Cent. Nat'l Bank v. Seligman

• Decision Date: 30 June 1893
• Citation: 34 N.E. 196,138 N.Y. 435
• Parties: CENTRAL NATIONAL BANK v. SELIGMAN.
• Court: New York Supreme Court

138 N.Y. 435

34 N.E. 196

CENTRAL NATIONAL BANK

v.SELIGMAN.

Supreme Court, New York County, New York.

June, 1893.

Cross-appeals from a judgment of the General Term of the Supreme Court, First Department. The defendants appeal from the entire judgment and seek to review at the same time the merits of an interlocutory judgment of the Special Term of that Court as modified by an order of said General Term. The plaintiffs appeal from so much of said judgment as modified the judgment of the Special Term by limiting the relief therein granted to plaintiff.

The action was brought by the Central National Bank of N. Y. City, George F. Vietor, Carl Vietor, Thomas Achelis, Jr., and John Achelis, judgment creditors of the defendants, Sigmund J. Seligman, Philip Seligman and Abraham H. Herts, co-partners of the firm Seligman Bros. & Co., to set aside a general assignment made by such debtors to the defendant Simon H. Herman; and also to annul two certain judgments and executions made on the same day as the assignment, in favor of the defendants, Isaac Herts and Benjamin H. Herts (composing the firm of Herts Bros.), and a transfer of accounts made at the same time to the defendant Jonas Sonneborn, on the ground that the assignment, judgments and transfer were all a part of an alleged scheme to burden and defraud the creditors of Seligman Bros. & Co., and were executed and enforced in violation and evasion of L. 1887, c. 503, restricting preferences upon a general assignment to one-third the assets of the assignor after making certain deductions.

The Special Term held that the case of the First National Bank of Jersey City v. Bard (13 N. Y. Supp. 688) was directly in favor of plaintiffs' contention, and set aside the assignment, judgments and executions and transfers, and adjudged that the defendants respectively account for and pay over to a receiver the sums received by them, to be applied in satisfaction of plaintiffs' judgments.

The General Term affirmed the Special Term, in so far as it set aside the assignment, judgments and transfers, on the ground that such acts were properly one transaction, the effect of which was to give a fraudulent preference, and that the defendants benefited thereby were not entitled to hold any part of sums realized, not even to the extent of one-third of the assets assigned, but must account to the plaintiffs for the whole amount. The General Term, however, modified the judgment of the Special Term by denying the right of certain of the plaintiffs' judgments to participate in the relief granted. [Reported in 64 Hun, 615.]

Both plaintiffs and defendants appeal to this court.

The further facts are fully stated in the opinion.

A. J. Dittenhoefer ( Dittenhoefer & Gerber, attorneys), for defendants, appellants and respondents.

I. The Herts and Moses judgments having been entered after the title to the assignors property had become vested in the assignee cannot be held to be part of and preferences under the assignment (citing Manning v. Beck, 129 N. Y. 1;Otis v. Bertholf, 13 N. Y. Supp. 445;Stein v. Levy, 55 Hun, 381;Bishop v. Stebbens, 41 Id. 243;Williams v. Whedon, 109 N. Y. 333-337;Varnum v. Hart, 119 Id. 101).

II. The debts for which the judgments were respectively obtained being honestly due, other creditors cannot maintain an action to compel the holders of such judgments to pay them what they had realized from the debtors' property (citing Knower v. Central National Bank, 124 N. Y. 552; Leather Manuf'rs Bank v. Halsted, Id. 674; Smith v. Wise, 132 Id. 172; Rothschild v. Hogge, 43 Fed. Rep. 97; White v. Cotzhausen, 129 U. S. 329).

III. The judgments and assignment of accounts being concededly in payment of honest debts, the most that can be done--assuming that they are preferences under the assignment--is to scale them down so that they will not amount to more than one-third of the estate (citing Berger v. Varrelmann, 127 N. Y. 281;Manning v. Beck, 129 Id. 1).

Nathaniel Myers, for the appellants, Herts Bros. & Co.

I. It is urged that the act of June 2, 1887, does not comprehend preferential transfers accomplished by any mode excepting only that technically known as a general assignment, if the question has not been settled to the contrary beyond all reconsideration by Berger v. Varrelmann, 127 N. Y. 281, and Spelman v. Freedman, 130 Id. 421 (citing Manning v. Beck, 129 N. Y. 1;Tiemeyer v. Turnquist, 85 Id. 516, 522;Knapp v. McGowan, 96 Id. 75).

II. In no event can the act of June 2, 1887, be availed of, excepting only in an action or proceeding under and in aid of the assignment, and for the benefit of the general body of the creditors; for the following reasons: ( a.) The statute does not vitiate or affect the assignment itself. It does not purport to do so. It simply says that any preferences created in the assignment other than wages and salary shall not be valid “except” to the amount of one-third in value of the assigned estate left after making certain deductions. It is impossible reasonably to give any other meaning to the word “except” in this connection, than that so far as the statute affects the matter, not only shall the assignment stand, but also the preference shall stand to the extent of one-third of the net assets, for that much is expressly excepted out of the operation of the act (citing Race v. Beardsley, 68 Mo. 455;White v. Cotzhausen, 129 U. S. 329, 344.) ( b.) The one-third act contemplates the protection of the general body of unpreferred creditors claiming under the assignment by securing to them in the absence of actual fraud, a statutory right to at least two-thirds of the net assigned assets in spite of any will of the assignor to the contrary (citing Richardson v. Thurber, 104 N. Y. 606). ( c.) The only reason urged in favor of the contrary view is the unsound one that equity should favor the so-called diligent creditor. There is no good reason why any special inducement should be held out to a creditor to litigate. The older and better rule that equality is equity should be favored.

III. It is inconsistent for a creditor to insist that a judgment in contemplation of an assignment is violation of the one-third act, and therefore to be deemed a part of a contemplated general assignment, and at that same time to insist that the general assignment is void, that he may monopolize not only the assigned property, but also that affected by the judgment (citing Manning v. Beck, 129 N. Y. 1; Cox v. Wilder, 2 Dillon C. C. 45).

IV. Herts Bros. & Co. received the amount of their claim not by virtue of any title in fraudulent assignee, but by a judgment which they had a right to obtain, and their right to retain it cannot be impeached except only on the ground of actual fraud in fact (citing Knower v. Central National Bank, 124 N. Y. 552;Smith v. Wise, 132 Id. 172;Peyser v. Myers, 135 Id. 600).

V. A judgment affecting more than one-third of the debtor's property, suffered in contemplation of and followed by a general assignment, does not justify a decree that the assignment and judgment are fraudulent and void, or that either of them is void, under the statute of fraudulent conveyances.

VI. The only remedy against Herts Bros. & Co. on the facts of this case is an action of trover by the assignee for the benefit of the estate and in the interest of the general body of the creditors (citing Dudley v. Danforth, 61 N. Y. 626).

A. Blumenstiel ( Blumenstiel & Hirsch, attorneys), for plaintiffs, appellants and respondents.

I. The general assignment, transfers of accounts and entries of judgments were all made at the same time, with intent to effect an unlawful purpose, and constituted one transaction; and the circumstance that the general assignment was delivered and filed a few minutes before the issuing of the execution does not change this result (citing Britten v. Lorenz, 45 N. Y. 51;Hine v. Bowe, 114 Id. 350; Putney v. Freisleben, 11 Southeast Rep. 337; Davis v. Harrington, 8 N. Y. Supp. 218;Rothschild v. Salomon, 52 Hun, 486; Illinois Watch Co. v. Payne, 82 Ill. State Rep. 967; Loos v. Wilkinson, 110 N. Y. 195;First National Bank v. Bard, 59 Hun, 529;Billings v. Russell, 101 N. Y. 226).

II. If the judgments and transfers were to evade the law and to give unlawful preferences, the transaction was void under the provision of the statute against fraudulent conveyances (2 R. S. pt. II., tit. 3, c. 7). The provisions of L. 1888, c. 503, prohibit preferences in general assignments of more than one-third of the net assets, and the fact that the parties knowingly resort to a scheme by which to circumvent this statute amounts to a transfer intended to hinder, delay and defraud creditors (citing Berger v. Varrelmann, 127 N. Y. 281;Manning v. Beck, 129 Id. 1;Abegg v. Bishop, 20 N. Y. Supp. 810). It can not stand even to the extent of one-third of the assets (citing Sands v. Codwise, 4 Johns. 598;Wood v. Hunt, 38 Barb. 302;Davis v. Leopold, 87 N. Y. 620;Smith v. Wise, 132 Id. 172).

ANDREWS, Ch. J.

The firm of Seligman Bros. & Co. on the 2d day of July, 1888, made a general assignment of their property for the benefit of creditors. This action was brought by the plaintiffs, to whom the firm was indebted at the time of the assignment, and who subsequently procured judgments against the assignors for their debts, to set aside the assignment for fraud, and to have the property of the assignors applied to the payment of the judgments of the plaintiffs.

The plaintiffs joined as defendants with Seligman Bros & Co., and the assignee, one Moses, and the members of the firm of Herts Bros. & Co., and one Sonneborn. Moses and the firm of Herts Bros. & Co., obtained judgments against the assignors, which were entered on the same day the assignment was made, but a few minutes after the filing of the assignment. They were obtained upon suits commenced, followed by offer and acceptance under the Code. The plaintiffs in these judgments issued execution thereon, and the sheriff levied...