Case Name: George F. Vietor et al., Resp'ts, v. David Levy et al., App'lts
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1893-10-13
Citations: 55 N.Y. St. Rep. 720
Docket Number: 
Parties: George F. Vietor et al., Resp’ts, v. David Levy et al., App’lts.
Judges: 
Reporter: New York State Reporter
Volume: 55
Pages: 720–725

Head Matter:
George F. Vietor et al., Resp’ts, v. David Levy et al., App’lts.
(Supreme Court, General Term, First Department,
Filed October 13, 1893.)
Fraud—Transfers to creditors with intent to benefit debtor.
A firm made transfers of book accounts to relatives and six days later confessed judgments to certain creditors, upon which executions were levied upon all its goods, which were bought in by said creditors for less than their claims, and the same were turned over to one of them, who continued the business in his own name, employing all the members of the firm but one. These creditors were all relatives of the members of the firm. Held, that the transaction was properly held to be fraudulent as to creditors.
Appeal from a final judgment of the special term, entered on the 19th day of November, 1892, which confirmed a referee’s report, and also from an interlocutory judgment by which the referee was appointed.
Rudd & Hunt (James M. Hunt, of counsel), for app’lts; Blumenstiel & Hirsch, for resp’ts.

Opinion:
Parker, J.
The statute prevents a debtor, by a general assignment, from devoting more than one-third in value of his estate to the payment of preferred creditors. Chapter 503, Laws 1887. But he may accomplish that result by omitting to make a general assignment, and, instead, confessing judgment to the more highly favored creditors, in an amount sufficient to exhaust his entire estate. Manning v. Beck, 129 N. Y., 1; 41 St. Rep., 199. That method of securing creditors whom the firm of D. Levy & Sons regarded as having stronger equities appealing for protection than the others (and who happened to be relatives) was doubtless suggested by their legal adviser. Had they honestly devoted their property by this method to the payment of their creditor relatives, both the method and the result would have been unassailable. But the thought is suggested, from the reading of the record, that, when the firm found how easily they could prevent any otie of their creditors from receiving a single dollar on account of his demand, the idea was born of so using the power to pay or not to pay, as they should elect, as to secure a substantial benefit and advantage to themselves. Tire transaction of which complaint is made was intended by the insolvent firm to appear to the public and their inquisitive merchandise creditors as follows: Having been sued by an unrelenting creditor named Morris Batt, the firm exerted every effort to avoid failure, but success had not yet •crowned their efforts when the day arrived on which Batt could and did enter judgment. Failure then being certain, judgments were thereupon confessed to other creditors, who immediately issued executions and caused a levy to be made upon the property and assets of the firm. Thereafter a public sale was had, at which the various judgment creditors bought in the property for an amount - less than the aggregate of their judgments. The purchaser then sold the property to Louis M. Levy, who thereafter continued the business in his own name, employing as clerks the members of the late firm other than the senior members. This transaction, which upon a superficial examination would appear to be straightforward and legal, the learned trial judge has found to have been a fraudulent scheme, entered into and carried out by the several defendants with the intent to hinder, delay, cheat and defraud the creditors of D. Levy & Sons; and by the decree the judgments, as well as certain transfers of accounts made six days before the entry of the judgments, and all subsequent proceedings had under the judgments, including the appointment of Isaac Levy as receiver in proceedings supplemental to execution, are set aside. A personal judgment was also renderd against the several parties who obtained a benefit under the proceedings in the several amounts received by them. The statute which the judgment under review adjudges the defendants violated applies as well to a sale under an execution as to a transfer direct from the debtor. The judgment, execution and sale by the sheriff constitute the conveyance by which the title is transferred. Stimson v. Wrigley, 86 N. Y., 332.
Whether the conclusion reached by the trial court, that the proceedings taken, by which the property of the firm was transferred to Louis M. Levy, were in contravention of the statute, is well founded, will now be considered. In examining and weighing the evidence which induced the judgment we shall have in mind that he who alleges fraud must prove it; that the burden rests upon him to show affirmatively the facts and circumstances necessarily tending to establish the probability of guilt; and at the same time remember that those who attempt to perpetrate frauds take all the precautions that occur to them to make the transactions appear honest, and rarely confess their misconduct, whether under oath or otherwise; that, in such cases, proof of the fraud must be established, if at all, by facts and circumstances which deny the protestations of commercial virtue which nearly always fall from the lips of those who try to outwit the law. Examining more fully tire details of the several transactions which we have alluded to, in the manner in which it is natural to presume the defendants thought it would appear to inquirers, we find, in the first place, that Morris Batt, the apparently diligent creditor who pressed his claim to judgment, was a son-in-law of the senior member of the firm of D. Levjr & Sons, and a brother-in-law of the other members. That his conduct was not offensive to the firm is manifested by the fact that, on the same day on which he took judgment by default against them, they also confessed judgment for another sum in his favor. It likewise appears that Batt had no desire to be unreasonable with his relatives, for after the sale he not only turned over the goods which were purchased for him to another brother-in-law, Louis M. Levy, but he also turned over to him the money which he alleges he received in satisfaction of his judgment. Six days prior to the entry of the judgments the firm transferred certain book accounts to Matilda Levy, others to Isaac Levy, and still others to Cohen Bros. & Co., amounting in all to over $35,000. On the 26th of September, 1890, judgments were entered against them in favor of Morris Batt, Louis M. Levy, Cohen Bros. & Co., Matilda Levy, and Rachael Levy, aggregating $22,000. The firm was composed of David Levy and his three sons, Michael D., Henry J. and Morris M. Thé relationship existing between the several persons to whom accounts were assigned, or judgments confessed, and one or more members of the insolvent firm is as follows: Matilda Levy is the wife of Michael D.; Rachael Levy is the wife of David, and the mother of the other members of the firm; Isaac Levy is a brother of David; Morris Batt is a son-in-law ; while the members of Cohen Bros. & Co. are brothers of Matilda Levy. The fact that the parties associated with the firm of D. Levy & Sons in the alleged fraud are related to them is not, of course, in itself proof of fraud, but it Is a circumstance which may well be considered in connection with the other facts, to which allusion will be made.
Before proceeding with the examination of the steps taken subsequent to the confession of the judgment, we will consider, briefly, the claim of Matilda D. Levy for $12,000, to secure which accounts were assigned, aggregating $14,500, and a judgment confessed in a sum exceeding $10,000. The trial court found, and upon evidence warranting the finding, that the indebtedness for which judgment was confessed to her was not an obligation of the firm, but, instead, was the individual debt of her husband. Yet it appears that six days prior to the confession of judgment there were assigned to her firm accounts of a face value exceeding $14,500, from which there has been actually realized, after deducting expenses of collection, $10,374.39 ; and, notwithstanding this transfer of good accounts to her, a judgment was confessed in her favor for over $10,000. After the judgments were entered, executions were at once issued, and a levy made by the sheriff upon all the property and assets of the firm, excepting, of course, the good accounts, which had been transferred six days before ; and a sale thereunder had; Louis M. Levy, son of the senior member of the firm, and a brother of the others, purchasing the property for the judgment creditors, in pursuance of a previous arrangement with Butt, Cohen Bros. & Co., and Nathan Abraham, an uncle. While the property was struck down to the several parties mentioned, Levy made the bids, giving the names of the purchasers to the auctioneer, and specifying the amount chargeable to each purchaser. The persons in whose names the property was purchased at once turned over the property to Louis M. Levy. The individuals to whom the accounts had been transferred immediately retransferred such accounts to the same person. In a few instances, checks had been received in payment of accounts, and they were turned over in lieu of the accounts. Thus it happened that by the 18th of October, or within a period of about twenty-two days from the confession of judgments, all the property and accounts of the firm of D. Levy & Sons passed into the possession and apparent ownership of their kinsman, Louis M. Levy. He gave to the purchasers, as a consideration of the transfer to him, his individual demand notes, and it is an interesting, as well as important, fact, that these demand notes were given, not for the amount of the purchase, but for the amount of the alleged indebtedness of the insolvent firm as expressed in the judgments confessed.
If these apparent purchases had been real, this arrangement would have resulted rather fortunately for Levy as an investment To illustrate: Cohen Bros. & Co.'s claim was only $5,000, but the accounts assigned to them, and retransferred to Levy in consideration of his demand note, was $15,000, and at the time of the trial there had been actually realized thereon, after deducting expenses of collection, nearly $9,000. The accounts transferred to Isaac Levy for an alleged indebtedness of $2,500 amounted to over $6,500, on which had been realized at the time of the trial nearly $3,500. The result of these transactions was that all of the property of the firm had apparently become the property of Louis M. Levy, the relative creditors having ostensibly accepted him as their debtor in the place of the firm, with their position apparently improved, in this : that the substituted debtor was not burdened- with the obligations of the firm to the general creditors. Now, it appears that Louis M. Levy was a traveling salesman for one Schwab, whose business was that of a jeweler, and, as he understood that business, he concluded to remain in it, and has done so. But the new business had to be carried on, and so he employed, he says, his three brothers, who were members of the late firm of D. Levy & Sons, to conduct it. A power of attorney was given to Michael Levy to sign and indorse the name of Louis M. Levy at the bank, and thereafter Louis M.'s relations to his employer continued without embarrassment by reason of the new enterprise in which he had embarked on the capital of others, while the business which was of the late firm of D. Levy •& S.ons was continued at the same place, with the same persons in •charge, with one exception, but under a different name, and apparently beyond the reach of creditors,from some of whom portions of the property transferred, as has been described, had been pur•cbased. . One thing yet remained to be done to secure the transaction from being attacked by a hostile receiver, and so Isaac. Levy, to whom had been assigned accounts amounting to over $6,000 in payment of an alleged claim of $2,500, transferred these accounts to Louis M. Levy for $1,500, with the understanding, if more should be realized, he would be paid the $1,000. It may be remarked, in passing, that at the time of the trial of this action nearly $3,500 had been collected from these accounts. But the reason for accepting $1,500 for the accounts is explained by the record, which discloses that on the 30th day of October, twelve days after the property had all been transferred to Louis M. Levy, Isaac obtained a judgment against D. Levy & Sons for this $1,000. On it an execution was immediately issued, and returned unsatisfied the day following. With such diligence did the creditor Levy proceed against the debtor Levy that six days later a receiver was appointed, upon whose bond Michael Levy's brothers-in-law, and judgment creditors as well, Samuel and Morris Oohen, became the sureties. Having given his bond, the receiver seems to have regarded his official labors as ended. During the progress of the trial the generosity • of' the relative creditors towards Louis M. Levy evidently came to be regarded as embarrassing, for several of them testified, in effect, that their action was induced by the desire to secure employment for Michael D. Levy. Mr. Cohen was asked : " Q. Did you make a condition with reference to his employing Michael D. Levy ? A. I mentioned it. I mentioned that it would be a great help to him, and the fact that Michael D. Levy was my brother-in-law, and that he would be getting employment, would be an advantage, and, if he would give him employment, I would like it. Q. What was your purpose in buying goods at the sheriff's sale ? A. The purpose was that Louis M. Levy would continue the business, and give my brother-in-law, Michael D. Levy, employment."
Morris Batt testified to a conversation with Louis M. Levy in which " it was said between us that he was to go on with the business himself. I told him I would like him to employ my brother-in-law in the business. He agreed to that, partly ; I presume he agreed to it. He did employ Michael D. Levy and the other two brothers in the business." That the parties had it in mind, from the beginning, to help the firm, is evidenced by their conduct, and further assured by admissions such as we have quoted. To some of the witnesses it seemed important to deny that they had intended to secure, under cover of a third person, the business of the firm, and so they explained that their conduct was not for that purpose, and that they helped Louis M. Levy in order to insure employment to the brothers in the late firm. This, according to their own confession, was the purpose, and adding to it the circumstances, to some of which we have referred, the con elusion is irresistible that the parties thoughtfully planned a way by which they hoped and expected to secure to the members of the firm a livelihood out of a business, which, in the ordinary course, would have been taken from them by creditors.
We have thus called attention to some of the circumstances which lead us to the conclusion that the determination of the trial court that the scheme was a fraudulent one, intended to cheat and defraud the creditors of the firm, was well grounded. Necessarily, we have been obliged to refrain, because of the already unreasonable length of this discussion, from an allusion to the many important and pregnant facts with which this large record abounds. While no reference has been made to the evidence of strict legal procedure, and the protestations of good faith on the part of the defendants, upon which their counsel so strongly relies, it has been considered, and it may be said, that the steps do seem to have been carefully taken, indeed, almost too carefully, and the defendants have not failed to assert that their conduct was well meant and lawfully intended. But the circumstantial evidence overbears their denial of guilt. It is said that some of the judgments are not so attacked as to permit a finding that they are without consideration. True, but it matters not whether the firm was indebted in the sums confessed or not, if the object sought to be secured by a succession of steps, of which the confession was one, was to cheat and defraud the creditors of the debtor firm. Billings v. Russell, 101 N. Y., 226.
The appellants contend that the judgment, in so far as it directs Cohen Bros. & Co. to pay to the receiver upwards of $14,000, is erroneous, in that it requires them to pay nearly $8,500 more than they received. Cohen Bros. & Co. did not collect the money, it is true, but they did have the accounts. They saw fit to transfer them to Louis M. Levy. Having obtained the accounts through fraud, the court has properly charged them with their value. The exceptions to which our attention has been called do not merit discussion. The judgment should be affirmed, with costs.
O'Brien, J.
Although it be assumed that the judgments, transfers, etc., are valid because founded on a valuable consideration, and have not been successfully assailed for fraud, the question still remains, can these be used and employed as a shield so as to hold off all the other creditors, while practically returning the property to the possession, and subjecting it to the control, of the debtors? That this cannot be done has already been determined in the cases of Stimson v. Wrigley, 86 N. Y., 332; Abegg v. Schwab ; 31 St. Rep., 139; and Billings v. Russell, 101 N. Y., 226.
I, therefore ¡concur for affirmance.