Stein v. Levy

Van Brunt, P. J.

Upon the affidavit of one of the plaintiffs showing a cause of action against the defendant for damages because of alleged fraudulent representations made by the defendant at the time of the sale of certain goods, wares, and merchandise upon credit, an attachment was issued against the property of the defendant upon the ground 'that the defendant had disposed of his property with intent to cheat and defraud his creditors. A motion having been made upon the papers upon which the attachment was granted to vacate the same, such motion was denied; and from the order thereupon entered this appeal is taken.

A good cause of action was set out in the affidavit; and the only question presented upon this appeal is whether there were any facts stated in the affidavit which justified the justice who issued the attachment in concluding that the defendant had disposed of his property with intent to cheat and defraud his creditors. The affidavit in question alleged certain representations made by the defendant as to his financial standing at the time he obtained the credit for the goods in question, and that, relying upon such representations, the plaintiff sold and delivered to the defendant such goods upon credits that had not then expired. Among the representations made by the defendant alleged in the affidavit were that he was perfectly solvent; that the plaintiffs were his largest creditors; and that, outside of the moneys due and owing to them, he owed only to the amount of one or two thousand dollars, and solely for merchandise. These representations, it is claimed, were false, because, at the time they were made, the defendant had made .and delivered to one Charles F. Levy, his son, a promissory note for $6,400, which note the defendant at the time knew he could not pay, and which was not made for goods sold and delivered. The affidavit further states that the defendant, having concealed the fact of his alleged indebtedness to his son Charles F. Levy, as aforesaid, from the plaintiffs, on or about the 11th of October, 1889, permitted and caused the said Charles F Levy to commence an action in this court upon said note and indebtedness, and thereafter, for the purpose of expediting judgment in said action, offered judgment in the sum of $6,000, which offer was accepted, and judgment was thereon entered in favor of said Charles F. Levy against the defendant for the sum of $6,017.90, and that an execution was issued-upon said judgment, and the sheriff thereupon levied upon the whole of the stock in trade and fixtures of the defendant under the said execution. The affidavit contains the further averment that this concealment of the promissory note, and the levy upon the execution, was part of a scheme on the part of the defendant to dispose of his property .with intent to cheat and defraud his creditors, especially these plaintiffs. It is apparent upon the face of the affidavits that most of the allegations in regard to the fraud connected with the entry of the judgment are mere surmises upon the part of the atiiant, and there is no evidence whatever to support the same. There is nothing from which we may infer that the holder of the promissory note, in the proceedings which he took, did anything more than that which the law allows, in endeavoring to secure the payment of the just claim which he had against the defendant. And the question thus presented is whether the offer to allow judgment upon the part of the defendant in the action brought by Charles F. Levy to secure the payment of the indebtedness due to him is such a fraud upon the creditors of the defendant as to warrant the issuing of an attach-merit upon the ground that such offer resulted in a disposition of the property of the defendant with intent to defraud his creditors. It is clear that, in pursuing the remedies which the law affords to both creditors and debtors for the entry of judgment, no inference of fraud or corrupt intent can obtain. If the defendant was indebted to Charles F. Levy,—which must be conceded, or otherwise no cause of action is set out in the affidavits,—the latter had a right to commence his action, and the defendant had a right to offer to allow judgment, in order that Charles F. Levy might secure a preference over other creditors by the levy of his execution. It is urged upon the part of the respondent that the fact that the defendant permitted the plaintiff’s charge of fraud to go uncontradicted and unexplained, while, in his affidavit used in support of his motion, he had full opportunity for explanation, should induce the court to indulge in every inference unfavorable to his case, and in view of that fact the charges must be considered fully proved. It will be perceived, upon an examination of the affidavit upon the part of the defendant, that it was the mere formal affidavit to entitle the party to obtain an order to show, rather than to suffer the delay attendant upon the making of a motion, and that the application to vacate the attachment was made upon the plaintiffs’ affidavit alone, there being no attempt on the part of the defendant to introduce any evidence as to the merits of this application. Under these circumstances, fraud is not to be presumed. Fraud must be proven; and the allegations contained in the plaintiffs’ affidavit, upon which the attachment was granted, in no way show any fraud, or anything further than an attempt upon the part of a creditor of the defendant to obtain that priority which the law entitles him to seek.

It is, however, suggested that, the whole of the stock of the defendant having been levied by virtue of the execution, such seizure in favor of one of the creditors of the defendant, brought about with his consent, is opposed to the policy created by chapter 503 of the Laws of 1887, and that by that act the right of an insolvent debtor to prefer one creditor, or class of creditors, to others, has been restricted to one-third of his estate, and that the provision then made was enacted to prevent abuses of this description which had so frequently arisen in the disposition of estates of insolvent debtors. By that act it is provided that in all general assignments of the estates of debtors for the benefit of creditors any preferences created therein, other than for wages or salaries, shall not be valid, except to the amount of one-third of the assigned estate, after deducting such wages or salaries, and the costs and expenses of executing such trusts; and, should said one-third be insufficient to pay in full the preferred claims to which, under the provisions of the section, the same are applicable, then said assets are to be applied to the payment of the same pro rata to the amount of each of said preferred claims. It will be seen that the act relates entirely to general assignments. It provides that, in all general assignments, any preferences therein created shall not be valid, except to the amount of one-third in value of the assigned estate, etc. The. fact of an excess of preference in no way affects the validity of the assignment. It only requires that the preferences shall be reduced pro rata until the same shall not exceed one-tliird of the assigned estate. If the policy of the law, as therein declared, should be held to apply to the judgment in question, it clearly would not render the judgment totally void, because the law in no case makes any preference inoperative, except so far as it exceeds one-third of the estate. Sow, there is no way in which it is possible to ascertain, in the case of a judgment and execution, as to what one-third of the estate would be; and, as a consequence, it seems to be clear that the provisions of the act in question can have no application to the case of a judgment, and an execution levied thereunder. The provisions of the law in reference to remedies of that description remain unaltered and unabridged; and it seems to us that it would be a violent assumption to hold that, because of the provisions of this act in reference to general assignments, the provisions of the law in regard to the entry of judgment by offer should substantially be repealed, and that which the law had hitherto permitted to be done in that respect should be held to become fraudulent acts, when, by the provisions of the act itself, if there is such an excess of preference in an assignment, it in no manner makes such assignment fraudulent and void as against creditors. It is said in the opinion of Mr. Justice Daniels, handed down herewith, that this general term has already decided, in a case not yet reported,¹ the proposition that a debtor will not be allowed to evade or avoid this policy by confession of judgments, or the allowance of judgments to be taken against him in this manner. We think that the learned judge is mistaken in reference to the scope of the decision in the case referred to. It was held in that case that judgments which were confessed as part and parcel of a scheme resulting'in an assignment, whereby all the debtor’s property was devoted to the payment of preferred creditors, should not be allowed to stand, as the assignment and confession of judgment must necessarily be considered together, they having been part and parcel of a single scheme, and were plain violations of the law in question. But where no assignment has been made, where the confessions of judgment are not a part and parcel of a scheme in reference to ah assignment, we cannot see that the act in question has made any change in the rights which both the debtor and his creditor have in reference to the entry of judgment to secure the payment of the creditor’s claim. The law permits a creditor to sue, and the debtor to offer to allow judgment to be taken against him, and thus secure judgment without the delay incident to the ordinary procedure. Therefore, from the mere fact of a debtor’s permitting the creditor to obtain this preference which the law recognizes, no presumption against him is to arise. We think, therefore, that there was no ground for the issuing of the attachment in question, and that the motion to vacate the same should have been granted. The order appealed from should be reversed, with $10 costs and disbursements, and the attachment vacated.

Brady, J., concurs.

1 See Spellman v. Freedman, 7 N. Y. Supp. 693.