SELIGMAN v. WALLACH

SELIGMAN v. WALLACH. N. Y. Superior Court, Special Term ; October, 1884. Supplementary Proceedings ; scope of inquiry ; effect of ASSIGNMENT FOR BENEFIT OF CREDITORS. An examination in supplementary proceedings of a debtor, who has made an assignment for the benefit of creditors, should not be confined to property acquired since the assignment. It may include an inquiry concerning his property, whether legal or equitable, including property transferred to another with the apparent intent to hinder, delay or defraud creditors. Special proceeding for examination of judgment debtor. The facts appear in the opinion. Seligman v. Seligman, for plaintiffs. Richard S. Newcombe, for defendants. [MAJORITY — O’Gorman, J.] O’Gorman, J. Defendants, being examined in supplementary proceedings under section 2435 of the Code, claim that the examination should be restricted to questions relating to property acquired since the general assignment for the benefit of creditors. In this assignment, the wife of one of the defendants and' the daughter of the other defendant are preferred to amounts reaching in the aggregate $82,000, constituting the bulk of the assets of the defendants. 1 do not think that such a restriction would be proper. The sections of the Code authorizing the examination of a judgment debtor provide that he may be required to attend and be examined “ concerning his property ” (§§ 2435, 2436). The attitude of the parties in such cases is this : The creditor has exhausted the ordinary remedies and means to collect his debt—by judgment and execution ; neither the sheriff nor he can discover any property subject to levy wi h-out examination of the debtor himself. The law gives the creditor the right to examine the debtor “ concerning his property,” meaning thereby such property as could not be discovered, and which has been overlooked or hidden or put beyond the reach of creditors. It is an inquisitorial proceeding, and was meant to be so. An assignment for the benefit of creditors, so called, is too frequently an expedient of dishonest debtors in order to hinder, delay and defraud creditors ; and when made with that intention, the title to the property does not vest in the assignee, but is still, in equity, the property of the debtor and subject to levy under execution. The claim that the mere fact of the debtor’s having made a general assignment of his property, stops all further inquiry on the part of the creditor in these proceedings, seems to me to be untenable and inconsistent with the manifest purpose of these proceedings. Such seems to be the opinion of the court of appeals in Lathrop v. Clapp (40 N. Y. 328). In Mechanics’ & Traders’ Bank v. Healy (14 Weekly Dig. 120), the creditor was allowed to show by examination of the debtor in supplementary proceedings that a purchase of the debtor’s property was not made in good faith. Property of the judgment debtor, which has become vested in the assignee under a valid agreement, cannot, of course, be reached by these proceedings. It has ceased to be the property of the debtor. But if the assignment bears on its face, or in the circumstances of its execution, any of the ordinary and manifest indications of fraud, then by examination of the judgment debtor it can be shown that the assignment is not valid. The question whether or not the assigned property is not still the property of the debtor is in doubt, and the examination may be directed to that inquiry. The provisions of section 2460 of the Code, which protect the judgment debtor against the use of his evidence of his own complicity with any fraudulent transfer of his property in criminal proceedings against him, seem further to sustain the opinion I have above expressed, and I hold, for the purpose of this motion, that the examination of the defendants in this case must not be restricted to property acquired by them since the assignment, but may cover an inquiry “ concerning their property,” whether equitable or legal, including their property transferred to another with the apparent intent to hinder, delay or defraud their creditors. The scope and extent, and nature, and mode of that examination must be subject to the control and direction of the judge or referee before whom the examination is taken. In Schloss v. Wallach (N. Y. Supreme Court, First District, Chambers, September, 1885), it was lield that where an action has been brought to set aside a voluntary assignment on the ground of fraud, the judgment creditor, in the examination in proceedings supplementary to execution, will be limited in his examination to property acquired subsequent to the filing of the creditor’s bill. All questions tending to. show fraud in the assignment sought to be set aside in the pending action, must be disallowed and overruled. Barrett, J.—I have taken great pains to find the opinion of Mr. Justice O’GoRMArr in Seligman v. Wallach, and on perusing it I find that it does not even touch the point now before me. I have also conferred with Mr. Justice Donohue, and find that he never decided the point in question, the case of Tucker v. Halstead, Haines & Co., nor have I in any unreported case, as stated by plaintiff’s counsel. Counsel has confused the principle that a judgment debtor may be examined notwithstanding an assignment, witii the present question, which is one as to the election of remedies. The supplementary proceedings are a substitute for the old creditor’s bill, and where the creditor has resorted to the latter, he cannot fish for evidence to support his bill in supplementary proceedings founded upon the selfsame judgment. In other words, he cannot have both remedies upon the same judgment. He should, therefore, in the present instance, be limited to property acquired subsequent to the filing of her creditor’s bill, and his question tending to show fraud in the assignment sought to be set aside in the pending action, must be disallowed and overruled.