Smith v. . Wise

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The case presented by the facts as found by the trial court was one of fraud in fact as against the creditors of the assignor and chargeable to both parties to the assignment; and such findings essential to the conclusion that the assignment was fraudulent and void as against such creditors were supported by the evidence.

And by it the inference was warranted, as the fact was found, that to consummate the plan and purpose, with which the assignment was made, to continue the business for the mutual benefit and advantage of the assignor and the defendants Wise, the sale of the stock, property and machinery of the factory was made by the assignee Wise to the defendant Hirsch and that such sale was fictitious and made and intended as a cover to the business to be carried on with the property for the benefit of the other defendants pursuant to the design contemplated when the assignment was made, to the end that the assignor might realize a benefit to himself out of the assigned estate. The conclusion of the trial court was warranted by the evidence, and the interlocutory judgment entered on its decision was properly affirmed by the General Term.

Other questions arise on the appeal presenting for review the accounting represented by the referee's report. The evidence taken at the trial was not, nor was that taken before the referee, in the record upon that appeal to the General Term. The findings of the trial court as well as those of the referee were there. The facts represented by the record supported the view of the General Term that this case was one of actual, positive fraud as against the creditors of the assignor on the part of both him and the assignee. It followed that the assignment was, on its vacation, properly treated as void ab initio, and as a consequence it afforded no protection to the assignee to the prejudice of such creditors. (Sands v. Codwise, 4 Johns. 536;Davis v. Leopold, 87 N.Y. 620; Swift v. Hart, 35 Hun, 128.)

The referee allowed to him the amount paid the workmen in the factory for services performed prior to the assignment and the additional value given to the stock by working it after the assignment, so as to give the creditors the value only of it as of that time. The referee found that the various sums claimed to have been expended by the assignee, except that so allowed, were paid out in pursuance and furtherance of the scheme to defraud the creditors of White. And we think that none of them other than that paid to the Irving National Bank require any special consideration. It is urged that the assignee's right to allowance of his disbursements is preserved by the provisions of the decree entered upon the decision of the Special Term to the effect that the defendants should hand over to the receiver all the property of the assigned estate "and likewise account and pay over all the income, profits and benefits thereof received by them or either of them, less any lawful disbursements made orincurred by said assignee." That provision has not been construed to extend the right to credits for disbursements beyond those which would be treated as lawful without its aid. We see no error in the disallowance of the assignee's claim for disbursements as such.

Before this action was commenced, the assignee paid to the Irving National Bank the debt due to it and which was firstly after wages of employes, preferred in the assignment amounting to $4,871.94. There would have been no question about his right to credit for the amount so paid the bank if he had not been chargeable with actual fraud in the transaction of making the assignment, although it were set aside as fraudulent against the creditors of the assignor. (Wakeman v. Grover, 4 Paige, 23;Ames v. Blunt, 5 id. 13; Collumb v. Read, 24 N.Y. 505.) If this were a tortious intermeddling by Wise with the property of White, it would be seen that he could have no protection whatever in the disposition of it or its proceeds; and if such was the legal effect of the vacation of the assignment, the consequence would be the same. But that cannot be so. His possession was derived from the assignor and taken with his assent and was lawful. When the assignment was set aside for actual fraud of the parties to it, he was as to creditors treated as never having had title under the assignment, and, therefore, no rights dependent upon title were as against them available to him. The other disbursements referred to were made by virtue of power dependent upon title or the right to possession of the property which rested in the transferring clauses of the assignment. The payment to the bank was by the direction of the assignor expressed in that instrument. It was made when the debtor was at liberty to make it, and when the direction as such to the assignee was operative. The amount when so paid passed beyond his control, and the bank being a bona fide creditor, could retain it as against the other creditors. (Knower v. Bank, 124 N.Y. 552.)

While it is said an assignee chargeable with participation in the fraud cannot effectually assert any equity in his behalf, he may have rights which courts will recognize, arising out of his relation to the property taken by virtue of a fraudulent assignment so far as they are consistent with those of the creditors of the assignee, and do not prejudice them. (Loos v.Wilkinson, 113 N.Y. 485.) The rights of the creditors may be preferential, may be made so by voluntary payment, or may result from the greater vigilance of some than other creditors. In the present case, the bank had the benefit of the direction by the debtor of a preferential payment to it, and the execution of the direction. The assignee should be allowed the amount so paid, unless the fact that his firm had indorsed the notes held by the bank, denied to him the right to such allowance for the reason that otherwise a benefit would result to him from the appropriation of so much of the assigned estate. There may be some apparent force in that view in its bearing upon the policy of the law to permit the adoption of no rule which may tend to encourage fraud. But no benefit to the assignee was directly derived from the payment, although it had the effect to relieve him from a contingent liability. Nor was it an appropriation of the assigned property to the benefit of the assignee in the sense which furnishes a reason for charging him in behalf of other creditors as for misappropriation of the amount of the fund so paid to the bank, a creditor of the assignor. He had and executed the direction of the debtor White to pay the bank debt out of the property of which his possession was then lawful. (Murphy v.Briggs, 89 N.Y. 446, 451.) The view of the General Term in accord with that of the referee that the defendants should be charged with the expenses of the accounting, seems to dispose of that question. The construction of the provision of the interlocutory judgment to the effect that out of the proceeds and the property in the possession of the receiver, "after deducting the legal fees and expenses of the said receiver and of the said reference, the said receiver pay to the plaintiffs" the amounts of their judgments against Smith, is not necessarily that which is contended for by the defendants. While it apparently provides for taking the expenses of the reference out of the estate, its purpose may have been the protection of the receiver in paying them out of the fund and without any view to the relief of the defendants from such expenses. The case was not necessarily an improper one for charging them with the disbursements of the action; and this is done by a subsequent provision of the same judgment. There is no occasion to interfere on this review with the conclusion of the court below on the subject of those expenses.

The final judgment should be modified by deducting from the amount with which the defendants are there charged, the sum of $4,871.94 paid by the assignee Charles Wise to the Irving National Bank, and interest from April 22, 1886; and in other respects the judgments should be affirmed.

All concur, FOLLETT, Ch. J., in result.

Judgment accordingly.