Rothschild v. Salomon — 5 N.Y.S. 865

Majority

p. 865

Rothschild et al. v. Salomon et al.

(Supreme Court, General Term, First Department.

May 24, 1889.)

Headnote

Assignment fob Benefit of Ceeditobs—Fraudulent Entries.

Where, immediately prior to the making of an assignment for the benefit of creditors, a large sum of money is withdrawn from the assets and entered as paid to discharge a loan owing to the wife of one of the assignors, no such loan having ever been made, sufficient fraud appears to invalidate the assignment.

Appeal from special term.

Action by Sigmund Rothschild and others, creditors of Emanuel Salomon and Henry Adler, partners, trading as M. & E. Salomon, to set aside an assignment made for the benefit of creditors to defendant Gustav Salomon. The assignment was made and recorded January 23, 1888, and conveys all the property of the firm, which was inventoried at the sum of $279,554.16, but which was found to be worth in fact but $204,749.71. The liabilities amounted to $499,322.18. Since the year 1881 the firm had been large importers of leaf tobacco from Havana, but in 1886 they began to buy Sumatra tobacco from Amsterdam, Holland. In the latter half of the year 1886 they purchased Sumatra tobacco in Holland to the amount of $142,203, their entire purchase of tobacco for that year being $246,316.64. In the latter half of 1887 they purchased Sumatra tobacco in Amsterdam to the extent of $469,-226.66, and purchased only about $6,000 worth elsewhere. In January, 1886, the firm commenced certain dealings with Michael Frank, a nephew of one of the firm, by which they transferred certain goods to him, amounting in all to about $24,000, they being jointly interested with him therein, and on January 16,1888, he was indebted to them in the sum of $15,000. This sum was reduced by a credit of $7,000 for loss of weight, etc., in the stock, and the residue, something less than $9,000, was settled by Frank’s notes, aggregating the amount due,kpayable in one and two years each, respectively. Other transactions appeared on the books, with which Frank, who was insolvent, was connected, from which it was argued, in connection with the dealings already referred to, that the firm had fraudulently given him goods and money, in anticipation of the assignment and in fraud- of creditors. In 1884 the firm became indebted to Charles Yaladier, and subséquently to the defendant Emanuel Salomon, executor of said Yaladier, in sums aggregating $79,000. Three days before the assignment they transferred to said Salomon, as such executor, $74,-000 worth of the Sumatra tobacco in liquidation of the debt. January 21,1888, the assignors executed a mortgage of their real estate to the estate of Moritz Salomon, of which defendant Emanuel Salomon was the executor, to secure whatever amount should appear to be due on settlement of accounts. In August and December, 1887, certain transactions occurred, consisting of exchanges of checks by the assignors with the firm of Simon Salomon & Sons, their relatives, by which the assignors lost $2,150 through the insolvency of the latter firm,

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their checks not having been paid. A number of erroneous entries on the books, aggregating nearly $15,500, of overcharges for moneys paid as customs duties, were shown. One of the assignors testified that the amount was used in connection with the business, but that it was not paid as duties. He refused to state for what it was used, though it was withdrawn from the firm business by himself. His reason for his refusal was that it would tend to criminate him. The false charges were from July, 1887, to January, 1888. In July, 1887, and at other times, statements were made by the assignors, representing themselves to be solvent, when it was alleged they were in fact insolvent. All these facts were relied on to show that the assignment was made with intent to hinder, delay, and defraud creditors.

The following is the opinion of Ingraham, J., at special term: “To entitle plaintiffs to judgment in this action, it must be established, to the satisfaction of the court, that the general assignment for the benefit of creditors was made with the intent to hinder, delay, and defraud creditors, and this fraudulent intent must be proved by competent evidence to have existed at the time the assignment was made. The fact that prior to the time of making the assignment the assignors obtained credit for property purchased by means of fraudulent misrepresentations; that money or property belonging to the firm had been fraudulently misapplied by the assignors; or that subsequent to the assignment the property that was covered by the assignment bad been obtained and used by the assignors instead of being delivered to the assignee,—does not of itself necessarily show such intent. That these facts are competent evidence to be considered in determining the intent with which the assignment was made is true, but a consideration of the whole testimony must convince the court that the intent with which the assignment was made was fraudulent, and the facts proved must be inconsistent with an honest intent in executing the assignment before the fact that the assignment was made with intent to hinder, delay, or defraud creditors ■can be said to be proved. The distinction is noticed in the case of Loos v. Wilkinson, 110 N. Y. 210 , 18 N. E. Rep. 100 . Earl, J., in delivering the opinion of the court, says: «The learned counsel for the appellants lays great stress upon the distinction between fraud upon the assignment and fraud in the assignment. While such a distinction doubtless exists,- as a solvent of any questions involved in this case, it is of no importance. When there is fraud in an assignment it may be assailed by creditors, and set aside as fraudulent. When there is fraud upon an honest assignment by prior fraudulent transfers of his property by the assignor, or by a subsequent withholding of property from the assignee, or in the schedules required by law to be made, the remedy is with the assignee, who may avoid the fraudulent acts and secure all the property of the assignor for administration under the assignment. Frauds upon the assignment, either by the assignor or by the assignee, do not necessarily avoid the assignment, but they may®be considered in determining whether there was any fraud in the assignment, .and frequently furnish very convincing, and sometimes conclusive, evidence upon that point.’ Applying the rule above stated to this case, I think the proof fails to show that the assignment sought to be set aside was made with the intent above stated. Most of the facts relied upon by the plaintiff happened a considerable time before the assignment in question was made. The assignors commenced purchasing tobacco in Holland over a year before the making of the assignment, but, while in the six months preceding the assignment purchases were largely in excess of previous years, still I think such purchases are entirely consistent with the expectation that a good business and profitable sales of the property purchased would enable the defendants to pay their obligations and continue their business. In regard to the Frank transaction, the merchandise transferred to Frank was transferred more than two years prior to the making of the assignment, and the subsequent transactions between Frank

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and the assignors have no such relation to the assignment as would characterize it as fraudulent. So far as the defendant Salomon attempted to give the estate which he was an executor of a lien upon his individual interest in his real estate by a mortgage made by him for any amount due him as executor is concerned, that he had a perfect right to do. It was simply securing a debt that he owed. The mortgage was given, not to secure any particular amount, but whatever should be found due by him to the estate. So far as the firm mortgage is concerned, it does not attempt to secure any particular amount, or recite that any amount is due. It is simply given to secure any amount that should be subsequently found to be due from the firm to the estate, and if, as plaintiffs claim, nothing was actually due by the firm to the estate, then no obligation is created by the mortgage. So far as the firm was indebted to the estate, it had a legal right to secure its creditor by a mortgage on its property. The debt to the Valadier estate was incurred, so far as appears, prior to May, 1884, and there is no suggestion that that debt was not valid, or that the money was not actually owed by the assignors. The payment of $2,150 to Salomon & Sons took place some time before the assignment, and has no connection with it. It was not proved that any of the amounts charged in the books of the assignors as paid for duties in excess of the amount actually paid was in the possession of the assignors at the time of the assignment, or that such charges had in reality any connection with the assignment. Whether the amount was in fact paid by the assignors to aid some criminal or illegal design, or was simply appropriated by them, is entirely immaterial, as there is no proof that the transaction had anything to do or any connection with the assignment in question. Nor, on the proof as it stands, is the fact that the assignors .have occupied the house belonging to the firm since the assignment was executed evidence of the intent with which the assignment was made. The assignee, by accepting the trust, made himself liable for its proper execution, and if he has been negligent in taking possession of the estate, and renting it or selling it, he can be held liable for the amount lost on an accounting. It is not proved by competent evidence that the assignors received the rent of the other real estate for either January, 1888, or subsequent months. Adler, one of the assignors, at first stated that his partner received the rents for January, but subsequently stated that he knew nothing about it, of his own knowledge, and he knew nothing of the subsequent rents; but, whether or not the January rents were received, there is no evidence to show that they were in the possession of the assignors at the time the assignment was made. The fact of the appropriation by the assignors of between three and four thousand dollars on the day before the assignment remains to be noticed. The evidence is that that money was taken and the greater part paid to the wife of the defendant Adler, to be used in paying bills due by the assignors for living expenses, and it was handed over by Adler to his wife prior to the making of the assignment. Adler, who was called for the plaintiff, swears that he was advised by his attorney that he had a right to make such a disposition of this sum of money. It was a very small portion of the assigned estate, and, under all the circumstances of the case, I am not disposed to say that this act shows that the assignment was made with intent to hinder, delay, and defraud creditors. On the whole case, I have come to the conclusion that the proof fails to sustain the plaintiffs’ case, and that the defendants should have judgment, with costs.” Plaintiffs appeal.

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

EliJiu Root, for appellant. B. E. Einstein, for respondent.

This action was brought to set aside an assignment for the benefit of creditors made by the defendants Emanuel Salomon and Henry Adler to the defendant Gustav Salomon. The assignment is not claimed to be void for anything that appears upon its face; but the appellants urge that

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it was part of a fraudulent scheme by these insolvent debtors to create debts abroad by means of false representations and with the proceeds to protect favored creditors at home, and that the assignment was part of a device to hinder, delay, and defraud creditors in respect to their remedies against the real estate of the firm, and that the assignment is fraudulent and void because of the reservation of moneys out of firm assets by the members of the firm.

In the disposition of this appeal the last objection is the only one that it is deemed necessary to consider. The assignment was made on the 23d of January, 1888. On the 20th of January a check was given to the wife of the defendant Adler for $402, which was charged to household expenses. On the 21st of January another check was drawn for $3,640, of which $600 was paid to the defendant Henry Adler as cash and $740 to the defendant Emanuel Salomon, and $2,300 was handed to Mrs. Adler, and charged on the books as a loan returned to her. It appears from the evidence in this case that this whole sum of $4,042 was drawn for household uses; that there were small* bills owing to the amount of $1,700, and that the balance was intended to be used for living expenses after the making of the 'assignment; and that the charge in the books of the $2,300 as aloan returned to Mrs. Adler was a false charge, no such money ever having been lent by her, and nothing being due to her. It is claimed upon the part of the defendants that from these facts no fraudulent intent can be deduced, because they were advised by counsel that they had a right to draw certain sums of money for the purpose of subsistence prior to the making of the assignment. Whether items to the extent of $4,000 could be sustained upon this basis is á question not necessary to be determined, for the reason that the fact that a false entry was made in the books in reference to this matter shows that there was an intent to cover up and conceal the true facts in regard to the drawing of this money and a knowledge upon the part of the defendants that they had no right to make this appropriation of the fund. It is true that frauds prior to the execution of an assignment will not always invalidate the assignment. In other words, there may be frauds upon an assignment without there being fraud in the assignment. But where the acts are connected together, and form one scheme for the purpose of the disposition of the property of the judgment debtors, then all the acts are to be taken together, and the intent governing the debtors in the doing of one act establishes an intent as to the whole. So, in the case of a voluntary assignment, where there are different acts which are performed leading up to the assignment, and the assignment is only the culmination of the whole thing and a carrying out of the whole scheme, fraud in any one of thes'e acts will vitiate the whole proceeding. In the case at bar this money was abstracted in anticipation of and in preparation for the assignment. It was intended to reserve it from the operation of the assignment for the future benefit of the assignors, and the assignment was only a part and parcel of the scheme, and therefore the fraudulent intent in withholding this money permeated the making of the assignment, which was simply a culmination of the whole scheme, and renders the whole proceeding void. We do not see how, in view of the large amount abstracted, and the making of the false entry to cover up the same, it is possible to overlook it, or that the judgment debtors were actuated by any other motive than that of making future provision for themselves by abstracting property from the reach of the assignment which they then contemplated making. It is true that our attention has been called to the case of Vietor v. Nichols, 13 N. Y. St. Rep. 461 . But the facts in that case were very different from those before the court. There the amount of money abstracted was limited in the extreme, and was taken for the purpose of paying debts which were due, and not for the purpose of supporting the assignors and their families after the making of the assignment. We do not see how any other conclusion can be drawn from these conceded facts than that there was in the abstraction of this money a fraudulent intent, and that

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it was part and parcel of the scheme which resulted in the assignment, and which fraud must vitiate the whole transaction. The judgment must be reversed, and a new trial ordered, with costs to appellant, to abide event.

Cullen, J., concurs.

Cases cited

Vietor v. Nichols 13 N. Y. St. Rep. 461 N.Y. Gen. Term 1888-01-23 p. 868