Harvey v. McDonell — 23 N.Y. St. Rep. 501

Majority

p. 501

Elmer T. Harvey, Who Sues as Well for Himself as for All Other Creditors of John McDonnell, Deceased, App’lt, v. Lucy McDonell, Individually and as Administratrix, etc., Resp’t.^[1]

(Court of Appeals,

Filed June 4, 1889.)

Headnote

1. Creditors—Actions—Executors and administrators—Fraudulent transfers—Right of creditors to bring action to set aside FRAUDULENT TRANSFERS WHEN ADMINISTRATOR OR ASSIGNEE FOR BENEFIT OF CREDITORS REFUSES.

Where an administrator or assignee, for the benefit of creditors, is either in collusion with one holding property alleged to have been fraudulenty transferred by the intestate or the assignor, or where said property is claimed by him, or where the trustee unreasonably refuses to sue;’ the creditors or other persons interested may, themselves,'bring an action for, or reclaim the property fraudulently transferred, making the transferees and trustee parties.

2. Same—When not necessary that he be a judgment creditor— When trustee may require that claim be proved, or require indemnity.

In such a case the creditor, although not a judgment creditor, is entitled to bring an action, but the trustee, if he doubts the justice of the creditor’s claim or the sufficiency of the evidence to overthrow the alleged fraudulent conveyance, may, in the first case, require the creditor to substantiate his demand in one of the modes -rovided by ’aw or, in the other, require indemnity.

Appeal from a judgment of the general term of the supreme court, third department, affirming a judgment of special term dismissing the complaint.

E. F. Bullard, for app’lt; N. C. Moak, for resp’t.

The complaint shows the plaintiff, Harvey, to be a creditor of the decedent, John McDonnell, by virtue of certain contract obligations, to the amount pf two thousand dollars and upwards; that upon the death of McDonnell, the defendants were appointed his administrators. They recognized the validity of the claims, and paid dividends thereon from the proceeds of land sola by order of the surrogate. The property coming to their hands as such representatives has been exhausted, and there still remains due the plaintiff the balance above referred to.

p. 502

The complaint further states that shortly before his death, the decedent, to defraud his creditors, caused certain of his lands to be conveyed, without consideration, to Lucy McDonnell, his wife, in order to carry out his fraudulent intent, and that she retains it, and also some personal property which she claims to be her own. The plaintiff has requested the defendants to bring an action to set aside these transfers, and they have declined to do so. „

The plaintiff brings the action in behalf of himself and the other creditors of the decedent, against Lucy McDonnell, individually and as administratrix, and against the other defendant as administrator of John McDonnell. He asks that the fradulent conveyances be cancelled, that an account be rendered by the defendant, Lucy, a receiver appointed, and the distribution of such moneys as may come to his hands among the creditors of the intestate.

The defendants answered jointly, setting up, in substance, a general denial, and also the statute of limitations. No objection was taken by answer to the sufficiency of the complaint, but on the trial, upon motion of the defendants’ counsel, it was dismissed upon the sole ground that the plaintiff was not a judgment creditor.

The cases cited by the learned counsel for the respondent, afford many instances where the right of a creditor to proceed in equity against the property of his debtor, has been denied by reason of his failure to exhibit a judgment enforced by execution. They show the rule to be well settled that a creditor at large, or a simple contract creditor, must sué at law, establish his debt and then exhaust, by such proceeding as the law allows, the real estate on which the judgment is a lien, and the personal property liable to execution, before he proceeds against property which is not subject to either judgment or execution. The plaintiff has done neither, and he is a contract creditor of the decedent, John McDonnell. But this is not all; he is a claimant against the estate, his claim has been allowed, and the representatives of McDonnell have exhausted the property which has come to their hands, both real and personal, by applying it upon the debts of the intestate, and, among others, the plaintiff’s claim. It is not wholly satisfied, and the plaintiff points out other property once confessedly belonging to the decedent, but, as alleged by the plaintiff, conveyed away in fraud of the rights of creditors.

He has asked the defendants, as administrators of McDonnell, to pursue it and set aside the fradulent conveyances. If the allegation is true, they might do so, and it would then be their duty to apply the proceeds in the due course of administration. The plaintiff would receive his share, not by virtue of his own action, but because of

p. 503

the character which the administrators bear in relation to the estate, and the power conferred upon them by statute. The administrators stand as trustees for the creditors (Laws of 1858, chap. 314, § 1), and for their benefit may disaffim and treat as void any transfer or agreement made in fraud of the rights of any creditor interested in any property of right belonging to the estate they represent. Id. The same act confers like power upon assignees for the benefit of creditors, and in favor of such a one, we hold that he had greater power to seek for and reclaim property fraudulently conveyed than the creditor himself; for “the creditor can assert no right until by judgment and execution he has a hen, or a right to a lien, upon the specific property, but in favor of an assignee for his benefit thelegislature have substituted a statutory right in place of these conditions.” Reynolds v. Ellis, 103 N. Y., 115 ; 2 N. Y. State Rep., 786.

The same construction applies here. But the administrators do not avail themselves of the power given to them by statute.

It was their right and duty to do so. They have been applied to, and refuse. Is the creditor, therefore, without a remedy ? Clearly not. Upon the face of the complaint, it is apparent that the administratrix has an interest adverse to the creditors of the estate. They call for property which she claims to own in her own right, and which she refuses to apply upon the debts of her intestate. These circumstances require an exception to be made to the general rule, which forbids an estate or its management to be taken from the hands of those lawfully entrusted with it. For it is equally well settled that where such parties are either in collusion with one holding property alleged to have been fraudulently transferred, or where, as in this case, it is actually claimed by them, or the trustee unreasonably refuses to sue, the creditors or other persons interested may themselves bring an action for, or reclaim the property fraudulently transferred, making the transferees and the trustee parties. Story’s Eq. Jur., vol. 1, § 423; Dewey v. Moyer, 72 N. Y., 70 ; Bate v. Graham, 11 id., 237; In re Cornell, 110 id., 351; 18 N. Y. State Rep., 200; Ft. Stanwix Bank v. Leggett, 51 N. Y., 552 .

In such a case the creditor stands in the place of the trustee, and it is immaterial that he is not a judgment-creditor. The relation he sustains to the estate entitles him to payment in common and in just proportion with other creditors, and a judgment would give neither lien, property nor other advantage. Nothing more is sought in this action.

Lichtenberg v. Herdtfelder ( 103 N. Y., 302 ; 3 N. Y. State Rep., 91), cited by the respondent, was of a different char

p. 504

acter, and the remedy suggested by the learned judge who delived the opinion in that case is not inconsistent with the one adopted in the one at bar.

It is unnecessary to say what course would be open if the administrator doubted the justice of the claim presented, or the sufficiency of evidence to overthrow the alleged fraudulent conveyance. In the first case the creditor might not unreasonably be required to substantiate his demand in one of the modes provided by law, and in the'other, before involving the estate in litigation, the administrator might require indemnity. Neither question arises here. The complaint was dismissed on the sole ground that the plaintiff was not a judgment-creditor. In this there was error.

The judgment should, therefore, be reversed, and a new trial granted, with costs to abide the event.

All concur.