Augustus W. Heye, and others, v. Jesse N. Bolles, and others

Augustus W. Heye, and others, v. Jesse N. Bolles, and others. A creditor who has obtained and levied an attachment upon a debtor’s property, and afterward, upon a judgment recovered, has issue* an execution, is entitled to the equitable intervention of the court to set aside a fraudulent transfer of the property upon which the attachment lien rests, or any fraudulent obstacle in the way of enforcing the lien, without waiting the return of the execution unsat- ’ isfied. A denial, in an answer, of a “want of knowledge sufficient to form a belief,” of an allegation of the complaint is insufficient, and the allegation of the complaint must be taken as admitted. The denial must be of any knowledge or information. Where one partner of an insolvent firm purchased the interest of his copartner in the assets, and then made a general assignment, with a direction, first, to pay his individual debts: Held, That the assignment was void, as made in fraud of the creditors of the firm. Appeal by the plain tiffs'from a judgment at trial term, dismissing the complaint. The action was brought by the plaintiffs as judgment creditors of John E. Gook and Charles K. Howlett, to set aside as fraudulent and void, an assignment made under the following circumstances. Cook & Howlett were doing business in October, 1860, and were then insolvent. John E. Cook was also a member of the "firm of Cook & Twining, composed of himself and Thomas A. Twining, also doing business in New York. The firm of Cook & Twining was then, and had been during their whole copartnership, insolvent. On the 22d day of October, 1860, Howlett executed an agreement with his partner Cook, whereby he agreed to sell him his interest in the concern of Howlett & Cook, for $230 in cash, and his release from two notes of $2,500 each to one Hnderdonk; the sale to take effect on the payment of the $230, and the destruction of said notes. This money and these notes were never paid. On the 16th November, 1860, Cook also proposed, for the consideration of one dollar, to buy all the interest of Twining in and to the property of the insolvent firm of Cook & Twining. On the same day, Cook having thus obtained possession of the property of both firms, and having also individual property, made the assignment in question to the defendant Bolles of all the partnership property of Howlett & Cook, of all the partnership property of Cook & Twining, and of his individual property. The alleged debt of $5,663.42 to Cook’s mother, was a fictitious debt. Friendly suits were commenced thereon by Cook’s mother against him, judgment obtained, execution issued, and supplementary proceedings instituted, to reach the assigned property, and give her an unlawful and fraudulent preference ; and the defendant, the assignee, with a full knowledge of all these facts, paid the mother, out of the assigned property, the whole amount of her pretended claim, $5,663.42. Cook, the assignor, remained in possession of the assigned property from the time of the assignment in November, 1860, until May, 1861, selling and disposing of the same, and applying the proceeds to the rent of his store, his individual use, and other expenses, until the plaintiffs commenced an action against Howlett & Cook for their debt, issued an attachment therein to the sheriff of New York, levied the same on the partnership property of Howlett & Cook, and the individual property of John E. Cook, proceeded to judgment, and issued execution thereon. They then brought this action, alleging that they are prevented from enforcing the same, and collecting their judgment, by reason of the fraudulent assignment and obstructions interposed thereto; and pray judgment that the said assignment be adjudged void. At the conclusion of the evidence, the court dismissed the complaint, and the plaintiffs appealed. L. I. Lansing for appellants. I. An answer is insufficient if it denies merely on information, or merely on knowledge; here, the defendant denies merely for want of knowledge (Hackett v. Richards, 3 E. D. Smith, 13; Edwards v. Lent, 8 How. Pr. 28; Blake v. Eldred, 18 Ib. 240; Elton v. Markham, 20 Barb. 349). II. The plaintiffs, by their proceedings in their action at law, set forth in the complaint, acquired a specific legal lien upon both the partnership property of Howlett & Cook, and the individual property of Cook. The attachment under the Code is an execution by which the debtor’s property may be attached at the commencement of the suit, and kept as security for the plaintiffs’ demand (Code, § 227; Rinchey v. Stryker, 26 How. Pr. 75; Greenleaf v. Mumford, 30 Id. 30; Furman v. Walter, 13 Id. 348; McKay v. Harrower, 27 Barb. 463; Thayer v. Willet, 9 Abb. Pr. 325; Falconer v. Freeman, 4 Sandf. Ch. 565; Skinner v. Stuart, 13 Abb. Pr. 442; Pratt v. Wheeler, 6 Gray, 520; Wilson v. Forsyth, 24 Barb. 105). This action is rightfully brought for that purpose, and the judge and defendants’ attorney err in treating this action as an ordinary creditor’s bill, for the discovery of property after the return of an execution (McElwain v. Willis, 9 Wend. 561-567; Beck v. Burdett, 1 Paige, 307). III. A contract between partners, which enables one of them to withdraw funds out of the reach of the joint creditors, is fraudulent (Burtus v. Tisdall, 4 Barb. 571; Anderson v. Mattby, 2 Ves. Jr. 255). In equity, the partnership creditors have a right to follow the partnership property, as a trust, into the possession of all persons who have not a superior title (2 Story Eq. Ju. 689, sec. 1253; Wilson v. Robertson, 21 N. Y. 587). Heither Cook nor his assignee can have a title superior to the creditors of Howlett & Cook. A general assignment by an insolvent firm of their joint property, giving a preference to the creditors of the individual partners; or such an assignment by a partner of his individual property giving a preference to the creditors of the firm ; or such an assignment making any provision or trust for the benefit of the assignor, is fraudulent and void (Jackson v. Cornell, 1 Sandf. Ch. 348; Payne v. Matthews, 6 Paige, 19; Wilson v. Robertson, 21 N. Y. 587; Collomb v. Caldwell, 16 N. Y. 487; Wilder v. Keeler, 3 Paige, 171; Burtus v. Tisdall, 4 Barb. 571; Leitch v. Hollister, 4 N. Y. 211). B. C. Thayer, for respondents. I. The aid of a court of equity cannot be sought until every remedy at law has been exhausted (McCollough v. Colby, 5 Bosw. 485; Dunlevy v. Tallmadge, 32 N. Y. 459). II. A creditor at large has no status in a court of equity. To enable him to its aid, he must have acquired a specific lien. If upon real estate, by filing a transcript of his judgment in the county where the real estate is situated. If upon personal property, by issuing an execution and levy thereunder by the sheriff. An execution must have issued on the judgment, and been returned unsatisfied (Dunlevy v. Tallmadge, 32 N. Y. 459; North American Fire &c. Co. v. Graham, 5 Sandf. 200). In this case, it does not appear that a levy was ever made under the executions issued, and no specific lien upon personal property is created without it. [MAJORITY — By the Court.—Daly, F. J.] By the Court.—Daly, F. J. This is not an action brought by a creditor to enforce the collection of a judgment after he has exhausted his remedy at law, and in which the return of an execution unsatisfied is indispensable before he can invoke the equitable aid of the court; but it is an action by creditors who, in a suit brought by them to recover their debt, obtained an attachment against their debtor for fraudulently assigning his property, and who, having recovered judgment in that action, and issued execution upon it, bring the present action to set aside the fraudulent assignment, which is an obstruction to their collecting their judgment by a levy and sale of the debt- or’s property under the execution. By the issuing of the attachment, the plaintiffs acquired a lien upon the property of the debtor (Falconer v. Freeman, 4 Sand. Ch. R. 565; Rinchey v. Stryker, 26 N. Y. 75); and this lien, after the plaintiffs have recovered a judgment, entitles them to the equitable intervention of the court to set aside a fraudulent transfer of the property upon which the lien has attached, or any fraudulent obstacle in the way of enforcing the lien (Greenleaf v. Mumford, 30 How. Pr. 30); it being the design of the Oode that the attachment should be a security for the satisfaction of the judgment, if the plaintiff recovers one (§ 227). To maintain such an action, it is not necessary that the execution should be returned, for, as was said by Chief Justice Nelson, in McElwain v. Willis (5 Wend. 561), it is not only not essential, but it would be fatal to the relief sought; and as was said by Senator Tracy in the same case, the execution may be the very instrument by which, when the court has removed the impediment to its operation, the judgment creditor will obtain the perfect satisfaction of his rights. Where a judgment creditor brings an action to set aside a fraudulent conveyance of real estate, which is an impediment to his obtaining a satisfaction of his judgment, an execution must have been issued (North American Fire Ins. Co. v. Graham, 5 Sandf. 200; McCollough v. Colby, 5 Bosw. 477), because the sheriff is not to proceed against the real estate if sufficient goods and chattels can be found to satisfy the execution—a fact which cannot be known until an execution is placed in the hands of the sheriff". In this case, however, an execution was not only issued, but the assignment covered all of the personal property of the debtor, and the equitable aid of the court is sought to remove the impediment created by the conveyance, that the personal property may be sold to satisfy the execution. The next question is, whether the finding of the judge, that the assignment was not made with a fraudulent intent, can be sustained. The denial in the answer, for want “ of knowledge sufficient to form a belief,” of the allegation in the complaint, that the firms of Howlett & Cook and of Twining & Cook were insolvent when the joint property belonging to each of these firms was sold to Cook, is not in the form prescribed by the Code. The denial must be of any knowledge or information sufficient to form a belief (Edwards v. Lent, 8 How. Pr. 28; Blake v. Eldred, 18 Id. 241; Elton v. Markham, 20 Barb. 349; Hackett v. Richards, 3 E. D. Smith, 13), and this fact, not being properly denied, is admitted. Treating this material fact then as admitted, it appears that Cook became the purchaser of the whole of the property of each of these firms, he at the time of the purchase being a partner in each firm. In his hands, the property thus acquired should have been applied to the payment of the partnership debts, instead of which he afterward made a general assignment for the benefit of creditors, in which he directed his assignee, the defendant Bolles, first to pay out of the proceeds of the property assigned certain debts owing by him- individually, which was a diversion of the property to the payment of his individual debts, in fraud of the rights of the creditors of the firms of Howlett & Cook and Twining & Cook. Such an assignment is fraudulent (Burtus v. Tisdall, 4 Barb. 571; Wilson v. Robertson, 21 N. Y. 587; Wakeman v. Grover, 11 Wend. 187; Anderson v. Mattby, 2 Ves. Jr. 255; 4 Kent’s Com. 64). The plaintiffs were creditors of the firm of Howlett & Cook, and the validity of their debt being established by a judgment, they were entitled to have this fraudulent assignment set aside, that they might have their judgment satisfied out of the property covered by the assignment; for when this impediment is removed, this property, whether regarded as partnership property, which the partnership creditors may reach, as primarily liable in the hands of Cook to the payment of partnership debts (Story’s Eq. Jur. § 1253), or as the individual property of Cook, under the transfers made to him, it is equally liable to be levied upon and sold to satisfy their judgment. The plaintiffs having shown that they were entitled to the equitable.relief which they sought, the decision of the judge at the special term was erroneous, and the judgment must be reversed. Judgment reversed.