Manning v. Beck

Headnote

1. Assignment fob cbeditobs—Fbaud.

An insolvent debtor gave a bill of sale of four-fifths of his estate to his son, who satisfied a claim which he held against his father, assumed payment of back rent of the store and of notes which he had endorsed, and gave notes for the balance of the value of the goods, which notes were given to accommodation endorsers for the father, who agreed to take up the former notes. The following day the debtor made an assignment for creditors. It also appeared that the scheme had been maturing for some time; that both father and sen were parties to it, and that the assignee profited by it as a preferred creditor. Held, that the facts showed an intent to defraud creditors, and that the bill of sale and assignment should be set aside.

2. Same—Pbefebences.

Where excessive preferences have been created innocently they may be sustained 1o the extent authorized by the statute, but where they are the result of a fraudulent intention to evade the law no such rule can be invoked.

Appeal by defendants from judgment setting aside a bill of sale and general assignment made by defendant, Louis P. Beck, to the otlier defendants as fraudulent and void. The following is the opinion of the special term:

Adams, J.—The above actions were tried together, and, as they are dependent upon the same facts as well as the same principles of law, they may be disposed of in like manner.

The evidence clearly establishes, and it is virtually conceded, that on the 4th day of January, 1889, the defendant, Louis P. Beck, who was then engaged in business as a boot and shoe dealer in the city of Rochester, executed and delivered to the defendant, Weinberg, a general assignment for the benefit of his creditors, by which he ‘transferred and assigned all of the estate he then possessed, amounting in value to the sum of about $3,000. This assignment contained no preference; but, on the day prior to its execution, the assignor transferred to his son, the defendant, W. H. Beck, by a bill of sale, the greater portion of his estate, consisting of his stock of goods, fixtures,.etc., which amounted in value to the sum of about $11,977.32. The consideration for the transfer of this property was made up as follows, viz.: By the surrender of notes amounting in value to the sum of $4,754.85, which William H. held against his father; the assumption of the back rent upon the store formerly occupied by his .father, which was due the defendant, Weinberg, and which amounted to $743.64; the assumption of the payment of these notes endorsed by the son for the accommodation of his father, held by various-parties to whom his father was indebted, and amounting in the aggregate to $855.10; the payment of the sum of $118.23 in cash, and the execution and delivery to his father of twelve promissory notes, amounting in all to $5,505.50. These last mentioned notes were made by William H. Beck to-the order of his father, Louis P. Beck, and with two exceptions were made for the precise amounts, and so as to mature at the same time as certain outstanding notes which had been endorsed by various parties for the accommodation of Louis P. Beck. They were subsequently and prior to the execution of the assignment delivered to the several endorsers from whom receipts were taken by which they respectively agreed to take up .and surrender, at maturity, the notes of corresponding amounts upon which they were liable. The design obviously being that the endorsers should pay at maturity the notes upon which they were severally liable, and look to William BL Beck for reimbursement out of the property transferred to him by his father. The two notes not included in this arrangement were for $600 and $1,000 respectively, and were transferred to Elizabeth Rehm and Caroline Beck, the wife of Louis P. Beck, and they at the same time surrendering other notes which they held against him for like amounts.

Thus it will be seen that the entire estate of the defendant, Louis P. Beck, with the exception of about $3,000, or one-fifth part thereof, was disposed of by this bill of sale for the express purpose of paying certain of his creditors to the exclusion of others. In other words, by a cunningly devised scheme he sought to accomplish by indirection that which he was prohibited from doing by the statute.

There are many facts and circumstances developed by the evidence in the case other than those already adverted to, which tend very strongly to showthat this scheme was one that had been maturing for some time; -that both father and son were parties to it, and that if the defendant, Weinberg, was not an active participant

therein, he certainly profited by it as a preferred creditor, and for that reason, if for no other, could hardly be expected to make any very strenuous efforts to thwart it.

That' a transfer of property made under such circumstances, and with such an intent, was in fraud of the general assignment and consequently void, is a proposition concerning which there is scarcely room for two opinions, and for which there is abundant authority. Spellman et al. v. Friedman et al., FI M. Y. State Rep., 392, and cases there cited. It is true that the plaintiffs might have called upon the assignee to bring an action to set aside such a transfer, and in case of his refusal or failure to do so they might have instituted one themselves, for that purpose, but they were not limited to this remedy. The execution of the bill of sale was but one act in the scheme by which the debtor hoped to be able to surrender his entire estate into the hands of certain of his creditors, for their benefit, to the exclusion of the remaining creditors ; the execution of the general assignment was another, which, standing by itself, would probably excite no criticism, but which, considered in the light of the former, and other contemporaneous acts, is seen to be an important factor in the attempted fraud, as well as in the result sought to be accomplished. It follows therefore that if these acts were contemporaneous, and are but parts of a great scheme by means of which the plaintiffs are to be defrauded of their rights, this action may be maintained, and the bill of sale as well as the assignment may be declared fraudulent and void as against them. This was the view taken by the general term on the appeal from the order granting the injunction herein, see opinion Macomber, J., 26 M. Y. State Rep., 483, and the additional evidence brought out upon the trial seems to strengthen rather than weaken the ground upon which that decision rests.

It is insisted by the defendants’ counsel that even if the bill of sale is to be regarded as part of the assignment by means of which creditors are preferred in excess of the amount authorized by the act of 1887, it is nevertheless to be deemed valid to the extent contemplated by the statute. This would undoubtedly be the case if the excessive preferences had been created innocently, but when they are the result of a fraudulent intention to evade the law and to accomplish that which the law prohibited, no such rule can be invoked. The entire transaction is tainted by the fraud in which it was conceived, and is consequently absolutely void.

The plaintiffs are entitled to the relief sought, with costs. "