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Entwisle v. Cohen

141 A.D. 834 Court Second Department, Decision date 1910-12-02 English

Delivered by Thomas, J. :

Contents

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Frank L. Entwisle, as Trustee in Bankruptcy of Louis H. Kramer, Bankrupt, Appellant, v. Celia Cohen and Louis H. Kramer, Respondents.
Second Department,
December 2, 1910.

Headnote

Practice — security for costs—bankruptcy—suit by trustee to set . : aside fraudulent conveyance — complaint.
In an" action brought by a trustee in bankruptcy' to set aside a conveyance of real property, as in fraud of creditors, he will not be required to give security for- costs under section 3368 of the Code of Civil Procedure on the ground- that j.th.es.cause of. action arose prior to the.adjudication where it appears that none ' of the creditors of the bankrupt is judgment creditor. The trustee takes title'by virtue of the Bankruptcy Act, and where there are no judgment cred-.itors, whose executions were returned unsatisfied prior to, the adjudication, such a cause of-action .cannot be said to have arisen before the adjudication.
In such an action it is not necessary for the complaint -to negative a cause, of
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action in the creditors. It is sufficient that the trustee shows in himself title to the cause of action.
It is also unnecessary to allege that there were not sufficient assets in the hands of the trustee apart from. the property sought to be recovered to satisfy all claims which had been filed. An allegation that the assets of the estate are insufficient to pay the bankrupt’s debts in full is sufficient. The trustee need not wait a year to ascertain the amount of the claims filed. ■ It is his duty to gain possession of the assets as soon as possible and he is not compelled to exhaust all other assets before attempting to set aside an' alleged fraudulent conveyance.
Where on such motion to compel the trustee to give security for costs it appeared that he had" sufficient assets in his hands to pay costs and there is no denial of the allegations of the complaint that the conveyance’was fraudulent and that the moving defendant participated in the fraud, an order granting the motion cannot be upheld on the ground that it was justified by section 3271 of the Code of Civil Procedure, especially where this section was not invoked on the motion nor recited in the order.
Section 3269 has no application.
Appeal by the plaintiff, Frank L. Entwisle, as trustee, etc., from. an order of the Supreme Oo.urt, made at the Kings County Special Term, and entered in the office of the clerk of the county of Kings on the 21st day of June, 1910, directing the .plaintiff to give security for costs.
'Abraham A. SiTberberg, for the appellant.
Samuel Berziok, for the respondent Celia Cohen.

The action was brought by the plaintiff, as trustee in bankruptcy, to set aside a conveyance of real property, made by the bankrupt to one Cohen, within four months of the date of filing the petition, on the ground that it was made upon the agreement that Cohen should hold the land for the benefit of the bankrupt, and thereby prevent plaintiff, or any other person acting in the interests of creditors, from obtaining the same. The defendant Cohen moved that plaintiff be compelled to give security for costs “ in pursuance to and in. compliance with Sections 3268 and 3269 of the Code of Civil Procedure, and why the defendant, Celia Cohen, herein, should not have such other and further relief in 'the premises as may be just and proper.” The court, by an order reciting that the motion was made under such sections of the Code, ordered that plaintiff deposit

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with the clerk of the court; or the city chamberlain, a sum not less than $250, or, in lieu thereof, an undertaking with sureties for such amount, and that in- default of filing the bond or depositing the amount, the action be deemed abandoned as affecting the defendant Cohen. Section 3269 has no application. Section 3268 is applicable “ Where the action is brought upon a cause, of action arising before * * * the adjudication in bankruptcy.” So the question is whether the cause of action, arose prior to the adjudication. (Rielly v. Rosenberg, 57 App. Div. 408 ; Schreier v. Hogan, 70 id. 2.) Assuming that a cause of action would have arisen Had one or more creditors obtained judgments and issued executions, and there had been return thereof unsatisfied before the bankruptcy (Kiendl v. Dubroff, 136 App. Div. 8 ), yet such is not this case. It appears by the complaint that there were-creditors who at a meeting elected the plaintiff trustee, but it does not appear in the complaint whether judgments had been obtained by the creditors. This was not necessary to enable the trustee to sue. The trustee takes title by virtue of the act pursuant to which he is appointed, and his interest is not dependent upon prior action by a judgment creditor. (Southard v. Benner, 72 N. Y. 424 .) His cause of action arose after the adjudication in bankruptcy (Rielly v. Rosenberg, supra; Schreier v. Hogan, supra), and precludes the application of section 3268. Herein the case differs from Kiendl v. Dubroff (supra). The complaint alleges a cause of action in the trustee, and it was unnecessary to negative a cause of action in creditors, or to. prove title through judgments obtained by them, although the plaintiff shows by affidavit that there were no judgment creditors.' It is sufficient that the trustee shows in himself title to the cause of action. ■ It is objected, that the complaint fails to allege that there are not sufficient assets in the hands of the trustee to pay all claims filed by the creditors against the estate, and to this Lesser v. Bradford Realty Co. ( 47 Misc. Rep. 463 ) is cited. But; the creditors’ right to file claims is limited to one year, which may be extended by the court, and the trustee .cannot know within such time the amount of the claims. It is not his duty to await the expiration of this period, or withhold his action until the expenses of administration, shall be ascertained, pending which the property may be dissipated. It is his duty to gain possession of the property subject to distribution to the bankrupt’s
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creditors. '■ The defendant has fraudulently taken such property for the very purpose of preventing such application, but it is the trustee’s duty promptly to recover and apply it. The contention that such holder may be solicitously continued in the fruits of his fraudulent withholding and concealment until other means of payment have been exhausted would, if it prevailed, facilitate," as it was intended to do, delay in payment or avoidance thereof. The adjudication in bankruptcy was April 5, 1910, and the complaint alleges “ that the assets of that estate are insufficient to pay. the bankrupt’s debts in full.” Certainly it is not the trustee’s business to be mindful only of the debts already proven. It is urged by the respondent that the court had power to compel plaintiff to give security for costs under section 3271 of the Code of Civil Procedure. Such section was not invoked, and, in view of the recitals in the order, it is inferred that it was not employed. Moreover, the affidavit presented in behalf of the plaintiff shows that he has assets in his hands sufficient to : pay the costs of the action.

It should be observed that there is no denial of the allegations of the complaint, or of the answering affidavit, that the conveyance was fraudulent and that Celia Cohen participated in the fraud. Under such circumstances the defendants should not be permitted to hamper and embarrass the trustee in bankruptcy by requiring security, so that, if the court assumed to exercise discretion under section 3271 of the Code, it was unjustified in doing so.

The order should be reversed, with ten dollars costs and disbursements, and the motion to compel plaintiff to give security for costs denied, with ten dollars costs.

Woodward, Burr, Rich and Carr, JJ., concurred.

Order reversed, with ten dollars costs and disbursements, and motion to compel plaintiff to give security for costs denied, with ten dollars costs.

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