Case ID: nys_16/html/0467-01.html
Source: Caselaw Access Project
Author: {"author": "Learned, P. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Stafford v. Merrill et al.
    
    
      (Supreme Court, General Term, Third Department.
    
    November 30, 1891.)
    Assignment for Benefit of Creditors—Setting Aside—Pleading.
    In an action to set aside an assignment for the benefit of creditors on the ground that, with cognate transactions, it creates preferences in excess of those allowed by statute, the omission to charge expressly a fraudulent intent is not fatal to the complaint, if it contains any allegation which, if true, shows the assignment to be fraudulent in law.
    Appeal from special term, Essex county. Reversed.
    Action by Stella Stafford against Walter Merrill, as assignee of Edgar H. Stafford, and others. The cause was dismissed on defendants’ motion, and plaintiff appeals.
    Argued before Learned, P. J., and Landon and Mayham, JJ.
    
      Alex. Thain, for appellant. Waldo & McLaughlin, (Richard L. Hand, of counsel,) for respondents.
   Learned, P. J.

This action was brought by a judgment creditor of Edgar H. Stafford to set aside confessions of judgment, chattel mortgages, and a general assignment, which .was made to defendant Merrill, on the ground that these were part of a general scheme to illegally prefer creditors, in contravention of the statute. The complaint sets forth the recovery of judgment, and issue and return of execution by plaintiff, and the making of a general assignment by the judgment debtor to Merrill, January 6, 1890, filed January 7, 1890. It alleges that prior to the assignment, while the debtor was insolvent and in contemplation of the assignment, with the purpose of preferring the Fifth National Bank of Port Henry, and in violation of the statute limiting the amount of preference in a general assignment, said creditor made a chattel mortgage to the cashier of said bank to secure certain notes owing by the debtor to said bank. It further alleges that the judgment debtor and said bank, conspiring to cheat his creditors, and to mislead them into giving credit to him, agreed that he should execute certain chattel mortgages to said cashier, which should not be recorded until such act became necessary for the protection of said bank, and that he did therefore execute three chattel mortgages in October, November, and December, 1889, which were not recorded until January, 1890. It further alleges that said debtor and said bank, conspiring to give him a fictitious credit, agreed that he should execute (and he did execute) three confessions of judgments in August, 1888, and October, 1888, which were not filed until January, 1889. It further alleges that said debtor, after making .the general assignment, gave a confession of judgment to said bank, January 6, 1889, which was not filed until January 7, 1889. It alleges that the judgments are fraudulent and factitious, in that the indebtedness to the bank was not over $20,000, and the judgments amounted to over $47,700. The complaint further alleges a confession of judgment by the debtor to one Palmer in August, 1889, filed January 7, 1890; which it avers is part of the debt secured by judgments to the bank, and was within the terms of the conspiracy aforesaid. The complaint further alleges the execution of a chattel mortgage by the debtor to Blanche Le Hu ray, January 6, 1890, after the execution of the general assignment, and filed January 7, 1890; and, further, that this was intended to secure accommodation notes indorsed by her for Stafford, held by said bank, and which were included in the indebtedness of Stafford to said bank of $20,000. It further alleges that one Ross is preferred in the assignment for $50, and that Stafford was not indebted to him in any sum; and that this amount was to be paid him for managing the estate after the assignment. There is a further allegation that said Stafford, with intent to prefer plaintiff, executed a bond and mortgage to her of $3,000 on real estate and a chattel mortgage; and that plaintiff repudiates the same, and surrenders the same as the court may direct. It is not alleged that any of these acts were done with intent to hinder, delay, or defraud creditors. On the opening of the case it was conceded by plaintiff that none of the parties intended any fraud. Thereupon the defendants, on this concession, and on the complaint, objected to any evidence, and moved to dismiss, on the ground that no fraud was charged. The motion was granted, and the plaintiff appeals.

The counsel for the plaintiff admits in his brief the necessity of allegations and proving fraud. But he contends that fraud is alleged'by the charge of the intentional violation of a statute, by mortgages and judgments given and confessed, as the result of a conspiracy to create fictitious debts. The mode of disposing of a case adopted here is unsatisfactory. In a complaint embracing so many allegations it is difficult to say whether there may not be, in some unobserved clause, an allegation on proof of which there might be a recovery. A demurrer (and this dismissal is similar) can only be sustained when, admitting all the facts alleged, it presents no cause of action whatever. Marie v. Garrison, 83 N. Y. 14; Sanders v. Soutter, 126 N. Y. 197, 27 N. E. Rep. 263.

v There is an allegation in the complaint that one Ross is a preferred creditor in the assignment; that the assignor was not indebted to said Ross fn any sum whatever; that the sum was named in the assignment under a secret understanding and agreement between the assignor and Ross and the bank that he was thus to be preferred in consideration of services to be rendered by Ross after the assignment, in the interest of the bank. Nothing was said by defendants’ counsel on the argument as to this allegation. But we cannot properly overlook it in considering the question before us. We cannot treat it as the allegation of accidental preference of one not a creditor, because there- is the.allegation that the preference was made on the agreement and understanding that this was to be a payment for future services not rendered to the assignor, but in managing tlfe assigned estate. Such services, when rendered, may very possibly be lawfully paid by the assignee.- But the assignor could not lawfully make them a preferred debt in the assignment. It seems quite plain that an assignment, knowingly made to secure an alleged debt which has no .existence, and which may never exist, must be fraudulent as against creditors. Barney v. Griffin, 2 N. Y. 372. In that case it was held fraudulent to provide in an assignment for any other compensation to the assignees than that given by statute to trustees. That decision would be evaded if an assignment could provide a certain sum for services to be done bv some person in caring for the estate, whatever such services might be worth, and. whether performed or not. In Bank v. Mead, 18 Hun, 303, cited by defendant,, the.court remarked: “Besides, the facts alleged are not inconsistent with an honest intention.” That could hardly be said of this allegation we are considering.

The defendant, however, urges that the failure to allege fraud makes the complaint so defective that no recovery could have been had, especially as the plaintiff’s counsel concedes that there was no intentional fraud. But there are cases where the necessary effect of the assignment is to hinder, delay, or defraud, and therefore the assignor is assumed to have intended what he directed the assignee to do. Wilson v. Robertson, 21 N. Y. 587; Bank v. Cohn, 42 Hun, 381; Edgell v. Hart, 9 N. Y. 213. In the last case the court considered the provision of the Revised Statutes that fraudulent intent is a question of fact, and held, as matter of law, that the mortgage on its face was fraudulent. It seems to us, therefore, that the omission to charge a fraudulent intent was not fatal to the complaint, if there was an allegation therein.which showed, if true, that the assignment was.fraudulent in law..

We have not discussed what seems to be the principal part of the plaintiff’s complaint, viz., the attempt to give preferences beyond the statutory limit. Very probably, if the trial had proceeded, that would have been found to be the sole ground of plaintiff’s action, and the allegation which we have considered would have been in some way eliminated. But by the course pursued we are shut off to the consideration whether there could possibly have been given any proof under this complaint which would have entitled plaintiff to any relief; and we meet the allegations which we have considered, and which appear to show a fraudulent assignment. Judgment reversed, new trial granted, costs to abide event. All concur.