Case ID: ad_28/html/0103-01.html
Source: Caselaw Access Project
Author: {"author": "Rumsey, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Mortimer Stiefel, as Receiver of the Property of Benjamin Blumenthal, Otto Rothschild and Julius Rothschild, Respondent, v. Samuel N. Berlin and Bernhard Trosky, Composing the Firm of Berlin & Trosky, Appellants.
    
      Fraudulent conveyance by a special partnership — creditor’s suit■—the appointment of a receiver appointed in supplementary proceedings cannot be attacked collaterally—form of a plea of a defect of parties — all creditors need not be made pw'ties—who must have an intent to prefer — the amount recoverable by a receiver, how limited.
    
    An objection to the maintenance of an action, brought by a receiver appointed in proceedings supplementary to execution, to set aside a fraudulent conveyance of property made by a special' partnership, to the effect that the judgment creditor instituting such proceedings had not exhausted his remedy at law, a proper execution not having been issued upon his judgment, is not well taken; the determination of the court which appointed the receiver is conclusive until reversed.
    In such an action a.plea of a defect of parties defendant to be effective must set forth the names of those who should be joined as parties defendant.
    It is not necessary to make the other creditors of the judgment debtors parties to-such an action. Each creditor has the right to assert against the assets of the special partnership such claim as he has, and the diligent creditor is entitled to secure to himself a preference in payment therefrom.
    Semble, that it is sufficient to establish an intent to give a preference on the part of the party executing the conveyance ; an intent to secure a preference thereby ■ need not be shown to exist on the part of the party receiving it.
    A receiver cannot recover judgment for more of the proceeds of the fraudulent conveyance than equals the judgment he represents and- the expenses of the receivership and of the reference.
    Appeal by the defendants, Samuel N. Berlin and Bernard Trosky, composing, the firm of Berlin & Trosky, from an interlocutory judgment of the Supreme Court in favor of the plain tiffj entered in the. office of the clerk of the county of New York -on the 24th day of May, 1897, upon the decision of the court rendered after a trial at the New York Special Term. '
    
      Hermam Aaron, for the appellants.
    
      Edgar J. Lauer, for the respondent.
   Rumsey, J.:

Benjamin Blumenthal, Otto Rothschild and -Julius Rothschild were copartners in business in the city of New York under the firm name of Blumenthal & Co., organized as a special partnership under the laws, of the State, Blumenthal and Otto Rothschild being, the general partners and Julius Rothschild the special partner. In the month of October, 1895, a judgment was recovered in the City Court of New York by Morris Feigel and Isaac Feigel against the firm of Blumenthal & Co., upon which execution having been returned unsatisfied, proceedings supplementary to execution were begun which resulted in an order appointing the plaintiff receiver. of the property of the firm, and after his appointment he duly qualified and assumed the duties of that office. Afterwards, another judgment having been recovered by Spiegelberg and others against the same firm, proceedings of like nature were had which resulted in the receivership being extended to that judgment also. In the months of September and October, 1895, the firm of Blumenthal & Co. was insolvent. The defendants constituting-the firm of Berlin & Trosky were creditors of Blumenthal & Co., who, on the twenty-fifth, twenty-sixth and twenty-seventh of September and the sixteenth of October, with intent to give a preference to the defendants, paid money and transferred merchandise to them. After the appointment of the plaintiff as receiver he brought this action to set aside the transfers to the defendants, and to compel them to account to him as receiver in the interest of the judgment creditors, whom he represented, for the money and merchandise which they had received by virtue of them transfers. The learned justice before whom this case was tried at the Special Term directed the judgment to be entered for the plaintiff for substantially the relief he 'demanded in the complaint, and from that judgment this appeal is taken.

The first objection raised by the defendants is, that the creditors who procured this receivership had not exhausted their remedy at law. The point they make is that, in the action in which Spiegelberg and others were plaintiffs, a proper execution had not been issued, and, therefore, the court had no jurisdiction to extend the receivership to the judgment recovered in that action. If this objection were well taken it would not. result in a reversal of the judgment, because there is no question that the plaintiff was properly appointed in the judgment in which Feigel and another were plaintiffs, and by virtue of that appointment would be entitled to maintain this action. But the objection is not well taken. While proceedings supplementary to' execution are special proceedings (Code Civ. Proc. § 2433), yet they are entitled to every presumption of correctness which attends any other proceeding in a court of competent jurisdiction where the papers presented to the court, and upon which it is asked to take action, show jprima facie a case which gives it jurisdiction to act. That was shown by the papers presented to the City Court in the case of Spiegelberg. It was for that court to say, upon the papers presented, whether a'proper case was made for the issue of an order for examination in supplementary proceedings, and whether the court was wrong upon that point or not (a question we do not decide) cannot be determined collaterally. The court had authority to decide that question, and, .having decided it, its determination is conclusive until such decision has been reversed by proceedings taken in the manner provided by the statute. ( Wright v. Nostrand, 94 N. Y. 31, 45.)

The receiver having been properly appointed, the Code vests in him the title to all the property of the judgment debtor for the benefit of the creditor in whose interest he is appointed. . (Code Civ. Proc. § 2468.) As the effect of that appointment he represented the creditor under whose judgment he was appointed, and he liad the same right as the creditor to prosecute - actions to set aside all transfers of property which are void as against creditors. (Porter v. Williams, 9 N. Y. 142; Mandeville v. Avery, 124 id. 376.) This right is expressly given.to this-receiver among others by the statute which authorizes any receiver of the property of an insolvent -estate, corporation, association, partnership or individual, to bring an action to set aside such transfers. (Laws of 1858, chap. 314 [3 R. S. (9th ed.) .2166].) The plaintiff,.therefore, had a standing in court to maintain this action.

The defendant objects that.there is a defect of parties defendant because all the creditors of the firm of Blumenthal & Co. are not made parties to this action. So far as this is merely "a plea in abatement for defect of parties, it is not well pleaded. Where such a plea is attempted to be set up the rule requires that the defendant should give the plaintiff a better writ, and he must do this by setting out in his answer the names of all those persons who he insists should be joined as defendants. (Mechanics & Farmers' Bank v. Dakin, 24 Wend. 411; Hawks v. Munger, 2 Hill, 200.) This the defendant here entirely failed to do, and for that reason, regarded as a plea in abatement, his answer raises no question upon that point.

But there is another aspect of the ease, by reason of which he insists that, as it appears that there are other creditors of the estate of Bltmienthal & Co., the plaintiff cannot maintain this action. The statute, by virtue of which this action is brought, avoids, as against the creditors of the partnership, every sale or transfer of its property made by the partnership when insolvent, with intent of giving a preference to any creditor of the firm.. (1 R. S. 766:, § 20.)' The defendant insists that this statute not only forbids the giving of a preference by the. partnership, but requires the court, whenever it shall-appear that the firm is insolvent, to marshal the assets of the estate in an action brought for the benefit of all the creditors of the firm, and does not authorize a diligent creditor who has acquired a lien upon the property of the firm, to enforce his lien to the exclusion of the other creditors. His argument, substantially, is that the object of the statute is to enforce an equal distribution of the assets of the partnership for all its creditors and to prevent the acquiring of a preference by one creditor over another, whether that preference shall be gained by the act of the firm or by proceedings taken by the creditor himself. The question thus presented is nota new one, but has been more than once decided by the courts of this State, and always in favor of the diligent creditor and against the contention of the defendants. The precise question presented here was determined by the Court of Appeals in the case of Yarn, Alstyne v. Oooh (25 N. Y. 489), and the reason of the court in the opinion there delivered is so plain and conclusive and so thoroughly applicable to this case that it is not necessary to repeat it or to consider the question further.

In Varnum v. Hart (119 N. Y. 101) a like question was presented under the statute prohibiting an insol vent, corporation from assigning or disposing of its property for the payment of its debts, and prohibiting any assignment in contemplation of insolvency. The court, in that case, held that while that statute prohibited the giving of any preference by a corporation, it placed no restraint whatever upon the creditors, and permitted them to pursue their remedies against the corporation in all the ways allowed by the law, and to procure satisfaction of the claim if they could. The prohibitions of the two statutes are alike, and the same principles apply to each. The case of Innes v. Lansing (7 Paige, 583) decides nothing to the contrary of this. No such question was presented in that case, and the chancellor did not undertake to decide anything further than that a general creditor of an insolvent special partnership might, without procuring a judgment, bring an. action for the marshaling of all the assets of the partnership among all the creditors. His argument conceded that the right of a single creditor to assert against the assets of the firm any lien which he had acquired, and which would give him a preference over the others, was not affected. These cases establish the right of each creditor, for his own benefit, to assert against the assets of the insolvent partnership any lien which he may have ; and in no aspect of the case, therefore, can it be said to be necessary in an action to enforce that lien, to bring in the other creditors of the firm.

It is claimed that the judgment is erroneous, because it was not made to appear that the firm of Blumenthal & Co; made the transfer with the intent of preferring the defendants, or that the defendants were shown to have any intent to procure a preference. The facts clearly establish that, when this transfer was made, the firm of Blumenthal & Co. was insolvent, and that they made this transfer to the defendants for that reason, and with intent to pay them in full, although they had not sufficient assets to pay their other creditors. This clearly constituted a preference, and Blumenthal & Co., who knew that its necessary effect would be to prefer the defendants, must have been deemed to intend the consequences of their acts.' (Cole v. Millerton Iron Company, 133 N. Y. 164.) It will be seen by reference to the statute that if the transfer is made by the firm, when insolvent, with intent to give a preference to the creditor who receives it, that fact of itself avoids the transfer with-, out reference to the intent of the creditor to whom the payment is made. But if it were necessary to establish that the payment was received by the defendants with the intent to procure a preference,, we think the evidence fully establishes that fact. It is not necessary here to recapitulate it. It is sufficient to say that it is very clear, from the testimony of the defendant Trosky, that he must have known that the firm of Blumenthal & Co. was unable to pay its debts in the due course of business, and that when he took the goods which were transferred to him he had every reason to believe that, in no other way, would he be able to secure the money which was due, because the firm of Blumenthal & Co., was not able to pay. In any aspect of the case there wás sufficient evidence to warrant the finding that, not only was the transfer made by Blumenthal & Co., with intent to give á preference to these defendants, but that the defendants were aware of that intent and procured the transfer for the purpose of obtaining that preference. The learned court was right, therefore, in concluding that the transfer to the defendants was void and must be set aside. But the plaintiff was not entitled to receive all the proceeds of the payment made to the. defendants unless it was all required to pay the two judgments in regard to which he was appointed receiver. He was entitled to take these proceeds simply to pay the judgments upon which he was appointed receiver, and such expenses of his receivership as the court should allow; and when those payments were made, his lien was satisfied, and he had no further claim upon the assets of this estate. The judgment as entered requires the payment to him of all the proceeds of this merchandise, without regard to its amount. In this it- is erroneous. It should be so far modified as to require the payment of the expenses of the reference which is ordered in the judgment; ■ of the expenses of the receivership, which shall be awarded by the courtof the two judgments of which the plaintiff is receiver, and that the remainder of the proceeds of the merchandise, if anything is left over, shall be retained by the defendants.

With this modification the judgment should be affirmed, but without costs to either party in this court.

Van Brunt, F. J., Barrett, Patterson and McLaughlin, JJ., concurred.

Judgment .modified as directed in opinion, and as modified affirmed, without costs to either party.