Vietor v. Nichols — 13 N.Y. St. Rep. 461

Majority

p. 461

George F. Vietor and Others, App’lts, v. George D. Nichols, and Others, Resp’ts.

(Supreme Court, General Term, First Department,

Filed January 23, 1888.)

Headnote

Assignment—Fraud—Withdrawing money from the assets previous TO THE ASSIGNMENT—HOW CONSTRUED—INTENT.

Where an assignment is afterwards legally and honestly made it cannot he set aside because the assignors had previously disposed of property to defraud creditors. That act would be evidence against the assignment, for it might be concluded to have been produced as a part of a common fraudulent intent. But to have that effect, there should appear to be some connection between the assignment and the preceding unlawful act. It should appear t > have been part of a comm n design to defraud.

The plaintiffs are judgment creditors of the defendants George D. Nichols and Allan I. Clark. Their judgments were recovered in February, 1886, and executions against the property of the judgment debtors were returned unsatisfied before the commencement of this action. On the 21st of January, 1886, the judgment debtors made a general assignment to the defendant William P. Dixon for the benefit of their creditors. By this assignment they preferred a part of their partnership debts, and after the payment of the preferences and the residue of the firm liabilities, they directed the surplus found in favor of each partner to be applied in payment of his individual debts, either in full or pro rata, as the surplus should prove to be adequate for the purpose and after the payment of such debts in full, then the remaining surplus was directed to be returned to the person entitled to receive it.

Just before the making of the assignment each of the partners drew sums of money from the amount on hand, and owned by the firm. That drawn by the defendant, Nichols, was used in paying the persons who had been employed by the firm, except the sum of $150, and this balance was expended by him for the support of his family. The defendant, Allen 1. Clark, drew the sum of $33.23 to pay a private debt, and also $70.80 in cash, which he expended in the support of his family. The assignee employed Mr. Nichols to assist him in the management and disposition of the assigned property consisting chiefly in a stock of fur garments," fur lined coats and skins. Evidence was given on behalf of the plaintiffs by the witness Charles H. Reilly, to the effect that in September, 1885, the defendant Clarke told him that the firm had a clear surplus of $50,000, and that their liabilities did not exceed $40,000. But that was denied by the defendant Clark, who testified that he made no such statement. The assignee’s liabilities amounted to the sum of $89,494.97, their nominal assets to the sum of $69,955.06 which were probably worth the sum

p. 462

of $46,000. The court found the assignment to have been made in good faith, and without any intent to hinder, delay, or defraud creditors and directed judgment for the defendants. And from the judgment entered upon that direction the plaintiffs have appealed.

Brumenstiel & Hirseh, for app’lts; Wheeler H. Beckham- & Jabish Holmes, Jr., for resp’ts.

The assignment on its face provided for no unlawful disposition of the, surplus of the partnership property to which each partner might be entitled, after the payment of the partnership liabilities. The surplus which might be owned by each partner was first directed to be applied in payment of his individual creditors, after the payment in full of all partnership debts, and if it proved insufficient for the purpose then to be divided ratably among his creditors. That direction was what the law required should be given, and it was free from all well founded objections.

If the firm did in fact have a clear surplus of assets in September, 1885, amounting to the sum of $50,000, and owed no greater sum than $40,000, then the great change-in their financial condition, when the assignment was made, would be some evidence of a fraudulent disposition of their property in the meantime, as long as the fact was. that they encountered no heavy or serious losses. But the statement upon which this fact has been assumed, was as positively denied by the defendant as it was testified to-have been made. And the court was impressed with the truth of this denial. And, upon this appeal, the view which was considered truthful by the court at the trial must be followed, for no other evidence was given having a tendency to overthrow the truth of the denial.

The employment of one of the assignors, by the assignee,, was a fact of itself having a tendency to support the inference that the assignment may have been prompted by an unlawful intent. But it was fully and credibly explained by the assignee and consistently with the good faith of the assignment. The court accepted the explanation, and no reason has been disclosed for questioning the correctness of' this conclusion.

The remaining objection to the assignment stands upon the money withdrawn by each of the assignors from the funds of the firm. That, however, did not necessarily avoid the assignment, even if the withdrawal of the funds resulted from a fraudulent design. For where the assignment may afterwards be legally and honestly made, it could not be set aside because the assignors had previously disposed of property to defraud creditors. That act would be

p. 463

evidence, it is true, against the assignment for it might he concluded to have been produced as a part of a common fraudulent intent. But to have that -effect there should appear to be some connection between the assignment and the preceding unlawful act.

It should appear to have been part of a common design to defraud. There should be some logical sequence between the intent and the act assailed; such a sequence has not been shown in this case. For it is not to be inferred from the small sum made use of by one of the partners to pay his own private debt, and the amounts withdrawn by each from the partnership funds for the temporary support of their respective families, that they were governed by an intent to defraud their creditors, when they afterwards made the assignment devoting the residue of their assets to the payment of their creditors’ debts; withdrawing these sums from the partnership funds may have been improper acts on the part of the insolvent debtors. But they were not so necessarily so as to impeach the general assignment. If that had contained a preference of the individual debt paid, united with a direction to pay it out of the partnership property, the result would be different, for it would then become an unlawful portion of the assignment itself. But that is not the fact; no such direction or preference has been made. The act was separate and distinct from the assignment, and therefore not entitled to the effect of setting it aside as long as the assignment has been found to have been made in good faith, as it very well might be proven by the evidence given on the trial. For similar reasons, it cannot be condemned on account of the small amounts taken by the assignors to support their families for a short period of future time. Besides that, the law permits an. insolvent debtor to withhold sixty days’ provisions for his family from the claims and demands of his creditors. Code Civil Pro., § 1390, subd. 4; § 2463.

And the money retained by these debtors may very reasonably be presumed not to have transcended this statutory limit, but to have been within the spirit and protection of this prescribed limit. If the fact had been otherwise the plaintiffs should have proved it upon the trial.

The authorities brought to the attention of the court by the plaintiffs’ counsel warrant the adoption of no different view of these acts. An assignment may be set aside, or an attachment sustained where the amounts withdrawn from the assets, or previously disposed of by the debtors, evince the general purpose to have been to defraud the creditors, and the several acts to have been component parts of one entire fraudulent scheme. But this is not a case of that description The assignment was not legally impeached

p. 464

by anything contained in it, or by the acts of the debtors preceding or attending its execution, and the judgment from which the appeal has been taken should be affirmed, with costs.

Bartlett and Brady, JJ., concur.