Case ID: ad_3/html/0298-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Hatch, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Birdsall, Waite & Perry Manufacturing Company and Others, Appellants, v. George Schwarz and Others, Respondents.
    
      Assignment of firm property for the benefit of creditors—.the firm creditors may attach a prior fraudulent conveyanceby one partner to his wife — effect of the retention of notes and money—right of creditors to attach a conveyance of individual property.
    
    In an action brought by judgment creditors to set aside a general assignment made by a firm and a conveyance of some of his individual property made by one of the partners to his wife, it appeared that a firm of which George Schwarz was a member madé an assignment of the firm property only on October 22, ■ 1894, three days prior to which date Sohwarz had conveyed certain property to his wife; that Schwarz did not deliver to the assignee certain promissory notes representing loans which he had made to his firm, and that he withheld $200, which he gave to his wife to support the family, and that, just before the assignment, each partner drew from the assets fifteen dollars for his individual use.
    The court dismissed the complaint, holding that the assignment was'not fraudu-' lent and that the conveyance by Schwarz could be attacked by the assignee only.
    
      Held, that the assignment was not shown to be fraudulent;
    That the retention by Schwarz of the notes, constituting a debt which he might have proved against the firm property, did not show fraud;
    That his retention of $200 for the support of his family and the retention of - fifteen dollars by each of the partners did not under the circumstances establish fraud;
    That the judgment creditors of Schwarz had a right to attack , the conveyance made by Schwarz to his wife, inasmuch as the matter concerned individual property which by the terms of the assignment did not vest in the assignee, and the latter was, therefore, not in a position to bring án a'ction to set aside the conveyance.
    Appeal by the plaintiffs, the Birdsall, Waite & Perry Manufacturing Company and others, from a judgment of the Supreme Court in favor of.the defendants, entered in the office of the clerk of the county of Kings on the 27th day of August, 1895, upon the decision of the court rendered after a trial at the Kings County Special Term.
    
      Louis Marshall, for the appellants.
    
      Paul Eugene Jones, for George Schwarz and others, respondents.
    
      Paul E. De Eere, for William- E. C. Mayer, as assignee,, etc., respondent.
   Hatch, J.:

The action is in the nature of a creditor’s bill filed by three judgment creditors of George Schwarz and others, composing a firm doing business under the name of Brooklyn Carriage and Harness Company, and seeks as a result to set aside, the general assignment executed by the judgment debtors on October 22, 1894, to the defendant Mayer for the benefit of creditors, and also to set aside a conveyance of real estate executed by the defendant George Schwarz to his wife Barbara on October 19, 1894. Both of these instruments are attacked as being fraudulent and void, in that they were executed for the purpose of hindering, delaying and defrauding the creditors of the said firm, and of the individual members thereof. The assignment was of firm property, and was executed by the members thereof as partners. It. did not on its face purport to assign individual property, and no provision was made therein for the payment of individual debts. The trial .court found that the evidence was not sufficient to justify a finding of fraud in the assignment, and as to it judgment was rendered in favor of the assignee dismissing the complaint upon the merits. As to the conveyance the court held that it could only be attacked by the assignee. The court declined to pass upon the merits in this respect and simply dismissed the complaint, thus leaving the matter, if it was deemed advisable, open to an attack by the assignee, in an action for that purpose. It is now insisted by the appellants that the court erred in both conclusions. The first claim is that fraud in the assignment is apparent upon the undisputed facts, and consists in this, that the defendant George Schwarz did not deliver to the assignee, but retained possession of, six promissory notes, amounting in the aggregate to $3,550, which he held against the firm for money loaned to it. That he withheld $200 in cash which he gave to his wife, stating to her at the time that it was all he had, and that he wished her to use it for the support of the family; also that each of the partners, on the Saturday night before the execution of the assignment, drew fifteen dollars from the firm assets for their individual use.

It is undoubtedly true that it is not necessarily essential, in order to invalidate an assignment for fraud, that fraud in the assignee should be established; it is sufficient if fraud exist on the part of the assignors. We are, however, unable to see that fraud is necessarily to be deduced from the acts complained of, or that the court was required to infer its existence from these facts. The retention of the notes in nowise prejudiced the assignee in carrying out the purposes of the trust, nor did it deprive the creditors of the firm of any property applicable to the payment of their debts. We know of no rule of law which would prevent Schwarz from proving them as a claim against the assigned estate. What his position would be in respect to the other creditors in such event is not important, now to consider. It certainly does not appear that he retained possession of the notes with any fraudulent design to defeat the purposes of the trust, and we are unable to see how anybody was prejudiced thereby. The retention of money by an assignor, in contemplation of an assignment, may or may not constitute fraud. It is dependent to a large extent upon the particular circumstances attending the case, in consequence of which each case must, in a large measure and within certain limits, he determined upon its particular' facts, haying regard to the intent of the assignor and the substantial character of the amount retained.

In Coursey v. Morton (132 N. Y. 556), after the assignment had been executed, the assignor withdrew from the bank $963.50 and delivered the same to his wife, who secreted it for about eight months, and it was only, discovered upon a proceeding instituted for that purpose. The assignment in that case was confessedly made for the purpose of gaining time to compromise with creditors, and the stun secreted constituted in a large measure the available assets of the estate. The assignor was conscious at all times that he had no right to withhold the money, and that it belonged to his creditors. The court held that these acts constituted fraud which invalidated the assignment.

In Rothschild v. Salomon (52 Hun, 486) the sum drawn out for household expenses was $4,042. Of this sum $2,300 was delivered to the wife of one of the.assignors and was falsely charged in the books as payment of a loan. Ho money was ever loaned by her, and in fact nothing was due. The court held that this, money was abstracted in anticipation of and in preparation for an assignment, in 'consequence of which the whole transaction was vitiated. The other cases cited by appellant in support of this contention add nothing to the strength of those already noted. We do not think they are controlling npon the proof now before us.

The facts of this case correspond quite closely to those appearing in Vietor v. Nichols (13 N. Y. St. Repr. 461). There the partners drew an amount in excess of the sum drawn here, and the whole amount drawn, so far as the report of the case shows, about equalled the sums drawn here by George Schwarz of his individual money and by the members of the firm. The court held that this withdrawal did not necessarily impeach the assignment, as the law authorized a retention of a sum sufficient to meet family wants for a period of sixty days. This holding was affirmed on appeal (114 N. Y. 617). We think that this authority is abundant in support of the acts of the partners in drawing the small sum which each did from the partnership assets, and that fraud should not be inferred therefrom.'

As to the withdrawal from the bank by Schwarz of his individual money, treating it as property which should necessarily have been assigned, we do not think it works out a fraudulent intent. It appears that, of that sum, nearly $100 was expended by him in the discharge of personal debts, and $200 was given to his wife for household expenses. It nowhere appears that this sum was excessive in amount for that purpose, and the case last cited recognized that such disposition of nearly this amount was not the withdrawal of so substantial a sum as to characterize the act per se fraudulent. We recognize the rule that an act standing alone is not the criterion, hut that all the acts which lead up to and culminate in the assignment are to be considered together in order to determine whether a fraudulent scheme existed which was consummated by all that was done. But here the appellant selects the specified acts and asks the court to find from them that they conclusively establish the fraudulent scheme. The court below felt constrained to hold that these acts were not.sufficient for that purpose, and we are not satisfied by the argument of the learned counsel for the appellant that any error was committed therein. The record does not disclose that any act of George Schwarz respecting the disposition of his individual property ivas known to or participated in by his co-partners. If fraudulent design npon his part existed, both the assignee and the co-partriers were evidently innocent of any knowledge or participation ‘ therein. And further, there is no evidence that George Schwarz did any act or intended any act which interfered or was calculated to interfere with the entire disposition of the firm’s property, and this was all that the assignment purported to convey. We are, therefore, led to the conclusion that the judgment finding no fraud in this assignment was correct, and that the dismissal of the complaint upon the merits must be upheld.

Respecting the other question, the conclusion of the court is not so easily supported. We agree with the learned court in its conclusion that a case was presented upon which the court might found a judgment setting aside the conveyance hy George Schwarz to his wife as being in fraud- of creditors. The conclusion that this could only be done through the intervention of the assignee is not so certain. The court based its determination in this regard upon the case of Loos v. Wilkinson (110 N. Y. 195), where the distinction is recognized between fraud upon the assignment and fraud in the assignment. As to -the former the remedy is through the assignee, as to the latter the remedy is against the assignment. We have already concluded that there is no fraud in this assignment; must we conclude, therefore, that the •remedy, if any, is in the assignee ? It is to be noticed that in the Loos case the assignment was made by a partnership, and purported to convey all their property, and the deed which was there attacked was also made by the partners and was a conveyance of firm property. It is, therefore, plain that this property belonged in the assignment, and its exception therefrom was a fraudulent act. In all the cases that have fallen under my observation where this principle has been invoked, the assignment itself purported to convey, and did convey, and vest the legal title to the assigned property in the assignee. The present assignment did not purport to convey the individual property of George Schwarz; it was limited exclusively to the property owned by the firm.

In Royer Wheel Co. v. Fielding (101 N. Y. 504) there was a general assignment by the firm, also a separate conveyance of individual property by one member of the firm to the assignee for the benefit of firm creditors, and two conveyances by the same member of separate pieces of property to his son for the benefit of individual creditors. And the court held that the General Assignment Act did not embrace conveyances of specific property, nor include a transfer of individual property for the benefit of the creditors of the assignor. And it further held that the grantor in that case had a right to retain his individual property, and that it did not pass by the general assignment of the firm. A court would find some evidence to sustain a finding that there existed a Tionafide debt of some amount, owing by George Schwarz to his wife. This debt, if it existed, he had a legal right to pay out of his individual property to the exclusion of firm creditors. The claim is that he fraudulently transferred more property than was necessary for that purpose. This may be, but that does not affect the question here. Either the title to his individual property passed to the assignee, or it did not pass. If he could retain it to discharge individual debts, and he did retain it for that purpose, then the assignee got no title to it, and, as this it seems, was what he did, I am unable to see how the assignment under such circumstances can be interposed as an obstacle to a creditor in pursuit of it. Actions are maintained by trustees by virtue of the provisions of the statute, and are,maintained upon, the theory that the.. title to the property if not in the grantee is in the assignee. But this is only so when the assignment purports to convey such property, or by its terms such property would he embraced, or ought to have been embraced therein, and does not apply where by the terms of the instrument the assignee gets no title.

Could the assignee have maintained -an action to set aside this conveyance % This necessitates a consideration of two propositions :

First. That the conveyance should have been made with intent to hinder, delay or defraud creditors, etc. (4 R. S. [8th ed.] n. 2594.)

Second. That the assignee should be the trustee of the creditors so defrauded, and that property so fraudulently transferred, etc., should be “ held by or of right belonging to any such trustee or estate.” The property must be “ so held in trust,” or must belong to the trust estate as of right and in law. The ássigiiée and the creditors he represents must be interested in the estate or property so held, in trust,” “ or of right belonging to any such trustee or estate.” In other words, the individual property of the partners must be deemed, as matter of law, to be a part of the assigned estate, although not actually embraced within the assignment as made and executed. If it be conceded that the partners are not required by statute to assign their individual property with the partnership property,, the assignee can have no interest whatever in the individual property when not so assigned. If the assignee by virtue of the instrument acquired title or right to individual property, then a subsequent individual assignment of individual property would be void as against him.

It comes then to the proposition that the individual property of partners of right belongs in a firm assignment, or the assignee acquires no title or interest therein, and can maintain no action to reach it under the statute. That it does not necessarily- belong therein is decided in the Royer case (supra) and others. (McFarland v. Bate, 45 Kans. 1 ; Drucker v. Wellhouse, 82 Ga. 129 ; Ex parte Hopkins, 104 Ind. 157; Bradley v. Bischel, 81 Iowa, 80 ; Crook v. Rindskopf, 105 N. Y. 476; Klumpp v. Gardner, 114 id. 153 ; Burrill on Assignments [6th ed.], p. 67.)

It is claimed that this action cannot be maintained for the reason that if the conveyance be set aside it will not enable plaintiff’s judgment to attach upon the property. ' But this assumes that the title is in the assignee. It was held in the Royer Wheel Company case that the judgment, although against the firm, nevertheless attached as a lien to the real estate of the individual member of the firm. My research has not enabled me to find a case where the precise point now presented has been considered. But it seems to me that if it be lawful for the individual member to retain from the firm’s assignment his individual property, and that title to such property does not vest in the assignee, then, upon principle, it must follow that a creditor whose judgment is a lien upon such property can pursue that property. That seems to be the case here. If these views are correct, it follows.that the judgment appealed from, so far as it dismissed the corn plaint upon the merits, should be affirmed, with costs to the assignee, and so far as it dismissed the complaint without passing upon the merits it should be reversed and new trial ordered, with costs to abide the event.

All concurred, except Bartlett, J., not sitting.

Judgment, so far as it dismissed the complaint upon the merits, affirmed, with costs to the assignee. So far as it dismissed the complaint without passing upon the merits, reversed and new trial ordered, costs to abide event.