Pittsfield Nat. Bank v. Tailer — 19 N.Y.S. 937

Majority

p. 937

Pittsfield Nat. Bank v. Tailer et al.

(Supreme Court, General Term, First Department.

June 29, 1892.)

Headnote

1. Assignment for Benefit of Creditors—Action to Set Aside—Removal of As-

signee.

After the commencement of an action to set aside a general assignment on the ground of fraud, a motion to remove the assignee, when made for the purpose of preserving the assets, is not inconsistent with plaintiff’s contention that the assignment is void.

2. Same—Omissions from Schedules—Fraud.

On an assignment for the benefit of creditors, the omission from the schedule of property which is valueless is not evidence of fraud.

8. Same.

The omission from the schedule of property worth more than the total amount of assets listed, requires the strongest and clearest evidence to prove that it was an honest mistake.

p. 938

Appeal from special term, New York county.

Action by the Pittsfield National Bank against William H. Bayne, Bush-rod R. Bayne, Eliza J. Campbell, and William H. Tailer, to set aside as fraudulent a general assignment made by the three first-named defendants, who carried on business together as copartners in the city of New York, under the name, style, and firm of Ross Campbell & Co., to defendant Tailer, as assignee. From a judgment in favor of plaintiff, defendant Tailer appeals.

Affirmed.

For appeal from order requiring plaintiff to state separately and number two alleged causes of action in the complaint, see 14 N. Y. Supp. 557 .

The cause was tried at special term before Mr. Justice O’Brien, who delivered the following opinion:

“This action is brought to set aside a general assignment for the benefit of creditors upon the ground of fraud. The first question presented is as to plaintiff’s right to maintain the action. It appears (hat, subsequent to the commencement of the action, plaintiff moved for the removal of the assignee, and, as a consequence, it is claimed by the defendants that such a remedy being inconsistent with the position of one attacking the assignment as void, and the plaintiff having made its election, is now debarred from pursuing this action. This position is not tenable, for the reason that the action itself was brought for the purpose of setting aside the assignment as void, and the motion in this action for the removal of the assignee was made with a view to preserve the assets until a trial could be had. It may be true that a more consistent application would have been one for an injunction and a receivership, on the theory that the assignment was void; but the fact that plaintiff may have mistaken the remedy is not sufficient, unless it is coupled with circumstances showing that the remedy so selected is entirely inconsistent with the position of an attacking creditor. Such was not the attitude of the plaintiff, having throughout taken but one attitude, in opposition to the assignment, of which the motion upon which this contention is based is a clear evidence. The plaintiff not being barred, therefore, in prosecuting this action, it remains to determine whether the allegations of fraud have been sustained.

“The facts relied upon to show fraud can, with propriety, as shown by the evidence, be divided into three classes, namely: Those affecting transactions prior to the assignment; second, affecting the assignment itself; and, third, relating to the conditions subsequent to the assignment. In the first class might be placed the facts connected with the formation of the Powhattan Manufacturing Company, the Aramingo Mills, and the withdrawal of certain monthly amounts by Mrs. Campbell, one of the partners of Ross Campbell & Co. In the third class are the facts relating to the settlement by the assignee of certain claims against the insolvent debtor firm, from which the plaintiff argues bad faith and fraud upon the other creditors in the making of such settlement by the assignee. These two classes may be disposed of together, for the reason that the same principles of law apply equally to both. ‘ The assignment, like every other instrument, is good or bad at the time of its making. If it is valid in its creation, no subsequent fraudulent or illegal acts of the party can invalidate it; and if it is invalid, then no subsequent act can give it validity.’ Bish. Insol. (2d Ed.) p. 219. So in Shultz v. Hoagland, 85 N. Y. 464 , it is said: * The evidence must ascertain and establish the assignor’s intent at the time of the execution of the instrument.’ Again: ‘Such acts are, however, proper to be considered as characterizing the original intent.’ Bish. Insol. p. 219, says: ‘ In determining the validity of an assignment made by a debtor, the intent of the assignor is the material consideration. Honesty of purpose in the assignee is not the test. ’ Again, at page 226: ‘Where the assignment has been honestly made for a lawful purpose, it cannot be defeated by proof that the assignee, has abused his trust, misappropri

p. 939

ated the property, or acted dishonestly in its disposal.’ Most of these rules in the cases relate to acts subsequent to the assignment, but it must be clear that the same principle would apply to acts prior to the assignment. ¡No doubt acts prior or subsequent, which tend to show the intent, may be resorted to; but in aetioná of this kind, to set aside the assignment itself upon the ground of fraud, the question finally to be determined is, did the fraud exist or was it in contemplation at the time of the making of the assignment? ¡No doubt the payment to Mrs. Campbell by an insolvent firm of $300 a month, as well as the fact showing the manner in which the assets of the firm of Boss Campbell & Co. were diverted for the purpose of enabling one of the defendants and his brother-in-law to form the Aramingo Mills, are evidence of an utter disregard on the part of the insolvent firm of the rights of creditors. These facts, while they show improvidence, waste, and a low standard of commercial morality, were too remote, and were-initiated at a period too long prior to the assignment, to justify an inference upon these facts of the assignment itself being fraudulent. Having disposed, therefore, of the facts prior and subsequent to the assignment, it remains to consider the second class above enumerated, embracing facts tending to show fraud In the assignment. On March 24, 1890, Mr. Taylor’s codefendants, as partners under the firm name of Boss Campbell & Co., made the assignment for the benefit of creditors which is attacked in this action. We may pass over the allegation of the complaint that the assignment is null and void upon its face, for the reason that having been drawn in seeming conformity with the requirements of the acts, and no great stress being placed upon any irregularities, it may be regarded as conceded by plaintiff that the assignment is not, void upon its face.

“The remaining ground is the omitting by the assignors and assignee from the schedules of certain property of the insolvent debtors. It is conceded that at the date of the assignment the insolvent firm were the owners of certain bonds, stock, and insurance policies, which have been referred to in the testimony as the Berkshire bonds, the Powhattan stock, and insurance policies. As to the Berkshire bonds, it having been shown that they were valueless, their omission from the schedules is no evidence of fraud, as held in the leading case on this subject. Shultz v. Hoagland, 85 N. Y. 454 . ‘Proof of an intentional omission, from the schedules of property assigned,' of items of valuable property, is sufficient to establish fraudulent intent. The omission, however, of an item shown to be entirely worthless is no evidence of fraud. So, also, if it is shown that the omission was accidental and unintentional.’

“It remains to consider the Powhattan stock and the insurance policies. It was conceded that both were valuable, and that both were omitted from the schedules which were filed on the 22d day of April, 1890, thus leaving the interval between the 4th day of March,1890, when the assignment was made, and this date, within which the assignors and assignee had the opportunity of determining what were and what were not the firm’s assets. As to the Powhattan stock which was pledged to a bank as collateral security for a loan of $2,500, it was shown that its par value was $6,000, and one of the debtors testified that, at the time he instituted the assignment, the lowest price that the stock went and sold for was $100 per share, though, when subsequently examined in supplementary proceedings, he placed the value at from $50 to $60 per share. Concededly, therefore, here was a valuable asset of the firm, which had been pledged as security to secure the firm’s note of $2,500, and, although we find in the schedules that this note is set out fully, in that portion of the schedules referring to the indebtedness to the bank no suggestion is made, but, on the contrary, there appears opposite the interrogation, as to what security the bank held, the answers of the assignors and assignee, written out and sworn to, that the bank had none. The effect of this

p. 940

statement is sought to be avoided by an explanation that inasmuch as the bank held the stock as collateral security, and had some other claim against it, of just what nature is not fully explained, but which two of the defendants asserted amounted to $10,000 additional, they did not regard this asset as a valuable one, and therefore inadvertently overlooked or neglected to insert it in the schedule. The studied omission of this asset of the firm, in the absence of any explanation, would raise, under the circumstances of tiiis case, a presumption of fraud, which requires for its rebuttal some satisfactory explanation. It will be noticed that the failure to insert in the schedule the fact that the bank, for its indebtedness of $2,500, was fully secured by the Powhattan stock, if intentional, would have been a twofold fraud upon creditors, first by taking from them an asset, and by increasing the indebtedness to the extent of the bank’s claim, which, as shown upon the trial, was fully secured. The explanation is not satisfactory as to this stock, and it is less so when we come to consider the question of the policies of insurance. Here were policies worth, in the estimation of the defendant, from $12,000 to $20,000, about which nothing was said until after the schedules were filed. The total amount of the real assets of this firm, as shown by the schedules, amounted to but $8,000, and yet the assignors would have us believe that under these conditions they overlooked assets, then in their possession and under their control, worth more than the entire real assets included in the schedules filed. Every opportunity upon the trial was given, the subject being reverted to again and again, to show why these policies were omitted; and between the assignors and the assignees a discrepancy is found, not only as to the time when the policies were referred to between them, but also in their explanations as to the reasons, seeking to excuse the omission from the schedules. It is asserted that there was no intention of reserving either the stock cr policies to the assignor, but, if a contrary intention existed, the securities could not have been placed in a more advantageous position to accomplish this result. In other words, these securities were not only omitted from the schedules, but were held in such a way that, if the attention of creditors had not been attracted to them, they could have been appropriated for the benefit of the assignors. When we consider, therefore, the value of the securities thus omitted, as compared with the value of the real assets as scheduled, the, situation in which they are found after the schedules are filed, a state of facts is presented which would require the strongest and clearest proof to establish that ail this was unintentional, and the result of an honest mistake or omission. It is unnecessary to go over in detail the testimony elicited on this subject. Sufficient for the purpose of this case to say that, in my opinion, the omission of the two items of the Powhattan stock and the insurance policies has not been explained, and should be held to be intentional. .Such a conclusion upon the law relating to insolvent assignments entitles the plaintiff to a judgment in his favor, setting the same aside. There should be judgment accordingly, with costs.”

Argued before Van Brunt, P. J., and Patterson, J.

Burnett & Whitney, .for appellant. John J. Adams, for respondent.

Judgment affirmed, with costs and disbursements, on opinion of special term.

Cases cited

Shultz v. Hoagland 85 N. Y. 464 N.Y. 1881-06-14 p. 938