fees and disbursements in defending the action were not allowable, because they were made, as stated, “in furtherance of the fraudulent scheme.” And in Dexter v. Adler, (Sup.) 1 N. Y. Supp. 684, it was held at special term that where the assignment was set aside for fraud, participated in or not by the assignee, there no commissions could be allowed. In Mayer v. Hazard, 49 Hun, 222, 1 N. Y. Supp. 680, it was held that the assignee for creditors should not be allowed for the expense of resisting a successful suit to set aside the assignment. We regard it, therefore, as settled law, that neither legal services, commissions, nor disbursements will be allowed in a case where the assignment is set aside for actual fraud of the assignor, in which the assignee participated. Where, however, the assignee has not been guilty of fraud, but has acted in good faith, and where the assignment itself is not void, but merely voidable at the instance of a creditor who successfully assails it for acts of the assignor, it has not been decided by the court of appeals that necessary disbursements incurred by the assignee in good faith, including sums paid for counsel fees in defending the trust estate, should not be allowed. Mayer v. Hazard and Dexter v. Adler, supra, are seeming authorities against such allowance; but, as the soundness of the doctrine held in those cases has been often questioned, it remains to be determined whether or not they should be further extended and followed.

In considering the questions, therefore, we think a distinction is to be made between the right of an assignee to commissions, and the right to necessary disbursements, including the payment of fees to counsel in defending unsuccessfully the assignment. As to commissions, these should not be allowed, for the reason that, as they are predicated upon the discharge by the assignee of his duties, they cannot be considered as having been earned in a case where the estate has not been administered, and where the administration of the property has been taken from the assignee, and placed in the hands of a receiver. We are clear that a commission of 5 per cent., which is the compensation fixed by statute, should not be awarded to an assignee who has not been called upon to discharge his duties; nor do we think that the court is required to make any allowance, by way of compensation, less than the statutory commissions, because, with respect to both commissions and allowance, it may be said that the assignee, having come wrongfully into possession of the property, which should have been applied to the payment of the debts of the assignors, instead of being placed in his hands, even though it may be without any wrong of his own, should not be allowed to deplete the estate by the charging of commissions, to the prejudice of creditors who have obtained a lien by commencing their action, and in such suit have successfully assailed the assignment. Where, however, the assignee has proceeded in good faith to discharge his duties, and administer the estate, and has converted the property, and distributed it before the creditors’ suit is commenced, then an entirely different question would be presented, and it may be that commissions at the statutory rate or an allowance should be made to the assignee. As correctly said by the presiding justice:

“It is not a question as to whether the assignee has acted prudently, and in good faith, and according to the best light a man of ordinary prudence could obtain under the circumstances; but he is denied the right to deplete a fund of which he has been fraudulently put in possession, to the detriment of creditors who have unearthed and disclosed the fraud. It may be unfortunate that an assignee is, under those circumstances, deprived of the compensation he expected to receive; but, when he accepts a trust of this kind, he takes it cum onere. He necessarily runs the risk of the good faith of his assignors in transferring the property to him, and the creditors should not be called upon to pay for the services of an assignee in endeavoring to prevent them from obtaining that which they were entitled to receive, and which, but for the intervention of the assignee, they could have taken in satisfaction of their claims.”

Upon the question of necessary disbursements, including a reasonable sum to counsel in advising the assignee, and in defending the assigned property from the attacks of hostile creditors, other considerations favorable to the assignee’s right to reimbursement seem to us to be present, and to be supported both by reason and authority.

In Noyes v. Blakeman, 3 Sandf. 531, 543, it was said:

“The law is most clearly settled (and it would be a reproach to its principles or its ministration were it otherwise) that all the necessary expenses oí a trusteer-that is, all expenses of every kind which are reasonable, and in good faith incurred by him for the defense, protection, or reparation of the estate—are to be treated in equity as a charge in all cases.”

And in Re Attorney General v. North American Life Ins. Co., 91 N. Y. 57, it was said:

“The principle upon which - counsel fees are granted in such instances is that of necessary disbursements, and it stands upon the same ground as any other necessary expense for the preservation of the fund. Often and usually the trustee has no interest outside of the performance of duty. What he does is for the benefit of others, whose interests are for the time being in his keeping. He owes them no duty to expend his own money for their benefit, and whatever he does so expend in the reasonable and prudent care of the trust fund is properly allowed to him as an expense.”

In Downing v. Marshall, 37 N. Y. 380, 389, it was- said:

“His [the trustee’s] duties relate to the property and interests of others, and he is to be indemnified for necessary expenses in protecting such trust property, and has an equitable lien upon it for such expenses.”

As said in the supplement to Bishop on Insolvent Debtors, (2d Ed. p. 55:)

“The general rule being thus unquestioned, the inquiry is whether it includes expenses of litigations unsuccessfully undertaken or defended by the assignee, without practical benefit to the estate, assuming them to have been incurred in good faith, and with the prudence which an intelligent and careful man would show in his own affairs.' A rule which would preclude a trustee from such allowances would certainly be a severe one. It would require of him an infallibility of judgment, which we do not expect in the highest judicial tribunals, where opinions are sometimes conflicting. It is suggested in Mayer v. Hazard, supra, that an assignee may protect himself against loss by calling upon the creditors to indemnify him before he proceeds with litigation. It is doubtful whether this is a practical protection to the assignee.”

The logical conclusion from Mayer v. Hazard is that an assignment which on its face is perfectly valid, and, so far as the assignee is concerned, was executed in good faith, is to be surrendered by the latter to the first or any attack made upon it, or else protected at his own risk and expense. If, however, the assignee should be unwilling at his own risk and expense to defend the assignment, and should fail to receive indemnity from friendly creditors, there are cases which might be cited as seeming authority for the view that he would be responsible for neglect of duty in permitting the trust estate, without action on his part, to be wrested from his possession. We do not think an assignee or trustee should be placed in such a dilemma, nor do we think the law places him in any such position of risk. We see no good reason, therefore, either in principle or upon authority, why an assignee who himself has been guilty of no fraud, and who undertakes to discharge the duties of a trustee under an assignment which is not void, should not be allowed such proper and necessary disbursements as he in good faith may have made, either in collecting, protecting, or defending the trust property. The judgments confessed were more than- one-third of the property of the assignors, and, under the rule held in the earlier cases, an attempt to give an unlawful preference in excess of the statutory limitation of one-third was held to be fraudulent. Here, therefore, the judgment creditors succeeded upon this ground; and, no appeal having been taken from such judgment, it is conclusive. It is proper, however, in this connection, to recall the fact that the earlier cases have all been overruled by that of Bank v. Seligman, 138 N. Y. 435, 34 N. E. 196, which decided that confessed judgments, in excess of the one-third allowed by law, do not operate •to make the assignment for the benefit of creditors void as fraudulent, but that such judgments are to be considered as preferences, and, if in excess of the legal proportion of the assignors’ estate, are to be reduced to a lawful amount. Here, the assignee not having been a party to the fraud alleged as the ground for the creditors’ successful attack, and the testimony showing that he acted in entire good faith, without knowledge of the prior confessions of judgment until after the attack upon the assignment was made, and in the light of the decision in Bank v. Seligman, supra, we think that reasonable disbursements made and sums paid to counsel for defending the assignment should be allowed. Our conclusion, therefore, is that the report should in all respects be confirmed, except as to the disallowance of necessary disbursements made by the assignee, or sums by him paid to counsel in defending the assignment, and that the question of the amount of such allowance should be referred to the same referee for decision, with costs of the appeal to appellants, and cost of reference to be paid out of the estate.  