Case ID: ad_70/html/0046-01.html
Source: Caselaw Access Project
Author: {"author": "Ingraham, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Standard National Bank of the City of New York and National Broadway Bank, Appellants, v. Garfield National Bank, Respondent, Impleaded with National Silk Label Company and Others.
    
      Conveyance fraudulent as to creditor's —? the proceeds of the property, sold under an execution against the vendee, cannot be followed by a creditor of the vendor.
    
    Where property transferred- by a debtor, in fraud, of his creditors, is levied upon and sold, under a judgment obtained against-the vendee by a creditor of the latter, and the proceeds are paid over to such creditor before any action is , taken to set asidé the fraudulent transfer, creditors Qf the fraudulent vendor-are not entitled to follow the proceeds of the property fraudulently transferred into the hands of the execution creditor. :
    Appeal by the plaintiffs, the Standard National Bank of the City of New York and another,- from that part of. a 'judgment of the Supreme Court in favor of the defendant^ the Garfield National Bank, entered in the office of the clerk of the county of New York on the 18th day of July, 1901, upon the: decision of the court, rendered after a trial at the New York Special Term, dismissing the complaint.as against said defendant, the Garfield National Bank.
    
      The action was brought by creditors of the defendant,. the National Silk Label Company, to reach the proceeds of property which that defendant fraudulently transferred to the firm of Macfarlane & Co. and which was sold under an execution issued upon a judgment obtained by the defendant, the Garfield National Bank, against Macfarlane & Co.
    
      H. H. Walker, for the appellant Standard National Bank.
    
      Henry B. Twombly, for the appellant National Broadway Bank.
    
      John J. Adams, for the respondent.
   Ingraham, J.:

Upon the former appeal in this action, when a judgment in favor of the plaintiffs was reversed, we held that the defendant the Garfield National Bank could not be compelled to account for the money realized upon an execution issued on a judgment against Macfarlane & Co., upon the ground that goods in the possession of Macfarlane & Co. upon which the execution was levied, the legal title to which had been transferred to that firm by the Silk Label Company, had been transferred in fraud of that corporation’s creditors, no action having been taken to avoid the transfer at the time of the sale. under the execution and the payment of the proceeds thereof to the Garfield National Bank. The reasons for our conclusion are stated in the report of the decision (56 App. Div. 43). We can see no difference between the facts upon which that judgment was based and the facts developed upon this trial. The plaintiffs have attempted to reargue the questions there determined upon this appeal, but after a re-examination we see no reason to change the views before expressed. Upon the trial the plaintiffs conceded that whether or not the assignment of Macfarlane & Co. to Richardson was fraudulent, does not affect the case so far as the plaintiffs are concerned, and this concession is an answer to the position now taken by the plaintiffs as to the effect- of the assignment to Richardson. The plaintiffs, however, do not claim through Richardson. Their claim is as creditors of the Silk Label Company, and as such’ creditors they must establish their right to compel the Garfield Bank to repay the money that it received in payment of its debt from Macfarlane.

A transfer of property by a' debtor, fraudulent as to creditors, is not void ab initio, but voidable only at the eléction of the creditors of the vendor. The title to the property passes, and the vendee has a title which he can transfer and which is subject to levy and sale at the suit of his creditors. When the execution of the Garfield National Bank judgment against Macfarlane & Co. was issued, Macfarlane. & Co. had, as against the Silk Label Company and its creditors, the legal title to the property transferred. The assignment to Richardson was alleged to- be fraudulent as to Macfarlane & Co.’s creditors, and the Garfield National Bank, acting upon that assumption, directed the sheriff to levy upon' Macfarlane & Co.’s property. That levy was made, the goods of Macfarlane & Co. that they had transferred to Richardson were sold and the proceeds paid to the Garfield National- Bank. Neither the Silk Label Company nor their creditors had up to that time elected to avoid the transfer of the property of the Silk Label Company to Macfarlane & Co. Assuming that the assignment to Richardson was void, Macfarlane & Co. had a leviable interest in the property, and it was that leviable interest of Macfarlane & Co. upon which the sheriff levied under the Garfield Bank judgment. That was what, he sold under the levy which produced- the money that was paid to the Garfield National Bank. Subsequently, when the creditors of the Silk Label Company sought to set aside the transfer from the Silk Label Company to Macfarlane & Co., the Gar-, field National Bank liad in its possession none of the property of the Silk Label Company ; nor had it ever in its possession any of the property of -that company. It is impossible to see upon what principle the Garfield National Bank could be held accountable for the value of any property of the Silk Label Company which had been transferred by a voidable transfer to Macfarlane & Co. It had a right to levy under its judgment against Macfarlane & Co. upon the goods and property of Macfarlane & Co., and that it did. The proceeds of a sale of the property of Macfarlane & Co. under such a levy having been paid to the Garfield National Bank in satisfaction of its judgment- against Macfarlane & Go., such proceeds could no more be reached by the creditors of the - Silk Label Company than could money which Macfarlane & Co. had realized from a sale of the goods transferred to them by the Silk Label Company and which they had subsequently paid to the bank as a payment of their indebtedness. In either case the money was the proceeds of goods to which Macfarlane & Co. had the legal title and which ■ had been received by the Garñeld National Bank from Macfarlane & Co. in payment of its debts. There could be no difference in principle whether Macfarlane & Co. had actually ■sold the goods and paid the proceeds to the bank, or whether the bank under - an execution had levied upon the goods and the goods had been sold by the sheriff and the proceeds thereof paid by the sheriff to the bank. In either case the bank had received in payment of its debts money realized from the sale of goods to which Macfarlane & Co. had the legal title. A different question would have been presented had Macfarlane & Co. turned over to the bank the goods that it had received from the Silk Label Company ; and it is not necessary to determine upon this appeal what would have been the rights of the creditors of the Silk Label Company in that situation. The proceeds realized at the sale of Macfarlane & Cods interest in that property did not stand in the place of the goods sold which would entitle the creditors of the Silk Label Company to follow such proceeds into the hands of the bank. The rule to be applied, as I understand it, is that stated in Justh v. Nat. Bank of the Commonwealth (56 N. Y. at p. 484): “ In the absence of trust or agency I take the rule to be that it is only to the extent of the interest remaining in the party committing the fraud that money can be followed as against an innocent party having a lawful title founded upon consideration; and that, if it has been paid in the ordinary course of business, either upon a new consideration or for an existing debt, the right of the party to follow the money is goné.” The subject is exhaustively examined in Hatch v. Fourth Nat. Bank, (147 N. Y. 184), and upon the principle there established I cannot see that there is any difference in the application of the rule because the money that was received by the creditors was realized upon a sale of property in the hands of the debtor and in which he had a leviable interest and paid to the creditor by the sheriff as the proceeds of the debtor’s property, rather than, money realized by the debtor himself from the sale of the property. That the debtor obtained the property from which the money was realized by fraud gave the vendor or his creditor the right to rescind the transfer; but until such rescission the vendee remains the owner of the property ; and, if during that time* it is sold and the proceeds paid to a creditor of the vendee, the debt on account of which such money has been paid is satisfied and the money becomes the absolute property of the creditor; and upon the payment of the proceeds of the sale by the sheriff to the Garfield Bank, Macfarlane & Co.’s debt to the bank was paid and the money became the property of the bank.

We think that upon both principle and authority the plaintiffs as judgment creditors of the Silk Label Company had ho claim against the Garfield National Bank.

The judgment should, therefore, be affirmed, with costs.

Van Brunt, P. J., Hatch and Laughlin, JJ., concurred.

Judgment affirmed, with costs.