Case ID: nys_14/html/0531-01.html
Source: Caselaw Access Project
Author: {"author": "Van Brent, P. J. Daniels, J., \"Van Brunt, P. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Galle et al. v. Tode et al.
    
    
      (Supreme Court, General Term,, First Department.
    
    May 15, 1891.)
    1. Fraudulent Conveyances—Actions to Set Aside—By Whom Maintainable.
    An unsecured creditor at large cannot maintain a creditors’ bill to set aside alleged fraudulent confessions of judgment by his debtor in favor of other creditors.
    2. Attachment—When Granted—Preferring Other Creditors.
    Defendants, being in financial straits, converted their concern into a corporation, with the view of gaining time, but were informed by counsel that the transfer of their property to the corporation was fraudulent as to creditors, and would be set aside. They then had a meeting with their creditors, and assured them that all should be treated equally, and no preferences made. Thereafter the corporation retransferred its property to defendants, who thereupon confessed judgment in favor of certain creditors, caused executions to be issued thereon, and then issued a call inviting creditors to settle. Held that, defendants having lulled their creditors at large into security by promising a settlement without preferences, their subsequent confessions of judgment in favor of other creditors, though made upon bona fide claims, were fraudulent and void, and constituted grounds for an attachment at the suit of such unsecured creditors at large.
    Appeal from special term, New York county.
    Action by Samuel Galle and another against Adolph Tode and others to set aside alleged fraudulent confessions of judgment made by defendants. Defendants appeal from an order continuing an injunction and from an order denying motion to vacate attachment.
    Argued before Van Brent, P. J., and Daniels, J.
    
      Hahn & Myers, (Emanuel J. Myers, of counsel,) for appellants. Simpson & Werner, (Nathaniel Myers and A. J. Simpson, of counsel,) for respondents.
   Van Brent, P. J.

The plaintiffs are attaching creditors of the defendants Tode & Walling, and certain other defendants are judgment creditors by ■confession of the defendants Tode & Walling, upon which executions had been issued to the defendants the sheriffs of the counties of New York and ■Orange. The plaintiffs, alleging said confessions to be fraudulent, have brought this action in aid of their attachment, seeking to have the said confessions and judgments declared fraudulent, and to have the sheriffs aforesaid restrained from proceeding under the executions above mentioned; and asking that the defendants account to the receiver, and when a judgment ■shall have been recovered by the plaintiffs against the defendants Tode & Walling, in the action in which the attachment is granted, that it be first paid out of the assets, property, and effects of said defendants Tode & Walling. In other words, the plaintiffs have brought a creditors’ bill to set aside these confessions of judgment upon the ground of fraud, and to reach the property which has been levied upon under the executions issued upon said confessions, being simply creditors at large, having no judgment or execution returned unsatisfied. That such an action cannot be maintained has been the law in this state certainly ever since the case of McElwain v. Willis, 9 Wend. 549. It was recognized in the cases of Adsit v. Butler, 87 N. Y. 585; Adee v. Bigler, 81 N. Y. 349; Carpenter v. Osborn, 102 N. Y. 558, 7 N. E. Rep. 828; and Claflin v. Gordon, 89 Hun, 54, The plaintiffs, therefore, are not in a position to maintain this action for equitable relief, and the order continuing the injunction must be reversed, and the motion denied; but, in view of the fact that the point was not raised in the court below or even suggested, and, as far as we have been able to discover, not made upon the brief submitted upon this appeal, the reversal should be without costs.

Daniels, J.,

(concurring.) I agree to the reversal of the order from which the appeal has been brought. The injunction is not sustained even by the case of Bates v. Plonshy, 28 Hun, 112, whose chief design was to restrain the execution creditors from taking the proceeds of the sales of the attached property, under executions which had been issued on the judgments attacked as fraudulent, until the right to such proceeds could be determined by action.

MOTION TO VACATE ATTACHMENT.

"Van Brunt, P. J.

The attachment in this action was issued upon the ground that the defendants had assigned, disposed of, and secreted their property with intent to defraud their creditors. It was distinctly established that the defendants in this action were in difficulties, and desired to get an extension of time, and to devise some plan by which their property could be placed beyond the reach of their creditors, in order that they might procure such extension. The formation of a corporation was first resorted to for the purpose of carrying out this fraudulent scheme, but the defendants having been informed by the attorneys for certain of their creditors, and by their own attorneys, that this disposition of their property was a fraud upon their creditors, and could be set aside, certain meetings were had by the creditors and the defendants for the purpose of seeing what should be done under the circumstances; and it appears from the affidavits that the defendants assured these creditors that nothing would be done by them towards giving one creditor a preference, and that all the creditors should be treated equally, and should share pro rata under the agreement which had been made between-the creditors and the defendants. Subsequently the corporation retransferred the property to the defendants, and thereupon the defendants confessed judgment in favor of certain of their creditors, and caused executions-to be issued upon such judgments, and then issued a notice for a meeting of their creditors, at which a statement of the affairs of the defendants was to-be given, and a proposition for settlement would be submitted. It needs but a mere statement of these features of the case to show the animus which actuated these defendants. It is urged that the defendants had a right to-prefer any creditor whom they might see fit. This is undoubtedly true, if such preference was honestly made, but, if made for the purpose of forcing a settlement with the other creditors, then it was fraudulent; and, however bona fide the debt might be which was due to t..e creditor, the fraudulent intent of the parties confessing the judgments invalidated the whole proceeding. It appears distinctly that the sole object and intent of these parties-was to prevent their creditors from seizing upon their property. They resorted to the scheme of a corporation first, and, when that was pronounced fraudulent, then they confess these judgments, cover them with executions, and say to the creditors, “How settle.” These facts appear without dispute; and it further appears that these creditors were lulled to sleep by the promise of these debtors that they would not prefer one creditor over another. It may be true that the restoration of the property of the defendants by the corporation to them restored them to the position in which they originally were, but they were still overshadowed by the fraudulent intent which actuated them in resorting to that scheme for the protection of their property against their creditors, and naturally cast suspicion upon any of their acts by which their property was taken away from the legitimate claims of creditors. The learned counsel for the appellant seems to be of the opinion that, because the debts for which the judgment was confessed were bona fide, therefore the confessions cannot be assailed. But the difficulty is that, it needs something else beside a bona fide debt in order to support the confession of a judgment. It is necessary that such confession should be given for a bona fide purpose; and it is clear, from the evidence in this case, which is undisputed, that there was an intent upon the part of these defendants to-force a settlement by placing their property beyond the reach of their creditors. We think, therefore, that the order sustaining the attachment should, be affirmed, with costs.