In re General Assignment of Henry Thoesen & Bro.

Majority

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In the Matter of the General Assignment of Henry Thoesen & Bro., to George Solomon, for the Benefit of Creditors. George Solomon, as Assignee of Henry Thoesen & Bro., for the Benefit of Creditors, Appellant; Charles F. Rohmann and Others, Creditors, Respondents.

Headnote

Action on behalf of the plaintiff and other creditors to set aside for fraud an assignment for creditors — an accounting therein is not binding on creditors who have not been notified to appea/r therein—the assignment remains valid as to them— what notice must be given under section 786 of the Code of Civil Procedure — no • commissions and expenses allowed to an assignee where the assignment is set aside.

Where a creditor of a decedent, who had made an assignment for the benefit of creditors, brings an action under section 7 of the Personal Property Law (Laws of 1897, chap. 417) to set aside the assignment as fraudulent, which action, as stated in the title, is brought by the plaintiff individually and on behalf of all

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other creditors of the assignor whose claims exceed the sum of $100, and results in a judgment adjudging the assignment to be fraudulent and void as against the plaintiff and directing the assignee to account before a referee, whose report is subsequently confirmed and the accounts of the assignee approved, creditors of the assigned estate, who never took any position in hostility to the assignment and were not made parties to the equitable action and took no proceedings therein and were not requested to do so, are not bound by the accounting and may maintain a proceeding to compel the assignee to account again pursuant to the General Assignment Law.

The judgment entered in the equitable action only operates to vacate the assignment as to the plaintiff in that action and leaves it valid and binding as to the creditors who were not parties thereto.

The provision in section 786. of the Code of Civil Procedure that, where an action is brought for the collective benefit of the creditors of a person, or for. the benefit of a person or persons other than the plaintiff who will come in and contribute to the expense of the action, notice requiring the creditors or other persons to exhibit their demands or otherwise to come in, must be published as there directed, is applicable to an action brought under section 7 of the Personal Property Law, and unless it is complied with or some sufficient notice is given, or other interested persons are in some manner given their day in court, the judgment therein will not bind them and they will not be concluded by it.

BemMe, that it is not' usual to allow commissions and expenses to an assignee for the benefit of creditors, where the assignment has been held void and set aside for fraud.

Appeal by George Solomon, as assignee of Henry Thoesen & Bro., for the benefit • of creditors, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 22d day of April, 1901, requiring him to file an account of his proceedings as such assignee, arid appointing a referee to take and state such account.

Abram Kling, for the appellant.

Joseph J. Corn, for the respondents.

The motion resulting in the order appealed from was brought on under the General Assignment Act (Laws of 1877, chap..466, §§ 11, 12, as amd. by Laws of 1878, chap. 318) by a citation issued on the petition of C.

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entered upon the discharge of the same. In the schedules of liabili-' ties filed the claim of the petitioners is set forth at $24,734.10.

The assignee advertised for claims in 1895 and the petitioners duly presented to him their said claim, properly verified, and such claim remains undisputed and wholly unpaid. More than a year has elapsed since the making of the assignment, but the assignee has never accounted under the Assignment Act. The opposition to the motion is based upon the following facts : It appears that in April, 1894, the firm of H. B. Claflin Company, as creditors of the said Henry Thoesen, instituted an action against the administratrix of Thoesen and the said assignee, to set aside the assignment made by the said Thoesen for the benefit of creditors, on the ground of fraud, in which action it was adjudged and decreed that such assignment was fraudulent and void as against the plaintiff therein, and that the same be vacated and set aside as to said plaintiff; and one Daniels, who had theretofore been appointed a temporary receiver, was in and by said judgment made the permanent receiver of all the goods, chattels and estate held or owned by the said assignor. It was therein further adjudged and decreed that the defendant Solomon, as such assignee, render an account before a referee thereby appointed for that purpose, of all the goods, chattels and credits which had come to his hands by virtue of the assignment or otherwise, which were of the said assignor at the date of the assignment, and that the said referee take and state such account; and that the receiver, out of the funds in his possession as such, pay to the plaintiff, the II. B. Claflin Company, or its attorneys, the amount of its debt and claim established thereby, with costs, and that, after making such payments the receiver retain the residue and balance of the property of the assigned estate,, if any, until the further order of the court.

It further appears that in January, 1900, one Charles L. Koehler instituted an action against the said administratrix of the assignor and the said Solomon, as such assignee, to set aside the said assignment as fraudulent and void. This action was brought under the provisions of the Personal Property Law (Laws of 1897, chap. 417, § 7), and, as appears by the title of the action, for the benefit of said Koehler individually and on behalf of all other creditors of the estate of the assignor, Henry Thoesen, deceased, whose claims exceed the sum of

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$100. That action was also prosecuted to judgment, and. it was therein adjudged and decreed that the assignment was fraudulent and void as against the plaintiff and that “ the said general assignment be and the same is hereby wholly vacated, annulled and set aside as to this plaintiff.” The receivership of the reeei ver appointed in the Claflin action was extended to that action, and the assignee was ordered and directed to account before Daniel Clark Briggs, Esq., the referee appointed in and by the judgment in the Claflin action, of and concerning the goods, chattels, credits and estate of the said assignor in his hands by virtue of "the assignment, and that said referee take and state said account, and the receiver was directed to pay to the attorneys for the plaintiff the sum of $161.65, the amount of the costs of the action, to be taxed, and the further sum of $1,000 for an extra allowance to the said plaintiff’s attorney out of the moneys in his hands as such receiver. In pursuance of such last-mentioned judgment the said assignee made an accounting before the referee, and it appears from his report that, after the rendition of the judgment in the Koehler c.ase, four separate actions were brought to set aside the assignment as fraudulent and void, in each one of which judgment was rendered in favor of the plaintiff, setting the assignment aside as to such plaintiff only. It also appears from such report that the assignee did receive and collect of the assigned estate the sum of $91,928.53 ; that he had expended for and on account of the said estate the sum of $73,173.20, and that, pursuant to the decrees entered in the actions aforesaid, he did pay to the receiver the sum of $18,755.33, making in all the sum of $91,928.53, and that the said Claflin Company had been duly paid the amount of its judgment by the receiver, and the referee reported that the accounts so made and rendered by the said assignee were in all respects correct and that an order should be entered discharging the said assignee and canceling his .bond as such.

On the 28tli day of December, 1900, upon notice to the receiver and to the attorney for the said Charles L. Koehler, the plaintiff in the action, the report of the referee so made was confirmed and the accounts of said assignee approved.

The petitioners, respondents herein, have never attacked the assignment nor taken any position in hostility to it; they were not made parties to or joined in the said Koehler action, took no part in

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the proceedings thereunder, had no notice thereof, nor were they ever requested to join in or take part in any such proceedings, yet the claim is made by the appellant that, because that suit was brought nominally for the benefit of all creditors whose claims exceed $100 the respondents are precluded by the accounting before the referee in that action. The Special Term decided that the action instituted by Koehler was not binding upon the petitioning creditors, and directed that the assignee should make an account of his proceedings as such assignee pursuant to the assignment laws of the State, and from the order so made and entered this appeal is taken.

As we understand the points made by the appellant in his brief and argument, it is not contended that the judgments or proceedings in any of the actions brought to set aside the assignment operate as a bar to this proceeding, except the judgment and proceedings taken and had in the action of Koehler. Manifestly no other ground would be tenable, for the reason that it appears that in each of the other actions the assignment was adjudged fraudulent and void and set aside as to the plaintiff in the particular action only, and in none of them was any accounting had. It is urged, however, that in the Koehler action the assignee has made a full accounting and turned over to the receiver duly appointed by a court of competent jurisdiction all the property and assets of the assigned estate, and the rule is invoked that, where an equitable action is brought to set aside an assignment for the benefit of creditors, and a decree has been entered in such action, the estate becomes vested in the court in which the receiver was appointed and an accounting by such assignee in said action is conclusive upon the creditors, and any subsequent proceedings instituted by any creditor having reference to said estate will be-enjoined. In the first place, the rule as thus stated by the appellant is defective as it leaves out of consideration an important factor, viz., that the equitable action must be brought for the benefit of all the persons interested in the assigned estate. Nevertheless it is maintained by appellant that the action brought by Koehler and the decree entered therein is for the benefit of all the creditors and the fund will be distributed fro rata, among them, and that the petitioning creditors are entitled to share. This claim would seem a little specious, in view of the fact that it appears from the report of the

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referee that prior to said accounting all the 'money received by the assignee from the. assigned estate had been paid out and that the assignee should be discharged. It is true that it appears that $18,755.33 was paid over to the receiver in the action, but, inasmuch as the first lien upon the fund appears to have been that of the Claflin Company, whose judgment amounted to that sum, it is not clear just what benefit the petitioners are to derive from the fund.. The schedules or items of the account of the assignee do not appear as part of the referee’s report in the action, but in an affidavit read in support of the petition it is made, to appear that, in the items of disbursements in the account as filed is an item “Judgment—-$18,755.33,” although the report of the referee finds that, this item was paid to the receiver.

It further appears that while the disbursements amount to the sum of $91,928,53, the .whole proceeds of the estate, the items of ivhich are set forth, no vouchers were annexed thereto, and that the folloAving items of expense were allowed, unitemized, viz.: Salary, $12,042.83; expense, $11,637.47advertising, $1,998.95; G. S. (evidently George Solomon, the assignee), commission, $2,969.27; legal expenses, services, $9,103.25; a total of $37,751.77. It may be said in passing that it is not usual or customary to allow to an assignee under an assignment repeatedly, or even. once, held void and set aside for fraud, such sums for commissions and expenses for the management and disposition of property to Avhich .the court has held that he had not title, Those Avho are interested in the estate, and entitled to share therein as creditors clearly ought to have opportunity to be heard upon such an accounting, and we conceive it. to be the province and duty of the court to protect them in such right. It remains to be seen, then, whether the proceedings in the action of Iioehler has afforded them this right. r

The Koehler action was brought under the provisions of the Laws of 1897 (Chap. 417, § 7) which provides that any creditor of a deceased insolvent debtor, haying a claim or demand against the estate of such deceased debtor exceeding in amount the sum of $100, may, for the benefit of himself and other creditors interested in the estate or property of such deceased debtor, disaffirm, treat as void and resist all acts done and conveyances, transfers and agreements made, in fraud of the right of any creditor or creditors by such

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deceased debtor, and for that purpose may maintain any necessary action to set aside such acts, conveyances, transfers or agreements; and for the purpose of maintaining such action it shall not be necessary for such creditor to have obtained a judgment upon his claim or demand ; but such claim or demand, if disputed, may be proved and established upon the trial of such action. It is then further provided that the judgment may direct a sale of the premises or property, if a conveyance or transfer is set aside, and that the proceeds thereof be brought into court or paid into the proper Surrogate’s Court to be administered according to law. This was not the ordinary creditor’s action under the Code, therefore, but a special statutory remedy against the estate of a deceased insolvent debtor, given not only to judgment creditors, but to those creditors who have obtained no lien by judgment and.who have not exhausted their legal remedy. The pleadings in the action are not printed in the record, and the only way in which it appears that the action was brought for the benefit of any one other than the plaintiff, is in the title to the action.' The decree is silent on the subject, and in terms adjudges that the assignment was fraudulent and void as against the plaintiff, and that it be vacated, annulled and set aside “ as to this plaintiff.” The order made by the court on the motion to confirm the report of the referee did not discharge the assignee nor cancel his bond, but confirmed the report of the referee and approved the accounts of the assignee. Notwithstanding all that appears as to the Iloehler action and the decree, the appellant insists that the assignment was held void as to all the creditors; that the assignee was required to and did account on behalf of all the creditors, and that -the petitioning creditors are, therefore, bound by such accounting. With this proposition we cannot agree. So far as the effect of the judgments in the various equity actions upon these respondents is concerned, the assignment is as valid as if those suits had never been brought, except to the extent to which the assignee may be protected- as- to payments made by him pursuant thereto, which question is not before us for determination. It is thoroughly settled that a judgment setting aside an assignment as against a particular creditor has no effect upon other creditors not- parties to the action; as to them the assignment remains valid and binding. . (Hammond v. Hudson River Iron &

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Machine Co., 20 Barb. 318 ; Matter of Ginsberg, 9 Misc. Rep. 650 .) We hold that the judgments obtained in the actions referred to did no more than adjudge the assignment void as to the plaintiffs in the actions, and .that the only effect of the decree in the Koehler case was to set the assignment aside as against Charles L. Koehler. It is conceded that where an assignee has accounted once in a suit to which all concerned are parties, pursuant to a decree of a court of competent jurisdiction, he cannot be compelled to account again at the instance of any of such parties, but that rule is not- applicable here. This case is clearly distinguishable from Kerr v. Blodgett ( 48 N. Y. 62 ) and the other cases relied upon by appellant. In that case a previous action had been begun in the same court' for the same purpose, which was to compel the assignee to account' under the Assignment Law, by a creditor in his own behalf as well as in behalf of all others similarly situated, and a decree had been entered in the first action and a report made which had been confirmed before Kerr’s action was begun. The referee had caused notice to be published requiring all creditors to present their claims, and the court held that a subsequent action for the same purpose could not be maintained by a creditor. There both actions were in support of the assignment; here the actions were in hostility to it, while the petitioners seek their remedy under the Assignment Law. In that action the creditors had notice, as required by the statute ; here no notice has been given to parties other than parties to the actions; there is no parallel' either in the facts or the principles involved. (Turney v. Van Gelder, 68 Hun, 481 ; affd., 143 N. Y. 632 .)

In Matter of Ginsberg (supra), on removal by the Common Pleas of an assignee for the benefit of creditors, a substitute was appointed, and to this successor the assignee had been directed to deliver the fund in his possession, and enjoined from otherwise disposing of it,, and the assignee was ordered to account. In the meantime, in several actions in the Superior Court, judgments had been entered vacating the assignment as fraudulent and void, appointing a receiver of all the assigned property and requiring the assignee to turn it over to him, and naming a referee to audit the accounts of the assignee.. The assignee petitioned the Court of Common Pleas to vacate the order removing him in so far as it directed him to deliver the estate

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to His successor, enjoined him from interfering with it and required him to account. The court denied the application, applying the principle that the tribunal first acquiring jurisdiction shall retain it, but holding, also, that the effect of the judgments invalidating the assignment was not enlarged by the fact that the suits purported to be in behalf of all other creditors who should come in, because the plaintiff in those suits could renounce the benefit of the assignment only for themselves, and the creditors opposing the motion elected to affirm it. The deposed assignee was permitted to pay over to the receiver the aggregate amount of the judgments, but it was held that the accounting in that court should proceed to conclusion, and that if the assignee should be found in default his sureties might be prosecuted, but- only, for the benefit of those claiming under the assignment; that creditors repudiating the trust could take nothing thereunder. The same principle applies to the case at bar. The judgment setting aside the assignment is not an estoppel against the creditors in this proceeding; they were not parties to it and it had no effect upon their right to compel an accounting under the Assignment Act, nor is the jurisdiction of the court to compel such accounting affected thereby. (Matter of Dare, 13 Daly, 220 ; Matter of Bieber, 44 App. Div. 148 ; Mills v. Argall, 6 Paige, 577, 581; Burr. Assign. [4th ed.] § 354.)

The. decree in the Koehler action does not adjudge that Koehler ever had a claim against the estate of the assignor. The statute under which it is brought requires that the creditor shall have a claim for more than $100. These are facts which the moving creditor is required to allege and prove in order that the court acquire jurisdiction of the action, but there is no such allegation here nor adjudication touching it. It is not sufficient that it appears in the title of the action that it is brought in behalf of “ all other creditors * * * whose claims exceed the sum of $100.” (Louis v. Belgard, 17 N. Y. Supp. 882 .) The Code of Civil Procedure (§ 786) requires that, where an action is brought for the collective benefit of the creditors of a person or for the benefit of a person or persons, other than the plaintiff, who will come in and contribute to the expense of the action, notice of a direction of the court, contained in a judgment or order, requiring the creditors or other persons to exhibit their demands or otherwise to come in, must be published as.

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there directed. This provision must he held to apply to an action-brought under the Personal Property Law (Laws of 1897, chap. 417), and unless it is complied with or some sufficient notice is given or the other persons are in some manner given .their day in court, such a proceeding does not bind them and they are not concluded by it. Nothing was done in this case to give notice to these respondents or any other creditor or person interested in the assigned estate, except the attorneys for the administratrix of the assignor, the receiver and for the plaintiff Iloeliler.

The considerations stated lead us to the Conclusion that the order appealed from should be affirmed, with costs and disbursements to the respondent.

Patterson, O’Brien, Ingraham and McLaughlin, JJ., concurred.

Order affirmed, with costs and disbursements.

Cases cited

In re Ginsberg 9 Misc. Rep. 650 N.Y.C.P. p. 94
Kerr v. Blodgett 48 N. Y. 62 N.Y. Comm'n App. p. 94