WILCOX v. PAYNE

WILCOX v. PAYNE. N. Y. Supreme Court, First District, Special Term ; January, 1889. 1. Creditor's action; return of execution.] An action by a judgment creditor to set aside a general assignment of personal property for benefit' of creditors, as fraudulent, and reach assets fraudulently appropriated, or hold the appropriator accountable therefor, will lie, although execution has been returned unsatisfied. 2. Fraudulent conveyance; judgments confessed at time of assignment.] Since the provision of L. 1887 § 503, against preferences, does not invalidate an assignment for exceeding the limits, but only subjects the preferences to abatement, an assignment should not be . treated as void because .immediately preceded by transfers and . confessions of judgment which, taken with it, will in eSect give a preference. Trial by the court. On tee Wilcox and Walter Gardiner, copartners and judgment creditors of Payne, Steck & Co., also a copartnership,, brought a judgment creditor’s action against William EL Payne, Frederick Steck, comprising the said firm, and Arthur EL Smith, as assignee for creditors of Payne, Steck & Co., to set aside the assignment as fraudulent and void. The complaint, after alleging judgment and execution-returned unsatisfied, alleged that the judgment debtors, being possessed of a large amount of property, consisting of jewelry, also rights of action, made an assignment to the other defendant, which the complaint went on to allege was fraudulent and void ; and then added that the defendants,, the assignors, “ have no property other than that embraced in said assignment, and pretended to be conveyed thereby, out of which the said judgment can be satisfied, or which may be reached by execution; and that unless the said property can be reached and applied to the payment of such-judgment, the same must remain wholly unpaid.” The relief demanded was that the assignment be declared-void as to plaintiffs, a receiver of all of the property of the debtors be appointed, the defendants be enjoined, and be compelled to account for all the property of the debtors which they had received. On the trial, the defendant admitted that Payne, Steck & Go., confessed certain judgments on the day of the assignment, and the plaintiffs contended that those judgments were a part of the assignment and gave a preference in more than the amount allowed by the statute (L. 1887, c. 503). & F. Kneelcmd, for the plaintiffs. . L. Lajlin Kellogg, for the assignors. William Ií. Ciarle, for the assignee. See Sweetser v. Smith, p. 319 of this volume. See note on fraudulent preferences on p. 327 of this volume. L. 1887, c. 503, provides: In all general assignments of the estates of debtors for the benefit of creditors hereafter made, any preference created therein (other than for the wages or salaries of employees under chapter 328 of the laws of 1884 and chapter 283 of the laws of 1886) shall not "be valid except to the amount of one-third in value of the assigned estate left after deducting such wages or salaries, and the costs and expenses of executing such trust; and should said one-third of the assets of the assignor or assignors be insufficient to pay in full the preferred claims to which, under the provisions of this section, the same are applicable, then said assets shall be applied to the payment of the same pro rata to the amount of each of said preferred, claims. [MAJORITY — Beach, J.] Beach, J. The plaintiffs, with the judgment and execution issued and returned unsatisfied, bring suit to declare void defendants Payne and Steclr’s general assignment to defendant Smith for the benefit of creditors, dated December 28, and accepted December 29, 1887. On December 28 the defendants confessed judgment to various creditors, presumably for paying off debts, amounting to about $30,000, and levy was made without delay upon the personal property belonging to the firm, to a large amount, and precedent to the assignment. It appeared on the trial that within twelve days prior to December 28, the defendant Payne appropriated from the firm’s cash assets about $40,000 totally unaccounted for, and presumably thereafter devoted to his own use. This fact constitutes a fraudulent hindrance and delay to creditors, rendering the assignment void, and it must be so decreed.' I do not think the plaintiffs’ standing in court is prejudiced by the return of'an execution upon other judgments. Under whatever name of prior nomenclature actions of this character may be classified, they are certainly not in aid of execution process,, and therefore not amenable to the principles of equity regulating suits seeking that result where an execution outstanding, at least when the bill was filed, has been held invalid. In Royer Wheel Co. v. Fielding (31 Hun, 274),, such was the relief sought against the general assignment and fraudulent deeds of realty. The distinction between the two kinds of equity suits is clearly stated by the court in McElwain v. Willis (9 Wend. 548). A demurrer to a supplemental bill charging fraud in a general assignment was sustained because there was no averment of execution returned unsatisfied. The former chancery practice was held invariable from the enactment of 2 R. S. 173, § 38. The other class of cases referred to by the learned court are those where the aid of equity is invoked to remove some fraudulent or inequitable obstruction interposed by the defendant, to the collection of the judgment, independently of which, the remedy would have been ample at law. In such cases the return of the execution before suit, was held fatal to relief. This action is more properly classified with the first mentioned, and return of execution was proper under the statute, supra, and section 1871, Code Civ. Pro. The learned counsel for plaintiffs presents an ingenious contention, founded upon the confessions of judgments, the general assignment and the statute restricting the total of preferences in those instruments to the amount of one-third in value of the assigned estate left after deducting wages,, salaries, etc. (Laws of 1887, c. 503.) It is urged that the judgments and assignment should be held as one transaction,, and the latter void because a fraudulent evasion of the statute was intended and accomplished, the preferences given by the. judgments largely exceeding the statutory limit. This could not logically result in condemning the assignment, because excessive preferences do not invalidate, but only bring proportionate rebate. It is quite possible, treating the acts as one transaction, an action might be upheld to so decree, and hold the judgments liable to reduction as preferences; but, if so, the judgment creditors would necessarily have to be brought into court, although the judgments may have been the means used to avoid the restriction and “ thwart the law.” T find neither principle nor authority to-uphold doing more than bring them within the limit required by statute. Circumvention in this wise, however reprehensible, will not justify the conclusion of an intent to hinder,, delay and defraud creditors, which is the ground for invalidating an insolvent assignment. No cited adjudication goes-to such a length. In Preston v. Spaulding (120 Ill. 208) the virtual preferences made by confession of judgment were held part of the one transaction with the general assignment and void, the whole property to be distributed under the assignment. The Illinois statute made preferences invalid.. Under a like law it was so held in Clapp v. Nordmeyer (25 Fed. Rep. 71, U. S. Circuit court, E. D. Missouri), Berry v. Cutts (42 Maine, 445), Holt v. Bancroft (30 Ala. 197). The cases of Perry v. Holden (22 Pick. 269), and Berry v. Cutts (42 Maine, 445), and Ham v. Solomon (20 Fed. Rep. 801 to 811), are not now accessible to me. The assignments were in these cases held void in contradistinction of the other cases. I venture to affirm it was because the entire transaction constituted an instrument of preferences in direct contravention of the statute. In other adjudications the preferences alone were against the law. The subject matter amenable to statutory inhibition must be held clearly in mind. These authorities do not announce any principle which would invalidate the assignment in question, because the statute the defendants attempt to qualify does not for that reason make it invalid. I have considered this question, being unaware of any prior judicial discussion. The appropriation by the defendant Payne of the fir mi -moneys affords ample ground for a decree declaring the ¡assignment fraudulent and void. Decree for plaintiff, with costs. Rev’d in 101 N. Y. 504, on the ground that it was not necessary to execute the separate conveyances in accordance with the statute relating to assignments.