In re Cantor

On the 26th of November, 1887, the firm of S. Fleischer & Co. made a general assignment for the benefit of creditors to one Rosenthal. The assignee accepted the trust, and qualified by giving the bond required by statute. Thereafter the firm of Wilmerding, Hoguet & Co. and others, judgment creditors of the assignor, brought suit to set aside the assignment to Rosenthal upon the ground that the same was given with intent to hinder, delay, and defraud the creditors of the assignor. This suit was prosecuted to and resulted in a decree which was entered on the 16th of November 1888, setting aside the assignment as against the plaintiffs, ap

The sole question, therefore, presented relates to the ruling of the referee surcharging the accounts of the substituted assignee with the sum of $5,109.36, paid to the receiver above mentioned. The appellant is undoubtedly correct in his contention that the plaintiffs in the Wilmerding suit obtained a lien on the property and assets assigned to Rosenthal, but the money with which the payment here was made was not made out of or derived, either directly or indirectly, from such property or assets. It was money recovered by the substituted assignee from the sureties on the bond of the original assignee. But it is suggested that this money was a substitute for the property and assets originally assigned, and therefore the lien acquired by the decree in the Wilmerding suit attached to it equally with the property and assets originally transferred. That this contention is unsound is settled by the principle declared in the case of People v. Chalmers, 60 N. Y. 154 . In that case, as here, certain judgment creditors brought suit to set aside an assignment, and a decree was entered setting the same aside, and directing the assignee to pay a certain sum to the receiver therein appointed, and, he having miled to make the payment decreed, action was brought against the sureties on the assignee’s bond by the judgment creditors, and it was

“The statute was intended to protect the interests of creditors under valid assignments made for their benefit, and creates the requisite machinery for accomplishing that object, and to that end it should be fairly and liberally construed; but it was not Intended to secure the payment of assets upon judgment obtained in hostility to the assignment. The judgments obtained in behalf of the creditors prosecuting the bond declared the assignment void for fraud. As to them the assignment was a nullity, and the judgments obtained by them are conclusive. It follows that they were not, and could, not be, prejudiced by the assignment. It never for an instant placed the property beyond the reach of legal process. They might have levied upon it by execution, and the process of injunction and the appointment of a receiver were open to them.”

Applying this principle to the facts in this case, it necessarily follow's that the money recovered by the substituted assignee from the sureties upon the bond of the original assignee belongs to the general creditors of the assignor, to be distributed under the assignment. It does not belong, or any part of it, to judgment creditors who have repudiated the assignment, and who have acted in hostility to it. If I am correct in this conclusion, then it also follows that the plain- ■ tiffs in the Wilmerding suit did not have, and never had, any lien on . or claim to this money, upon the ground that it was a substitute for the original assets on which they did have a lien. This money was not substituted for the original assets. It did not grow out of, or arise from the use of, the assigned estate in any wrav. It came into existence simply and solely by reason of the liability of Rosenthal . to perform his duties under the assignment, and that liability did not extend tow'ards or in favor of judgment creditors acting in hostility .to the assignment. The property transferred to the assignee by the . assignor was at most an incidental factor in creating the liability of the sureties. The property assigned determined not the liability i of the sureties, but simply the extent of it. It was simply because Rosenthal failed to produce the assets put into his hands, or to ac- ■ count for the proceeds thereof, when called upon to do so, that the . sureties became liable -to pay any sum whatever. The rule is well settled that the 'interest of a creditor in a trust estate ceases when the trust fund is wasted or destroyed. The nature of his claim is of no importance, for, as soon as he becomes unable to trace the property ■ upon which he had a lien, that moment he assumes the position of a common creditor. Cavin v. Gleason, 105 N. Y. 256 , 11 N. E. 504 . Therefore the preferential right of Wilmerding, Hoguet & Co. and others against-the property transferred to Rosenthal ceased when the latter absconded, and took with him the assigned estate. This fact w'ould have enabled them to share with the other creditors acting under the assignment in the fund in question, were it not for the fact that they have lost that right by repudiating the assignment and ob- ■ taining the decree which, so far as they are concerned, wholly destroyed it. ' The "fund was not created for their benefit. It must .be applied, under the assignment, ‘‘in satisfaction of the debts of the : assignor,”.because,the .statute .so -declares. Laws 1877, c. 466, § 9.

It follows that the order appealed from was properly made, and must be affirmed, with $10 costs and disbursements. All concur.