Case ID: ad_138/html/0513-01.html
Source: Caselaw Access Project
Author: {"author": "Jenks, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Meyer London, as Trustee in Bankruptcy of Hyman Epstein, Appellant, v. Hyman Epstein and Solomon Epstein, Defendants, Impleaded with Hyman S. Shlevin, Respondent.
    (No. 1.)
    Second Department,
    May 26, 1910.
    Bankruptcy — payment of consideration for conveyance of lands to another — complaint in suit to set aside conveyance — trustee in bankruptcy has no standing to sue — Real Property Law, section 74, construed.
    A complaint by a trustee in bankruptcy which in substance alleges that the bankrupt prior to bis insolvency paid the consideration for lands which were conveyed to a third person with an intent to defraud creditors, and that the grantee subsequently conveyed to another person with knowledge of the facts and with the same intent, and asking that the title be adjudged to be held in trust for the bankrupt and the trustee does not state a cause of action.
    By virtue of section 74 of the Real Property Law such conveyance created no resulting trust in favor of the person paying the consideration unless the grantee took an absolute conveyance without the consent or knowledge of the person paying the consideration, or in violation of some trust, purchased the lands with money belonging to another. Said statute merely creates a result- . ant trust in favor of the creditors of the person paying the consideration at the ■time of the grant, the object of the statute being to cut oü all interest in the person paying the consideration and to declare the property liable for his debts.
    The creditor of the person 'paying the consideration has no standing to reach lands so conveyed until his remedy at law has been exhausted.
    But the trustee in .bankruptcy of one who prior to his insolvency paid the. consideration of a conveyance to another is not clothed with the privileges of a judgment creditor under said statute, and cannot attack the conveyance in that the bankrupt never had a fee or any legal or equitable interest in the lands. .
    Appeal by the plaintiff, Meyer London, as trustee, etc., from a judgment of .the Supreme Court in favor of the defendant Hyman S. Shlevin, entered in the office of the .clerk of the county of Kings on the 28th day of January, 1910, upon the decision of the court, pursuant to section 547 of the Code.of Civil Procedure, rendered after a trial at the Kings County Special Term, dismissing the amended complaint as to the said defendant, and also (as stated in the notice of appeal) from said decision entered in said clerk’s office on the same day.
    
      Isaac H. Levy, for the appellant.
    
      Nicholas Dietz, for the respondent.
   Jenks, J.:

The plaintiff, as trustee in bankruptcy .of Hyman Epstein, appeals from a judgment of the Special Term that dismisses his .complaint on the pleadings, in that it does not state facts sufficient to constitute a cause, of action. The plaintiff, who was appointed •trustee in February,. 1908, complains that in 1905 Bisnicoff con-véyed certain realty to .the defendant Solomon Epstein.; that the purchase price therefor was paid by Hyman Epstein, the bankrupt, who, with the knowledge and consent of Solomon Epstein, caused the title to be taken by the latter; that they intended thereby to "hinder, to delay and to defraud the creditors of Hyman Epstein and that thereafter Solomon Epstein received the rents and profits without accounting therefor. Plaintiff also complains that the defendant .Shlevin knew of all the facts that attended this conveyance, .and that thereafter and in the same year Solomon Epstein fraudulently conveyed the said premises to Shlevin by deed recorded in 1908; that these three person thereby intended to hinder, to delay and to defraud the creditors, of. Hyman Epsteinthat Shlevin received the rents and profits without accounting; tliat Shlevin never paid any consideration for the conveyance; that Hyman Epstein, subsequent to the conveyance to Solomon Epstein, always was and now is the owner in fact, and that certain of the debts now existing and provable in bankruptcy against Hyman Epstein have existed during all of the times mentioned in the complaint. The plaintiff prays judgment that Shlevin holds the title in trust for the bankrupt and this plaintiff, that requires an accounting, appoints a receiver, directs Solomon Epstein and Shlevin to execute conveyances to the plaintiff, and declares the title to be in him.

The trustee is vested with the title of the bankrupt as of the date he was adjudged a bankrupt, except in so far as it is to property which is exempt, to all (1) documents relating to his property; (2) interests in patents, patent rights, copyrights and trade-marks; (3) powers which he might have exercised for his own benefit, but not those which he might have exercised for some other person-; (4) property transferred by him in fraud of his creditors; (5) property which prior to the filing of the petition he could by any means have transferred or which might have been levied upon and sold under judicial process against him, except as therein provided for insurance policies; and (6) rights of .action arising upon contracts or from the unlawful taking or detention of, or injury to, his property. (Bankruptcy Law [30 U. S. Stat. at Large, 565, 566], § 70, subd. a.) In Dudley v. Easton (104 U. S. 103), Waite, Ch. J., for the court, speaking as to the status of a trustee in bankruptcy, says: “ As to everything except fraudulent conveyances and fraudulent preferences under the bankrupt law, he'takes by his assignment, as a purchaser from the bankrupt, with notice of all outstanding fights and equities. Whatever the bankrupt could do to make the assigned property available for the general creditors he may do, but nothing more, except that he may sue for and recover that which was conveyed in fraud of the rights of creditors, and set aside all fraudulent preferences. As to such preferences and conveyances he has all the rights of a judgment creditor, as well as the powers specifically conferred by the bankrupt law.” (See, too, York Manufacturing Co. v. Cassell, 201 U. S. 344, 352; Butler v. Baudouine, 84 App, Div. 215, 220; affd., 177, N. Y. 530.) The title to the premises was never in' the bankrupt. Hnder the conveyance described in the complaint, the title to the premises vested in the grantee, Solomon Epstein, and no use or trust resulted to -Hyman -Epstein, the bankrupt, or in his favor, perforce of payment of the consideration by him, unless Solomon - Epstein took the' saíne as an absolute conveyance in his own name without the consent or knowledge of Hyman Epstein, or unless Solomon Epstein, in violation of some trust, purchased the property with money or property belonging to another. (Real Prop. Law, § 74.) The grant is presumed fraudulent as against the creditors at that time of Hyman Epstein, and, unless a fraudulent intent is disproved, a trust resulted in favor of such creditors to an extent necessary to satisfy their just demands. (Ibid.) The only resultant trust was that in favor of the creditors at the time of the grant of Hyman Epstein, the bankrupt. (The statute, supra; Mandeville v. Campbell, 45 App. Div. 512; Lee v. Timken, 10 id. 213, 214.) ' In Mandeville v. Campbell (supra), the court, per Rumsey, J., say: The object of the statute was to cut off all interest in the person paying, the consideration, and then to declare property liable for his debts.” And the court also say: “ There is no doubt but that the relation between the parties is purely a ■trust one. ; (Garfield v. Hatmaker, 15 N. Y. 475; McCartney v. Bostwick, 32 id. 53.) The property which is to be reached under these provisions of the statute could not be taken at law for a debt of the person paying the consideration. . It could only be reached in equity by a creditor who had been unable :to collect his judgment. by legal" process. In this respect it is nó different from other equitable assets which may be reached by a creditor upon the failure to collect his debt by the usual legal means. It is settled that.no creditor has a standing to reach such assets of his debtor -until his remedy at law' has been exhausted. The same rule has been applied to efforts to reach the assets created by this statute for the benefit of creditors. (Ocean Nat. Bank v. Olcott, 46 N. Y. 12; Allyn v. Thurston, 53 id. 622; Estes v. Wilcox, 67 id. 264.) This principle was also applied in McCartney v. Bostwick (supra) under circumstances which are explained- in Ocean Mat. Bankv. Olcott, where it is shown that that case is no exception to the rule requiring that the legal remedies should be exhausted before proceeding under this statute against a grantee.” In Butler v. Baudouine (supra) the court held that a trustee in bankruptcy could not maintain an action .to recover the excess of an amount of a trust fund required for the education and support of the cestui que trust, on the ground that none but a judgment creditor with his remedy at law exhausted is entitled to reach it. The court, per Patterson, J., said: “ The only relaxation of the law which makes the income inalienable or the integrity of the trust, as created by the testator, destructible, is in favor of judgment creditors — specifically such. The beneficiary’s right to the whole income is cut down only in their favor. We do not think a trustee in bankruptcy is clothed with the privileges of a judgment creditor, under the terms of the New York statute. That he would be vested with such rights with respect to property belonging to the bankrupt, or which the bankrupt ‘could by any means’ assign or dispose of, may be true. Hence, for the purpose of setting aside fraudulent conveyances, the trustee in bankruptcy would be regarded as standing in the position of a judgment creditor, both by the terms of the Bankruptcy Act, which permits him to attack such conveyances, and in accordance with many adjudicated cases. (Matter of Leland, 10 Blatchf. 503; Matter of Duncan, 8 Fed. Cas. No. 4,131; Southard v. Benner, 72 N. Y. 424.) But in those cases the property sought to be reached was the property of the bankrupt, as to which he had the right or power of disposal and which might be reached by execution.” In Evans v. Staalle (88 Minn. 253) the defendant was the grantee of third parties. But one-third of the consideration was paid by her husband; the plaintiff, at the time the conveyance was made, was a judgment creditor of the husband and brought the action against the defendant alone to enforce a trust to the extent of his judgment. The statutes of Minnesota were similar to our own (supra). (See Gen. Stat. Minn., 1894, §§ 4280-4282; now E. L. Minn., 1905, §§ 3245-3247.) The plaintiff moved to file a supplemental answer, pleading the debtor’s discharge in bankruptcy. The Supreme Court held that the denial of the motion might well have rested on laches. • But it also said that the discharge was immaterial. The court said: “ No title to the land passed to the trustee in bankruptcy. The discharge in bankruptcy did not pay or extinguish the plaintiff’s debt, nor relieve the defendant’s land from the trust with which it was charged by operation of law for the payment of the debt. The only effect of the discharge was to relieve the debtor from all legal obligations to pay the debt, leaving all liens or trusts securing the debt unimpaired. Lowell, Bankr. §§-242-244; Smith v. Stanchfield, 84 Minn. 343, [7'Am. B. R. 498]. Mow'; when- the land in this case was conveyed to the defendant upon a consideration paid by the debtor, a trust in favor of the plaintiff as a creditor attached to the ■ land to the extent necessary to satisfy his debt, which couldbe defeated' only by disproving any fraudulent intent. This trust could be enforced after the debtor’s discharge, although all personal remedies against him to secure paymént of the debt had' been thereby extinguished; precisely" the same as a mortgagee may foreclose Ms lien on the mortgaged premises, and, thereby-secure payment of his debt, although an action to recover it from the mortgagor be barred by the Statute of Limitations. (Slingerland v. Sherer, 46 Minn. 422.) ” In-fine, the difficulty in the way of the plaintiff is that the - fee never was in the bankrupt, but always in third parties; .that neither legal nor equitable interest in this property ever existed in the bankrupt; that he “ had no remaining right omwhich, through judgment and execution, creditors'could by any process fasten a specific • lien.”The statute that declares the resulting trust is solely for the benefit of certain creditors and makes against- the property of a third party which the debtor never, owned.” (McCartney v. Bostwick, 32 N. Y. 59; Niver v. Crane, 98 id. 40.)

The judgment is affirmed, with costs.

Woodward, Burr,- Thomas and Carr, JJ., concurred.

Judgment-affirmed, with costs.