Abegg v. Schwab — 24 N.Y. St. Rep. 986

Majority

p. 986

Henry Abegg, Pl'ff, v. Emanuel Schwab, Def’t.

(Supreme Court, Special Term, New York County,

Filed June 19, 1889.)

Headnote

1. Assignments—When confessed judgments set aside.

Where judgments are confessed in contemplation of a general assignment for the purpose of evading the statute restricting preferences, they are void and may he set aside.

2. Same—When both judgments and assignments are void as against

creditors.

Where one of the objects and purposes of giving judgments and issuing execution is to sell the property and by that means get such property back into the possession of the debtor, and it is so transferred, and the debtor employed as agent to dispose of the same, and where in pursuance of such plan, a general assignment is also executed, then both the judgments and assignments are void as against creditors.

Blumenstiel & Hirsch, for pl’ffs; Leopold Wallach, for defendant Erohman; Hays & Greenbaum, for defendant Lilienthal; L. W. Emerson, for defendant Schwab.

J.—By the evidence in this case it is established that the confessed judgment and the assignment were together one plan whereby all the property of the assignors was to be disposed of. The assignor testified that on the morning that the assignment was executed he told Mr. Wallach that. “I had to make an assignment owing to my father’s death, and told him I wanted to protect these men (the persons in whose favor the judgments were confessed), and at his suggestion that was the mode in which it was done. Then the confessed judgments were made out first.” The instructions given by the assignor to his attorney were that he had to take an assignment and wished to protect certain of his creditors, and that to carry out that design the attorney suggested the plan of confessing judgments in favor of the persons that the assignor

p. 987

wished to “protect,” and then making an assignment. The confession judgments being the means adopted to accomplish a definite scheme or plan, it is clear that if the scheme which was attempted to be executed was prohibited by law, the means by which it was attempted to be carried out were illegal and void.

The total amount of the assigned estate was as follows:

Property sold by the sheriff................. $18,749 33

Amount collected by assignor................ 23,000 00

Making a total of....................... $36,749 33

One-third of which amounted to $12,249.78.

The total amount of the judgments confessed by the assignor, and which were by the method adopted preferred, was $12,700.05.

By chapter 503, Laws 1887, it is provided that in assignments of the estate of debtors for the benefit of creditors, any preferences created therein shall not be valid except to the amount of one-third in value of the assigned estate, after deducting the wages of employees and the costs and expenses of executing such trusts.

This provision applies to all assignments for the benefit of creditors, and where such assignment contains preferences which are in excess of the one-third of the estate which the law allows to be preferred, it is provided that one-third of the assets only shall be applied to the payment of preferred claims.

But when the parties about to make an assignment attempt to evade this provision of law, by means of confessed judgments, so that more than one-third of the debtor’s estate is actually paid to preferred creditors, the only way that the law can be enforced is to declare the confessed judgments void and set them aside.

This is precisely the result of the scheme adopted by the assignors in this case; one-third of the gross amount of the assigned estate was $12,249.78, without deducting the expense of executing the trust, and yet the assignor has, by the confession of judgment, preferred creditors to the amount of $12,700.05. This is, of itself, sufficient to declare the judgment confessed unlawful and void. The same principle has been applied in other states where preferences are prohibited by law.

I do not think, however, that this would justify the court in setting aside the assignment. By holding the confessions of judgment void, and setting them aside, the whole property of the assignor would vest in the assignee, and could then be applied, according to its provisions, to the payment of the assignor’s debts, and if the assignee was a party to the fraud, the court could appoint a substituted

p. 988

assignee to carry out the trusts. It is, however, unnecessary to determine this question, as a consideration of the testimony has convinced me that the assignment was not a bona fide transfer of the debtor’s property for the benefit of his creditors, but the scheme was devised by the assignor for the purpose of preventing the application of bis property to the payment of his debts.

The assignor was in business with his father, and in the five months preceding the assignment, the firm purchased on credit about $90,000 worth of merchandise. November 21st the father died. There is no evidence that any of the creditors were pressing the assignor, but two or three days after the father’s death this assignment was contemplated, and on the morning of the 25th of November, the proposed assignee, two of the persons who were to be preferred and the assignor, met at the office of Mr. Wallach, who subsequently appears to have acted as the attorney for the assignor, assignee and the creditors who obtained the judgment.

Confessions of judgment were prepared in favor of the five persons who were to be “protected,” were executed by the assignor and sent to the county clerk’s office to be entered, and executions were issued thereon; the assignor and assignee went to the county clerk’s office, taking with them the proposed general assignment, meeting the clerk of the attorney for the assignee there, who took their acknowledgment of the execution of the instrument, and it was filed. The assignee proceeded to take possession of the assigned estate when he found the property in charge of the sheriff under two executions on the confessed judgments.

There was then a meeting of creditors called, the assignor offered to pay fifty cents on the dollar in settlement of his indebtedness, some of the creditors accepted this offer, and it is in evidence that one of them was subsequently paid that per centage of his claim against the assignor by Schwab Brothers. The offer was not accepted by all the creditors. In the meantime the stock of merchandise, including, so far as appears, all the property of the assignor which could be levied on, had been advertised for sale by the sheriff, under the executions issued on the confessed judgments, and on the failure of the creditors to promptly accept the offer made by the assignor, the property was sold and substantially all of it purchased by four persons, Lilienthal and G-azen being two of the judgment creditors, Frank being the clerk of Guggenheimer & Sons, another of the judgment creditors.

The amount purchased by these four persons was over $11, 800 out of a total of $13,149.

Not one cent was paid in cash by anybody for these goods, but the amount was credited on the execution. The goods themselves were never delivered to the purchasers, but were turned over to the firm of Schwab Brothers, a copartnership then organized and composed of two younger brothers of the assignor. No money was contributed by

p. 989

the parties to form that copartnership, its entire capital being the goods of the assignor purchased at the sheriff's sale, and it immediately proceeded to appoint the assignor its general manager, giving him a power of attorney to transact all business, draw checks, etc.; whereupon, as it appears, the members of this new firm left the city, leaving-the assignor in full possession and control of the property which, but a short time before, he had ostensibly applied to the payment of his .debts.

But the terms on which the purchasers at this sale transferred the goods to this new firm are suggestive. They had purchased the goods to protect themselves as creditors, but they immediately transferred them to Schwab Brothers, on the agreement of that firm that they would be paid, not the value of the goods, not the amount that the goods will realize on a sale, but the amount due to them from the assignor. Lilienthal says he was first promised notes for the amount due him from the assignor indorsed, but as they said they would soon sell the goods, he did not get the notes but did shortly after get his money. He was the only one of the persons who purchased goods at this sale that was examined as a witness, but Mr. G-uggenheimer, who was one of the judgment creditors, says he sent an employee of his, David Frank, with instructions to protect his interests, and that all he knows is that in a few days he got the amount that the assignor owed him from the assignor’s attorney.

That he did not pay for any goods bought; did not get possession of any goods bought, and knew nothing about it except that Mr. Frank said he had bought sufficient to cover his claim; that he got his money and that was all he was interested in.

We know, however, that Frank, to protect a claim of $768.34, bought $6,356.87 worth of goods, which was also turned over to the firm of Schwab Brothers without anybody paying one cent or incurring any obligation except that Mr. Wallach, who as attorney had represented the assignor, the assignee and the judgment creditors, said that if' the goods were turned over to Schwab Brothers the judgment creditors would be paid.

During the time that these proceedings took place, the assignor stood by apparently with full knowledge of all that was going on, and without doing anything to prevent this disposition of the property of the assignor, which had been assigned to him for the benefit of his creditors.

It seems to me that this statement of the facts proved by the parties to the transaction is sufficient to satisfy the most sceptical that there was no sale, no transfer of the property, that it was never intended that there should be either a sale or transfer of the property, but that the whole scheme was one devised to prevent the stock of merchandise from being appropriated to the payment of the assignor’s debts, and that the assignor succeeded by paying or agreeing to pay'

p. 990

about $12,700, of which $4,800 was to his mother, in obtaining possession of a stock of goods for which he had agreed to pay, and for which he owed about $90,000.

It is quite evident that any scheme which will accomplish such a result defrauds the creditors of the assignor.

Plaintiff is therefore entitled to judgment setting aside the judgments entered on confession and the assignment as iraudulent and void, with costs.