Court Opinion

ID: 6122569
Source: CourtListenerOpinion
Date Created: 2022-02-04 20:07:34.05447+00
Date Added: 2024-06-11T08:23:52.646015
License: Public Domain

LeARNed, P. J.:
This action is brought by judgment creditors of Clinton Eldredge to declare certain other judgments in favor of the defendant Betsey Moyer to be fraudulent and void, on the ground that they were intended to defraud creditors; and also to reach property in the hands of the Moyers, alleged to be fraudulently held by them, as against the creditors of said Eldredge. The plaintiffs setup several judgments against Eldredge, recovered in June, September and October, 1870. The causes of action, on which they were recovered, are alleged to have arisen at certain times, prior to June, 1858.
The defendants Moyer, after denying the fraud, aver that on the 17th day of August, 1868, Eldredge was discharged by the United States District Court in bankruptcy from his said indebtedness to the plaintiffs; that their debts were provable in the bankruptcy proceedings, and that the plaintiffs are therefore barred from enforcing the same. On the trial the referee reported in favor of the plaintiffs, and the defendants Moyer appeal.
*479They insist, now, first: That tbe debts owing to tbe plaintiffs, were discharged by tbe proceedings in bankruptcy. However that may have been, it was for Eldredge to insist upon that discharge, when tbe judgments were taken against him in 1870. If be chose to waive bis discharge, be was at liberty to do so. And if be did waive bis discharge, or confess judgment, the defendants Moyer cannot dispute the validity of the judgments. (Price v. Peters, 15 Abb., 197; Rudge v. Rundell, 1 N. Y. S. C. [T. & C.], 649; Medbury v. Swan, 46 N. Y., 202.) It is not dishonest for a debtor, who has been discharged in bankruptcy, to waive the discharge and allow a judgment to be recovered against him for the original debt. (Dusenbury v. Hoyt, 53 N. Y., 521.) And if he permits a judgment to be thus recovered against him, the creditor has a right to enforce the judgment against any property of the debtor. One who is in possession of property of the debtor, transferred with intent to defraud creditors, cannot defend himself on the ground that the debtor might have had a defense against the judgment, if he had chosen to assert it.
But the second point, and one which is more strongly urged by the defendants Moyer, is that, after the appointment of an assignee in bankruptcy, he only can bring actions to set aside fraudulent transfers. (Goodwin v. Sharkey, 5 Abb. [N. S.], 64; Rev. Stat. U. S., § 5046.)
The defendants urge, in support of this point, the case of Ocean Nat. Bank v. Olcott (46 N. Y., 12). But the difference between this case and that, is that the debt of the plaintiffs, in that case, had been discharged, and they were no longer creditors. Hence, it was held that they could not avail themselves of the benefit of 1 Revised Statutes (m. p.), 728, section 52. But in the present case the plaintiffs are creditors, and the débts which they now hold have not been discharged. And the question is whether persons, who fraudulently took, and still hold, property of the debtor, shall be allowed to retain it, as against these creditors.
The defendants further insist that the present judgments create only a new debt, and can only be enforced against newly acquired property of Eldredge. But if this were so, it cannot be urged that a debt can only be enforced against property of the debtor thereafter acquired. Furthermore the complaint charged, and the referee *480finds that the fraudulent transfer was on a promise to restore the property to Eldredge, the debtor. Such a fraudulent transfer is void against even subsequent creditors. (2 R. S. [m. p.], 135, § 1.)
In reply to this second point of the defendants, the plaintiffs say that, if this were any defense, it was only a defect of parties, not set up in the answer, and therefore waived. (Code, §§ 144, 147, 148.) It is not set up in the answer. The answer only alleges the discharge of the debt, and rests (aside from denial of the fraud) on the allegation that the debt is discharged. It does not aver that an assignee was appointed or that he should be a party to the action.
In the course of the trial copies of the proceedings in bankruptcy were offered in evidence, and objection was taken to their admissibility. They were admitted, and they contain a certified copy of the assignment, made by the register in bankruptcy to the assignee (under Rev. Stat. U. S., § 5044). Now we pass the question, which is urged by the plaintiff, whether this is proper evidence of the execution of the assignment. The proceedings were pertinent to the issue of discharge, and this copy assignment was a part of these proceedings. The reception of these proceedings in evidence was not a waiver (especially when objection was made) of the objection to the 'consideration of the issue of defect of parties. (Williams v. M. and F. T. Ins. Co., 54 N. Y., 577; Codd v. Rathbone, 19 N. Y., 37.) The defendants set up Eldredge’s discharge. The papers given in evidence were admissible to prove that. They did not set up that there was an assignee, and that the right of action was in him only, and therefore the proof (if there was proof) of the appointment of an assignee, coining in under the other issue, does not raise an issue which the defendants did not raise by their pleadings. A defense not pleaded is of no avail. (Kelsey v. Western, 2 N. Y., 501; Brazill v. Isham, 12 id., 9.)
An assignee in bankruptcy is but a trustee for the creditors, and does not hold the property as of his own right. When he makes a final dividend and renders his account, and it is passed, he is to be discharged from any liability to any creditor. (Rev. Stat. U. S., § 5096.) On his discharge the property reverts to the debtor without a reassignment. (Colie v. Jamison, 4 Hun, 284.)
While he holds the property the creditors are oestuis que trust, *481and a eestui que trust may bring an action such as this, if he makes the trustee a party. (Fort Stanwix Bank v. Leggett, 51 N. Y., 552; Fox v. Moyer, 54 id., 125.) And if he did not make the trustee a party, the defendant must set this up as a defect of parties.
The reasons for this are plain. It does not lie with these defendants Moyer, holding property fraudulently as against Eldredge’s creditors, to make this an affirmative defense. The assignee in bankruptcy has made no claim against them. There may be now no other creditors of Eldredge than these plaintiffs. The assignee may have sold to the plaintiffs this property fraudulently held. If, however, the defendants Moyer thought that other persons, creditors of Eldredge, represented by the assignee as their trustee, were entitled to share in the property fraudulently held by them, they should have set up this defect of parties. The plaintiffs might then have had an opportunity to show, for reasons above suggested or for other reasons, that there was no such defect. Another reason might exist why the assignee should not be a party. His right of action is limited to two years. (Rev. Stat. U. S., § 5057.) This time begins to run, in a case like this, from his knowledge of the fraud. (Bailey v. Glover, 21 Wall., 342.) If the assignee then had had knowledge of this fraud, soon after his appointment, January 22, 1868, his time for commencing an action would have expired before this present action was commenced, in 1872. If that were so, it could not be claimed that the defendants Moyer would be entitled to retain this property, fraudulently transferred, as against judgment creditors of Eldredge.
If the defendants Moyer had set up this defect of parties, and the plaintiffs had chosen so to do, they could have brought in the assignee as a party to the action. But since this defect was not set up in the answer, and the defendants Moyer went to trial on two issues: that of denial of the fraud, and that of a discharge of the debt: and failed on these; it is too late now for them to setup that the assignee should have been a party.
In Sands v. Codwise (2 Johns., 486), an action was brought by creditors against a bankrupt, making the assignee a party defendant, on the ground of his refusal to prosecute. It was held not necessary to substitute a person who had been appointed a new assignee. Erom this it appears that the fact of the appointment of an assignee *482is not a bar or defense to the action. It only shows a defect of parties. The cause of action is good enough; only, if the_ defendant so claims, another party should be brought in. But if the defendant waives this, by not setting it up in the answer, then the action proceeds, and the fact that an assignee has been appointed is no defense on the trial.
For it is evident, as above suggested, that there are cases where the assignee would really be only a nominal party; as, for instance, where there were no other creditors but those who had joined as plaintiff's. And we must notice that in this case, the question is not between these judgment creditors, plaintiffs, on the one side and the assignee in bankruptcy on the other. It is between judgment creditors on one side and fraudulent holders of the debtor’s property on the other. The defendants Moyer are not trying to protect other creditors (if there be any) of the bankrupt, but they are trying themselves to keep what they took for the purpose of defrauding creditors. If in good faith they had desired to protect other supposed creditors, they should have averred the appointment and existence of an assignee in bankruptcy (if he has not been discharged of his office), and should have caused him to be made a party.
Whether such an assignee could recover of these plaintiffs, as part of the bankrupt’s estate, the amount of this present recovery, it is unnecessary to inquire. We have only to do with the liabilities of the defendants Moyer to these present plaintiffs under the issues joined herein.
The judgment should be affirmed, with costs.
Boasdmak, J.:
The defense of Eldredge’s discharge in bankruptcy was not available against the plaintiff to Eldredge or the Moyers ; the new judgment, since the discharge, obviates any possible effect of the discharge as to such judgment; that defense was therefore a nullity, and the evidence to sustain it was in fact incompetent and immaterial. Upon the pleadings and proofs, so far as they were effectual and competent, the only issue to be tried was the fraudulent transfer to the Moyers; that is found against the Moyers, and is sustained by th© evidence given upon the trial.
*483But taking the case as it was tried; plaintiff, as a creditor of the bankrupt, had an equitable interest in his assets. The assignee in bankruptcy may have had the legal title, but the latter was not made a party to the action ; the defendants do not object to that fact by their answer. Why, then, may not the plaintiff recover, at the peril of being compelled by the assignee to account for and pay over the amount of his recovery for ratable distribution among all the creditors, plaintiff being one ? (Ex Parte Foster, 2 Story, 131, cited by Justice BooKEs.)
All the creditors are cestuis que trust, and alike interested in the amount collected ; the assignee is the trustee. I see, therefore, no good reason why the recovery may not be allowed to stand, and the plaintiff be allowed to receive the same, subject to any rights which the assignee in bankruptcy or the other creditors of the bankrupt may have therein. It having been determined that the title of the Moyers is fraudulent, there is very little virtue or propriety in aiding them in retaining the fruits of their fraud, as against a plaintiff who is entitled in equity to the whole or some portion thereof.
I therefore concur with Mr. Justice LbabNED in an affirmance of this judgment with costs.