Manning v. Beck — 26 N.Y. St. Rep. 483

Majority

p. 483

George G. Manning et al., Resp’t, v Lewis P. Beck et al., App’lts.

(Supreme Court, General Term, Fifth Department,

Filed October 19, 1889.)

Headnote

1. Assignment for . creditors — Mat be attacked bt creditor for fraud.

While a general assignee may maintain an action to set aside prior fraudulent transfers, this principle does not prevent a creditor from attacking-the assignment itself where it was made with fraudulent intent, whether such intent be disclosed by the contents of the assignment itself or by cotemporaneous acts.

3. Same — When mat be set aside for fraud.

A voluntary surrender by an insolvent debtor of dominion over his entire estate and the transfer of substantially the whole of his property to a. portion only of his creditors in order to give them a preference, whether made by one instrument or more, whatever form the same may take, when, it operates as an unlawful preference in fact, may be assailed by a creditor as fraudulent, and set aside as a fraud upon the act.

3. Same.

An insolvent debtor sold ninety per cent of his goods to his son, who» satisfied a claim against his father, assumed payment of back rent and gave notes which were given to certain creditors. The following day a. general assignment was made. Held, that the facts showed an intent to. defraud creditors, and that the assignment should be set aside. ,

Appeal from an order made at the Monroe special term granting an injunction and continuing the stay theretofore previously made in an order to show cause why the injunction should not be granted, and also from the subsequent order made for the appointment of a receiver, and directing the defendants to turn over certain property to such receiver and to account to him therefor.

E. F. Wellington, for resp’ts; H. H. Woodward, for app’lts.

The object of this action is to set aside the general assignment for the benefit of creditors made by the defendant, Lewis P. Beck, to the defendant, H. Israel Weinberg.

On the 3rd day of January, 1889, the defendant, Lewis P. Beck, by a bill of sale, transferred all of the stock of goods and. fixtures in his store, consisting of a general assortment of boots, and shoes, to the defendant, William H. Beck, who is his son, for the expressed consideration of $11,977.32, being supposed to represent ninety per cent of the inventoried value of the stock and seventy per cent, of the cost of the fixtures. Payment was made as follows: $5,754.85 by the satisfaction of an alleged indebted

p. 484

ness owing by Lewis P. Beck to bis son William, $743.63 by William’s assuming the back rent of the store which was owing by Lewis P. Beck to the defendant, Weinberg, $855.10 by William’s like assumption of three outstanding notes made by his father, Lewis P. Beck, and endorsed by himself, $118.23 in cash, .and the residue of such purchase price was represented by and included in twelve promissory notes made by William, varying 'in amounts and differing in times of payment. These twelve "notes correspond exactly with twelve other promissory notes then •outstanding, owing by Lewis P. Beck as maker, and were so •drawn, with one or two exceptions, as that they should mature at the same time that the note for which it was given should mature. These notes were severally transferred to the holders of the antecedent notes.

One day thereafter, namely, on the 4th day of January, 1889,' 'the above transactions being supposed to have been completed, the defendant, Lewis P. Beck, executed and delivered to H. Israel' Weinberg the general assignment for the benefit of creditors already mentioned, which was recorded on the following day.

The defendants, and each of them, so far as disclosed by the .affidavits, stand upon the legality of the original sale by the father to the son, and claim that there still remains for distribution among the creditors no more than was actually received by the assignee, "which is an amount that will scarcely pay the expenses of administering upon the estate, though the same is stated in the inventory to be of the value of about $3,000.

Frorh the relations existing between Lewis P. Beck and his son William, it is quite true that each knew substantially the financial •condition of the other. On the 31st of October, 1888, the father had executed to his son a chattel mortgage to secure an alleged indebtedness then existing in the form of notes, which mortgage contained a provision that the mortgagor might sell for cash, as agent •of the mortgagee, and pay the proceeds to the latter to be applied upon outstanding notes. A subsequent mortgage was given on the 3rd day of December, 1888. Neither of these chattel mortgages was filed, and the same, so far as the affidavits show, remained a matter of personal confidence between the parties thereto. An attempt seems to have been made to give the possession of this property into the hands of William under these mortgages, but 'the same was ineffective because the mortgagor still made sales -of the stock in trade, bought new stock and handled the same .substantially as he had. theretofore done; though in form, but not in substance, the proceeds of such sales were turned over to the mortgagee William, and the same were ostensibly reloaned to the father from day to day to enable him to carry on the business. 'The answer of the defendant, Lewis P. Beck, alleges that on the 31st day of December, 1888, William surrendered to him the store and kept no further account of sales or of moneys received there -on any account, and that the said chattel mortgages were cancelled. During the time that William was nominally in possession of the store and property, Lewis P. Beck purchased on credit goods to the amount of $2,931.84, of which $1,442 thereof was 'purchased

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from the plaintiff, the sellers having no knowledge of the existence of the chattel mortgages or of the relation of William thereto.

Though the assignment for the benefit of creditors is without preferences in name, the assignor did, by the above transaction, effect a preference which is contrary to the act of 1887. Chapter ■503, Laws of 1887. The bill of sale, by which the son William was enabled to take substantially all of the property of the debtor, must be deemed to be a part of a general scheme of the assignor to give an unlawful preference to his. son. The execution of this "bill of sale, followed so closely by the formal act of executing an assignment for the benefit of creditors, must be regarded as an attempt on the part of the debtor so to place his property that none of the creditors, other than the favored ones, should share in the same. That this was an attempted mode of eluding the laws is corroborated by the fact that the assignee himself stands in the relation of a preferred creditor, inasmuch as he was the recipient of a payment of the indebtedness due him for rent before the execution and acceptance by him of the assignment. Under these •circumstances it would not be supposable that he would be solicitous to, or that he would in fact bring an action to set aside any of these acts of his assignor upon the ground that they were a fraud upon the assignment.

The counsel have argued that there is no fraud in the assignment, but that whatever acts are justly complained of were those of the debtor preceding the assignment, and that these may be set aside and declared of no effect by suitable action in equity. It is true that when there is fraud upon an honest assignment, by prior fraudulent transfers of property by the assignor, or by a subsequent withholding of property from the assignee, a remedy is given to the assignee, who may avoid the fraudulent acts and secure all the property of the assignor for distribution under the assignment. Loos v. Wilkinson, 110 N. Y., 210 ; 18 N. Y. State Rep., 110.

This principle, however, does not prevent a creditor from attacking the assignment itself where it was made by the assignor with a fraudulent intent, whether such intent be disclosed by the contents of the assignment itself or by cotemporaneous acts. A voluntary surrender by an insolvent debtor of dominion over his entire estate; as was substantially done in this instance, and the transfer of the whole or substantially the whole of his property to a portion only of his creditors in order to give them a preference over others, whether made by one instrument or more, whatever form the same may take, when such transfer operates as an unlawful preference in fact, the assignment itself may be assailed by a creditor, and the same set aside as a fraud upon the act. White v. Cotzhausen, 129 U. S., 329 , where the language of the court by Mr. Justice Harlan (page 336) is peculiarly applicable to the facts disclosed in this case: “After he had executed the conveyance, bill of sale, warrant of attorney and transfer to which reference has been made, he was left without anything that could be reached. So completely was he stripped by this transaction of all property, that consequently when his deposition was taken he ad

p. 486

mitted that he owned nothing except the clothing he wore. lie recognized his hopelessly insolvent condition and formed the purpose of yielding to creditors the dominion of his entire estate. And it is too plain to admit of dispute that in executing to his mother, sisters and brother the conveyances, bill of sale, warrant, of attorney and transfer in question, his intention was to give. them and their intention was to obtain a preference over all other-creditors. What was done was in execution of a scheme for the appropriation of his entire estate by his family to the exclusion of other creditors.”

The order appealed from should be affirmed, with ten dollars costs and disbursements.

Barker, P. J., and Dwight, J., concur.