Boessneck v. Cohn — 26 N.Y. St. Rep. 969

Majority

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Otto J. Boessneck et al., Plff’s, v. Meyer G. Cohn, Def't.

(Supreme Court, Special Term, New York County,

Filed October 18, 1889.)

Headnote

1. Fraudulent transfers — What will not constitute.

The mere transfer of a stock of goods worth $50,000 as security for a debt of $18,000 does not raise a presumption of fraud.

2. Debtor and creditor-Trust — Not created by assignment of debtor’s interest in surplus of security.

A transfer of a stock of goods as security for a debt followed by assignments to particular creditors of the debtors’ interest in any surplus therefrom does not create a trust, and is not in contravention of the statute as to personal trusts.

3. Same — Assignment for creditors — Statute does not apply to SUCH transaction.

Nor does such a transaction constitute a general assignment with preferences in violation of the statute.

Demurrer to complaint.

Blumenstiel & Hirsch for pl’ffs; Townsend, Dyett & Einstein, for cleft.

These motions to vacate, made upon the papers upon which the attachments were granted, being in all five cases substantially alike, may be considered together.

The debtor transferred all his property, on September 4th, to the Importers & Traders’ National Bank, to secure the payment ■of his indebtedness to them, with a reservation of the surplus to himself. This indebtedness was about $18,000, and the property transferred is variously stated at from $50,000 to $150,000, the former estimate, however, being nearer the correct estimate. The instrument by which the transfer was made to the bank is as follows:

“ Whereas, I, Meyer Cohn, am indebted to the Importers & Traders’ National Bank of the City of New York, in the sum of $18,370.08, and whereas, I have heretofore assigned to said bank certain dioses in action to secure payment of my indebtedness to it, including the amount above specified, and the said bank has realized thereupon sufficient to reduce my said indebtedness to

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the sum above specified and still holds some of the said choses in action as security as aforesaid, Mow, for the purpose of further securing payment of the said indebtedness, I hereby assign to the said bank all the goods, wares and merchandise, manufactured and unmanufactured, in the store occupied by me, Mo. 334 Canal street, Mew York city, and in the premises occupied by me at Mos. 13 and 15 Lispenard street, Mew York city, and I hereby authorize the said bank to sell all the said goods, wares and merchandise hereby assigned, at public or private sale, for the best price it can obtain therefor, and out of the proceeds of said sale they deduct the lawful expense thereof, and to retain and pay to itself the amount of my indebtedness to it, with such interest as it may be entitled to, or so much thereof as may not be realized by it from the choses in action aforesaid heretofore assigned to it, rendering the overplus, if any, to me or to my assigns.”

This document was executed on September 4th. Under and by virtue of this instrument it appears the bank took possession of the entire stock thus transferred.

The affidavit further shows that the attorney for the debtor stated that the said debtor had, in addition to the instrument of transfer to the bank, on the same day made various other transfers of the surplus or assets that might arise after paying the Importers & Traders’ Bank to four other creditors, including the wife of the defendant.

These facts are alone necessary to be considered, for it is evident that the balance of Mr. Blumenstiel’s affidavit, which is made up of legal assumptions and conclusions, can add no weight to the facts themselves, which must be considered in determining the question.

By the affidavits it is made to appear that on the day in question the debtor discontinued business, and by these various transfers disposed of his property.

The question is, was this transaction valid as against his creditors ? It may be assumed that when a debtor determines to discontinue business, and yield control of his estate, it is immaterial into how many parts the transaction may be divided.

All transfers made in pursuance of a common intent will be construed together, and treated as one transaction. Applying this rule here it is claimed the attachments can be supported on several grounds.

These grounds relied upon to uphold the attachments may be separately considered.

First. That the delivery of property largely in excess of the debt due the bank creates a strong inference of fraud.

There is little force in this argument unless we are prepared to hold, with reference to personal property, that a substantial excess between the property transferred and the amount of the debt to be secured, in the absence of circumstances showing bad faith, are sufficient to raise a presumption of fraud. All are familiar with the general rule that prevails in commercial life with reference to personal property when given as security, to exact an amount

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greatly in excess of the debt to be secured; and in the absence of bad faith the courts will hesitate to hold that $50,000 of personal property which upon a sale, forced or otherwise, may net a much less sum when given to secure an indebtedness of $18,000, raises a presumption of fraud.

Second. The next ground relied upon is that the transfer to the bank and the subsequent assignment to particular creditors of the surplus, considered as one transaction, is in conflict with the statute relating to personal trusts.

In disposing of this there are certain general principles so well settled that they may be stated without referring to authorities. A debtor whether solvent or insolvent may transfer a portion of his property to a creditor in payment of or as security for a bona fide debt. He may pay one or more creditors in money, and he may transfer property of a fair and reasonable amount to such creditors. A debtor may mortgage a portion or the whole of his property to secure a bona fide debt. It may be also regarded as settled law what is stated as dicta in Knapp v. McGowan, 96 N. Y., 75 , that “a conveyance by a debtor, whether solvent or insolvent, of all his property to trustees to pay a portion of his creditors, with a provision that the surplus shall be returned to him, leaving his other creditors unprovided for, is fraudulent and void as to the latter. A debtor whether solvent or insolvent may, acting in good faith, mortgage a portion or the whole of his property to secure existing claims against him and also future loans and advances.”

The first question to be determined is whether the instrument to the bank when received by itself or in connection with the subsequent assignments of the surplus to other creditors was to be regarded as a mortgage or as creating a trust.

There can be no doubt that the instrument to the bank, alone considered, was a mortgage. The fact that subsequently, though on the same day, the debtor, without any privity or agreement with the bank, assigned to other creditors his interest in the surplus, does not, in my opinion, malee the bank a trustee for such other creditors, nor does the entire transaction, considered as a whole, create a trust.

The words of the opinion in Brown v. Guthrie, 110 N. Y., 441 ; 18 N. Y. State Rep., 311, are here applicable.

“ In form it was an absolute sale upon chattel mortgage given for a fixed and agreed consideration, and while, nevertheless, such a sale, in spite of its form, may be proved to be an assignment in trust, Britton v. Lorenz, 45 N. Y., 51 , yet in the present case, we are unable to discover any such proof.”

Again on page 442, id., “ He held no part of the property in trust for the debtor, but solely as mortgagee entitled to its proceeds until the debt was paid, and then bound to restore any surplus realized to the mortgagor or those claiming under him. Such provision never hinders creditors, for they may pay the mortgage and take the property, or fasten upon the surplus. Such was not only the form of the transaction, but also the actual

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fact.” See also Leitch v. Hollister, 4 Comst., 211, and Dunham v. Whitehead, 21 N. Y., 131 .

Third. It is asserted that the transaction constituted a general assignment of all the debtor’s property, with preferences to four or five creditors in violation of the statute restricting preferences to one-third in amount of the assets.

There are two answers to this. First, that the act does not make a general assignment void for excessive preferences, but would only invalidate the preferences to the extent of the excess of assets (Laws of 1887, chapter 508), and secondly, there are no elements adequate in disregard of the form of the instruments to turn them into a general assignment of an insolvent debtor.

As stated in Royer Wheel Co. v. Fielding, 101 N. Y. 504 , “the general assignment act of 1877 (chap. 466, Laws of 1877) does not include or apply to a specific assignment of a debtor for the benefit of one or a portion of his creditors.

The reasoning of that case is not affected by the amendment subsequently made to the general assignment act.

In concluding, it may be noted that the validity of the claims of the bank and the other creditors is not assailed, nor have we any definite information as to the exact form of the assignment of the surplus given by the debtor to the creditors subsequent to the bank.

Upon all the facts, therefore, there being no assertion of fraud in fact, and the entire transaction not creating a trust in contravention of the statute, the affidavits upon which the attachments were granted are, in my opinion, insufficient, and for that reason the attachments themselves should be vacated, with costs.

But, in view, however, of the novelty and doubt connected with the questions involved, and the fact that a contrary opinion was reached by one of my learned associates, all proceedings after the entry of the order upon this motion should be stayed until the hearing and determination of an appeal therefrom, provided the same is taken within ten days and prosecuted with reasonable diligence.

Cases cited

Royer Wheel Co. v. Fielding 101 N. Y. 504 N.Y. 1886-03-02 p. 972