Abegg v. . Bishop , 142 N.Y. 286 ( 1894 )

This action was brought to set aside a transfer of accounts by Bishop and Crawford to the firm of Tilge Co., executed on the 10th of January, 1890, in pursuance of an agreement to that effect made two days earlier; and also to set aside and annul a general assignment executed by the same debtors on the next day. The debt to Tilge Co. exceeded $15,000, and no question is made over its honest existence or actual amount. These creditors had obtained a judgment by confession in New Jersey, where the debtors had a factory, but nothing was found there upon which execution could be levied, and that remedy proved unavailable to the creditors. The nominal amount of the accounts transferred was nearly six thousand dollars, but they were subject to discounts and abatement, and have yielded only about sixteen hundred dollars to the holders. The general assignment made on January 11th was without preferences; and the schedules show debts to the amount of over forty thousand dollars, and a total of assets valued at about fifteen hundred dollars. The assignees of the accounts, the general assignee, and the assignors all testify that the final assignment was not determined upon, contemplated, or suggested, until after the transfer of the accounts, and the trial court refused a request to find to the contrary. There was no evidence in the case, and it is not argued that there was any, which tends to prove as a fact an intent to hinder, delay and defraud creditors outside of the bare truth that the transfer of the accounts and the general assignment, taken together as one transaction, show an effort and intent to give Tilge Co. a preference for more than one-third of the assets of the insolvent debtors, which is in violation of the act of 1877. The Special Term dismissed the complaint, but the General Term reversed that judgment, holding that the transaction was a trick or device to evade the statute against excessive preferences; that as such violation it was a fraud upon creditors; and that both transfers were void on the supposed state of facts, irrespective of the knowledge or intent of the creditors preferred; and this doctrine was confidently pressed as too plain for argument, but in ignorance of a decision of this court not then in the reports.

Nevertheless it is explicitly contravened in all its essential elements by the decision referred to The whole subject was discussed in Central National Bank v. Seligman, (138 N.Y. 441). In that case there was an assignment of accounts to a creditor on the very day of the execution of the assignment, though before such execution. There were judgments confessed to another creditor although not entered until after the general assignment. The attack was made as here upon these preferences and the assignment, all of which were sought to be set aside as fraudulent and void because they worked a preference in excess of the statutory permission. To that we answered that the mere preference in payment of one honest creditor over another was never at common law evidence of a fraudulent intent; that it was lawful and permissible until the statute restrained it; that in restraining it to one-third of the assets the act did not stamp as fraudulent a greater preference; that it simply limited its effective operation to the permissible one-third; and that the excess when created outside of the assignment could only be recovered by an action in aid of the assignment and for the benefit of all the creditors. The argument of ANDREWS, Ch. J., in which we all concurred, covers the whole ground, and need not be in any respect repeated. As in that case the excessive preference made neither the transfers nor the assignments fraudulent, so they fail to effect that result in this. As we refused to set them aside in that case as fraudulent when no other ground than the forbidden excess existed, so also we must refuse in this. As the only remedy in that case upon the then disclosed facts was an action in aid of the assignment to subject the excess to the claims of creditors under that instrument, so that is the only proper remedy in the case at bar upon the facts contained in the record. It follows that the conclusion of the Special Term was correct and its reversal an error.

The order of the General Term should be reversed and the judgment of the Special Term affirmed, with costs.

All concur.

Ordered accordingly.