Hyman v. Kapp — 6 N.Y.S. 31

Majority

p. 31

Hyman et al. v. Kapp et al.

(Supreme Court, General Term, First Department.

May 24, 1889.)

Headnote

1. Assignments fob Benefit of .Creditors—Preferences—Validity.

In an action to set aside an assignment for benefit of creditors, on the ground that it contains fraudulent preferences, where plaintiff concedes that there is no dispute as to any except specified preferences, a judgment setting aside the assignment on the ground that another preference is fraudulent is unauthorized.

2. Same.

Nor can such judgment be sustained because of auction sales of his goods made by the debtor before executing the assignment, where it appears that the proceeds of such sales were all accounted for.

3. Same.

The assignment cannot be set aside on the ground of misrepresentations by the debtor to his creditors as'to his financial condition, on which the credits were obtained, where he did not agree not to make an assignment.

Appeal from special term, Hew York county.

Action by Samuel P. Hyman and Levi Morris against Jacob Kapp and Charles H. Dyett, assignee of said Kapp, to set aside the assignment. Judgment sustaining the assignment, and plaintiffs appeal.

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Following is the opinion delivered on a former appeal from a judgment setting aside the assignment, May 13, 1887, by Daniels, J.:

“The judgment adjudges a general assignment made by the defendant Jacob ICapp to the defendant Dyett to be fraudulent and void against the plaintiffs as judgment creditors of ICapp. Their judgments were recovered alter the execution and delivery of the assignment, and executions issued against property were returned unsatisfied. The court, at the trial, determined the assignment to be fraudulent on the disposition which was made of appeals from orders denying motions to vacate attachments issued in favor of the plaintiffs. This decision was made upon affidavits which were deemed to establish the fact that the debtor had disposed of property with intent to defrau'd his creditors. But it does not necessarily follow from that decision that a judgment should be rendered setting aside the assignment as fraudulent, for upon the trial the facts are to be obtained from the evidence of the witnesses, which may, and often does, vary in important respects from the force and effect attributable to ex parte affidavits. And that there was a substantial difference between the affidavits and the effect of the evidence taken upon this trial is disclosed by an examination of this evidence. Upon the affidavits it did not appear that the debtor had become, as a matter of fact, indebted to his wife for .moneys advanced to him on her account by her mother in the year 1874. And as the transaction between himself and his wife had remained unchanged for a period of 10 years, it was considered that the $2,000 drawn by the debtor from his business, and paid over to her the day before the assignment was made, was a fraudulent disposition of his property. And as transactions between the insolvent husband and his wife must be closely watched and scrutinized to protect and preserve the rights of creditors, the conclusion which was then drawn was sustained by the affidavits. But upon the trial both the husband and the wife were examined as witnesses, and by their testimony, which was not contradicted, it was made to appear that the money was in fact advanced to the husband as a loan on account of his wife, and that an actual indebtedness was created, which he was from time to time requested to pay, but did not do so on account of his financial circumstances not permitting that to be done. This evidence was sufficient to repel the presumption supported by the affidavits, and to sustain the act of the husband in paying this sum of $2,000 to his wife, as that was done on a legally existing indebtedness; and that the money had been in fact, so paid quite satisfactorily appeared by the evidence on the trial. A residue of the indebtedness still remained unpaid, and that was preferred by the assignment, as it.lawfully might be under these circumstances.

“It was, however, found by the court that a preference amounting to the sum of $589.80, in favor of the debtor’s son Oscar, was made, notwithstanding the statement of the debtor that his children worked for him without pay. This finding is not expressed very clearly, but it seems to have been intended by it to-find the fact that this preference was unlawful, for the reason that the debtor’s children worked for him without compensation. The preference itself proceeds upon the statement that the debtor was owing his son $313.15 for money loaned, and $276.65 for services. And this might be sufficient to sustain the judgment, if in fact no such indebtedness existed in favor of Oscar against his father. But the trial proceeded upon the concession of the plaintiffs’ counsel that there was no dispute in the case except as to the $2,000 paid to the debtor’s wife, and the auction sales, and the representations made when the debts for goods were contracted. This ‘concession dispensed with the production of evidence to prove the existence of the indebtedness of the debtor to his son. It could very well have the effect, as it probably did, of creating the conviction that such proof would not be. required to sustain the correctness Of this preference. And no such evidence was given on the trial of the action, beyond the general statement of the debtor that he was in debt

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to his son for the amount in which he was preferred in the assignment. Beyond that, the justness of this preference was not made the subject of trial, and the failure to make it so was warranted by this concession of the plaintiffs’ counsel. After that the court was not at liberty to find the fact to be that this was an unlawful preference. It may be that such was its character, but, if it was, it cannot be so determined upon the evidence contained in this case. And as this finding in reality is the important one upon which the judgment depends, as the indebtedness to the debtor’s wife was established, the judgment under the circumstances was not authorized by it. Neither was it by the auction sales which the debtor made prior to the time of the execution of the assignment; for after deducting the losses incident to those sales it appeared from the books that the proceeds had been all accounted for.

“The case of Clark v. Taylor, 37 Hun, 312 , lias been relied upon as sustaining the theory that the assignment could very well be avoided as fraudulent because of the misrepresentation made by the debtor to his creditors in purchasing goods from them. But there was no connection whatever between these misrepresentations and the making of the assignment, as the fact appeared to be, in that case. There the promise relied upon, by which the debtor obtained an extension of time before judgment could be entered against him, was, in effect, that the creditors should not in the mean time be prejudiced by an assignment of the debtor’s property. That promise was violated by him in the assignment afterwards made, and it was held by the court that the assignment should on that account be vacated and set aside. In this case no such assurance in any form was given to the creditors. The debtor probably did misrepresent his financial condition, and in that manner may have designed to defraud his creditors out of the price of the goods which they sold him. And if he did they were entitled to redress by a proper action against him, founded upon his misrepresentations. But the statements which were made by him, assuming them to have been as they were related by the witnesses, contained no assurance that he would not afterwards assign his property for the benefit of his creditors. No such assignment was alluded to, and it was not a breach of faith between himself and his creditors that he should afterwards make it, as he did. The transactions were disconnected throughout, and the representations consequently formed no legal ground for interfering with the assignment.

“As the case appeared at the trial, it depended upon the legality of the preference in favor of the debtor’s son Oscar, and that preference the plaintiffs were not at liberty to assail after the concession made by them in the course of the examination of one of the defendants’ witnesses. It maybe that upon another trial this preference will be proven to be without foundation, and, if that shall be the fact, it may invalidate the assignment. But until such proof shall be given in the case, or some other, establishing other fraud on the part of the judgment debtor, the action cannot be sustained. The judgment should be reversed, and a new trial ordered, with costs to appellants to abide the event. ”

Argued before Van Brunt, P. J., and Daniels and Bartlett, JJ.

Blumenstiel & Hirsch, for appellants. Townsend, Byett & Einstein, (B. F. Einstein, of counsel,) for respondents.

On a previous appeal in this case we held that the evidence adduced on the first trial was not sufficient to invalidate the assignment. There is nothing in the proof taken on the second trial to lead us to change or even cause us to doubt the correctness of the view which we then took of the facts. Indeed, there is no material difference between the case as presented then and the case as presented now, except in respect to the preference in favor of the assignor’s son. On the first trial a concession was made which

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eluded a finding to the effect that this preference was unlawful.. On the trial now under review no such concession was made, and there was full inquiry into the circumstances under which the claim of the son was preferred in the assignment. The evidence on this subject amply warranted tile conclusion of the trial judge that the preference was valid. The judgment appealed from should be affirmed, with costs. All concur.