American Sur. Co. of New York v. Conner

• Decision Date: 28 May 1929
• Citation: 166 N.E. 783,251 N.Y. 1
• Parties: AMERICAN SURETY CO. OF NEW YORK v. CONNER et al.
• Court: New York Court of Appeals Court of Appeals

251 N.Y. 1

166 N.E. 783

AMERICAN SURETY CO. OF NEW YORK

v.CONNER et al.

Court of Appeals of New York.

May 28, 1929.

Action by the American Surety Company of New York against Wallace L. Conner and Bessie F. B. Conner. Judgment of the Special Term dismissing the complaint upon the merits was reversed by the Appellate Division (225 App. Div. 137, 232 N. Y. S. 94) and judgment was directed for plaintiff and defendant last named appeals.

Judgment of Appellate Division reversed and that of Special Term affirmed.

Appeal from Supreme Court, Appellate Division, Second Department.

Louis P. Eisner, Eugene J. Raphael, and Ralph H. Raphael, all of New York City, for appellant.

Gerald Morrell, George L. Naught, and James E. Finegan, all of New York City, for respondent.

CARDOZO, C. J.

Conner, the manager of a savings bank, stole its money for many years, till at last the total of his thefts was about $100,000. In 1923 he proposed marriage to Bessie Barker, who was then seeking a divorce from her husband. She promised to marry him on obtaining her divorce if he would make provision for her future. This he undertook to do, binding himself to convey to her in consideration of the marriage his real estate at Amityville, L. I., as well as a quantity of jewelry. While she was still at Reno, Nev., suing for a divorce, he made a deed of the land in her name as grantee, and placed it on record. The judgment of divorce was granted July 2, 1924, and six days later the new marriage was celebrated. The night of the marriage, Conner handed to his wife the jewelry and the deed, and told her they were hers.

Three months later the crash came. Conner was arrested for forgery and embezzlement, and was sent to prison for a term of years. His wife brought suit against him to annul the marriage on the ground of fraud, and judgment of annulment was thereafter rendered. The plaintiff, a surety on Conner's bond, made good the losses of the bank, and was substituted by assignment to its rights and remedies. This action followed in October, 1926. Its purpose was to subject the land and jewelry to the payment of the husband's debt. The trial court and the Appellate Division were at one in holding that neither land nor jewelry had been purchased with the stolen money. In the absence of such proof, the case does not involve any question of a trust or an equitable lien attaching to the fruits of theft. Lightfoot v. Davis, 198 N. Y. 261, 91 N. E. 582,29 L. R. A. (N. S.) 119, 139 Am. St. Rep. 817,19 Ann. Cas. 747. If the plaintiff is to prevail, it must be either through succession to Conner on the theory that there was a failure of consideration when the marriage was annulled, or by virtue of a right as creditor on the theory that the retention of the property involves the commission of a fraud. The Special Term held that there was neither failure of consideration nor fraud, and so dismissed the complaint. The Appellate Division held that the retention of the property, even if permissible against Conner, was without consideration, and so in fraud of creditors, when the marriage was at an end. The decree directing restitution is now before us for review.

A question of procedure confronts us at the threshhold. Neither the bank nor its assignee, the plaintiff, had recovered judgment against Conner when this action was begun. In the absence of enabling statute, it has been the practice of equity to refuse relief against a conveyance in fraud of creditors till the suitor has recovered a judgment at law establishing the debt. Briggs v. Austin, 129 N. Y. 208, 29 N. E. 4;Southard v. Benner, 72 N. Y. 424;Case v. Beauregard, 101 U. S. 688, 25 L. Ed. 1004;National Tube Works Co. v. Ballou, 146 U. S. 517, 13 S. Ct. 165, 36 L. Ed. 1070;Pusey & Jones Co. v. Hanssen, 261 U. S. 491, 43 S. Ct. 454, 67 L. Ed. 763. Such exceptions to this practice as have been admitted had their origin in rare emergencies where there was need of instant action (People ex rel. Cauffman v. Van Buren, 136 N. Y. 252, 32 N. E. 775,20 L. R. A. 446;Whitney v. Davis, 148 N. Y. 256, 42 N. E. 661), or in the presence of some impediment whereby judgment had been made impossible (National Tradesmen's Bank v. Wetmore, 124 N. Y. 241, 26 N. E. 548;Trotter v. Lisman, 209 N. Y. 174, 181,102 N. E. 575). In addition to a judgment there has been need of execution. If the subject of the suit was tangible property-land or goods and chattels-the plaintiff might remove the fraudulent obstruction upon showing that an execution had been issued, whether already returned or still outstanding with the sheriff. Geery v. Geery, 63 N. Y. 252;Fox v. Moyer, 54 N. Y. 125, 129;Lichtenberg v. Herdtfelder, 33 Hun, 57;Id., 103 N. Y. 302, 8 N. E. 526;Macauley v. Smith, 132 N. Y. 524, 532,30 N. E. 997;Koechl v. Leibinger & Oehm Brewing Co., 26 App. Div. 573, 50 N. Y. S. 568. If the subject was a chose in action or other equitable asset, equity would not act except upon a showing that execution had been returned unsatisfied. Braem v. Merchants' National Bank of Syracuse, 127 N. Y. 508, 28 N. E. 597;First National Bank of Amsterdam v. Shuler, 153 N. Y. 163, 47 N. E. 262,60 Am. St. Rep. 601. On the other hand, there were times when a creditor was free, if he pleased, to renounce the aid of equity altogether. If the property fraudulently transferred was land or goods and chattels, things subject to levy under execution as distinguished from equitable assets, he might treat the conveyance as a nullity, and levy his attachment or execution in spite of it. Smith v. Reid, 134 N. Y. 568, 31 N. E. 1082;Hess v. Hess, 117 N. Y. 306, 308,22 N. E. 956;Anthony v. Wood, 96 N. Y. 180;Thurber v. Blanck, 50 N. Y. 80. In such circumstances, he might find it necessary to indemnify the sheriff, and, when the seizure was erroneous, assumed the risk of error. Amendments to the Code (Code Civil Proc. § 655), carried forward into the present act (Civil Practice Act, § 922), made breaches here and there in these doctrines of the chancery. In the main, they stood unchallenged when the Debtor and Creditor Law (Consol. Laws, ch. 12) was amended in 1925 by the adoption of article 10 as to fraudulent conveyances.

How far the adoption of that article has changed the preliminary conditions governing the remedy in equity, is the question now before us. Article 10 of the Debtor and Creditor Law is substantially the same as the Uniform Fraudulent Conveyance Act, prepared by the Commissioners for the Promotion of Uniformity of Legislation in the United States, and is to ‘be so interpreted and construed as to effectuate its general purpose to make uniform the laws of those states which enact it’ (Debtor & Creditor Law, § 281). Section 270 gives the definition of a creditor. ‘'Creditor’ is a person having any claim, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent.' Section 278 states the remedies available to a creditor whose claim has matured. ‘Where a conveyance or obligation is fraudulent as to a creditor, such creditor, when his claim has matured, may, as against any person except a purchaser for fair consideration without knowledge of the fraud at the time of the purchase, or one who has derived title immediately or mediately from such a purchaser. a. Have the conveyance set aside or obligation annulled to the extent necessary to satisfy his claim, or, b. Disregard the conveyance and attach or levy execution upon the property conveyed.’ Section 279 states the remedies available to a creditor whose claim has not matured. ‘Where a conveyance made or obligation incurred is fraudulent as to a creditor whose claim has not matured he may proceed in a court of competent jurisdiction against any person against whom he could have proceeded had his claim matured, and the court may, a. Restrain the defendant from disposing of his property. b. Appoint a receiver to take charge of the property, c. Set aside the conveyance or annul the obligation, or d. Make any order which the circumstances of the case may require.’

We think the effect of these provisions is to abrogate the ancient rule whereby a judgment and a lien were essential preliminaries to equitable relief against a fraudulent conveyance. The Uniform Act has been so read in other states. Gross v. Pennsylvania Mortgage & Loan Co., 101 N. J. Eq. 51, 137 A. 89;United Stores Realty Corp. v. Asea, (N. J. Err. & App.) 142 A. 38;Morse v. Roach, 229 Mich. 538, 201 N. W. 471;Lipskey v. Voloshen, 155 Md. 139, 141 A. 402. Decisions cited to the contrary were made without reference to the statute and without professing to construe it. See e. g., Lipman v. Manger, 185 Wis. 63, 200 N. W. 663. The reading seems to be inevitable, aside from any precedent. The act is explicit that a creditor may now maintain a suit in equity to annul a fraudulent conveyance, though his debt has not matured. It is not believable that a creditor with a debt already due was to be placed in a less favorable position, or beset by greater obstacles. For the one as for the other, the path is to be cleared of harassing impediments to the swift pursuit of justice. The act in its definition of a creditor seeks a rule of uniformity, and in so doing levels distinctions that at times had been the refuge of the dilatory debtor. It did not level them at the beginning to restore them later on. Certainty would, indeed, have been promoted if it had said in so many words that judgment and a lien should no longer be essential. We think it said as much, however, by fair and natural implication. The creditor may reject the aid of equity, and levy attachment or execution at law (section 278, subd. b), as he might before the statute. He may seek the aid of equity, and without attachment or execution, may establish his debt, whether matured or unmatured, and challenge the conveyance in the compass of a single suit. This he might do, even before the statute, if the debtor waived compliance with the preliminary...