Crook v. Rindskopf

• Decision Date: 26 April 1887
• Citation: 105 N.Y. 476,12 N.E. 174
• Parties: CROOK v. RINDSKOPF and another.
• Court: New York Court of Appeals Court of Appeals

105 N.Y. 476

12 N.E. 174

CROOK

v.RINDSKOPF and another.¹

Court of Appeals of New York.

April 26, 1887.

Action to set aside assignment for benefit of creditors.

Adolph L. Sanger, for appellants.

Edward T. Bartlett, for respondent.

RUGER, C. J.

On the twenty-third of October, 1882, Leopold Rindskopf and Meyer Rosenthal, composing the firm of Rindskopf & Rosenthal, executed an assignment of all their property, both real and personal, in trust to Abraham Rosenthal to convert the same into money, and after paying the lawful expenses of the trust, to pay their partnership debts in the order specified in the instrument. It then provided ‘that with the remainder and residue of said net proceeds and avails, if any there shall be, the party of the second part shall pay and discharge all the individual and private debts of the parties of the first part, or either of them, whether due or to become due, providing such remainder shall be sufficient for that purpose; and, if insufficient, then the same shall be applied pro rata, share and share alike, to the payment of said debts, and according to their respective amounts.’ It was further provided that, if there was any surplus then remaining, it should be repaid to the said assignors, or to their executors, administrators, or assigns. The proof established the facts that the assigned estate amounted in value to the sum of $9,360.87, and the firm indebtedness to $14,667.87, and that the individual assets of the members of the firm amounted to $40, of which Rindskopf owned $10 and Rosenthal $30. Rindskopf's absolute individual liabilities amounted to $300, and his contingent liabilities to $4,300, and Rosenthal's absolute individual liabilities to $2,850. The plaintiff, being a judgment creditor of the firm, brought this action to set aside the assignment upon the ground that it was made with intent to hinder, delay, and defraud the creditors of said assignors, and to have the assets of the assigned estate applied to the payment of his debt. Both the assignors and assignee, respectively, appeared and answered in the action, and the assignee denied all the allegations contained in the complaint imputing fraud to the assignors, which put the plaintiff to the proof of his case. No attempt was made on the trial to show any fraud in the assignment except such as was sought to be inferred from the provision relating to the payment of individual debts, considered in connection with evidence tending to show that the individual members of the firm owned individual assets of unequal amounts in value, and were liable in unequal sums upon their respective partnership accounts, also for individual debts. The trial court found that there was no fraud in fact in the making of the assignment, and as a conclusion of law that the instrument constituted a valid transfer of the property of the assignors to their assignee, and ordered judgment dismissing the complaint. Upon appeal, the general term reversed the judgment, and ordered a new trial. As that court did not assume to reverse the judgment upon the facts, its order can now be sustained only upon the theory that the undisputed evidence furnished conclusive proof of fraudulent intent on the part of the assignors in making their assignment. The conclusion of that court was based wholly upon the ground that the clause of the assignment providing for the payment of the individual creditors of the respective assignors, considered in connection with the facts of inequality in the amount of individual indebtedness, of value of individual assets, and of the amount of the respective accounts with the partnership firm, operated as a fraud in law upon the individual creditors of the partner having the largest individual estate, and afforded conclusive evidence of a fraudulent intent on the part of the assignors rendering the assignment wholly void.

Passing over the questions as to whether an intended fraud by one member of a firm in transferring his individual assets avoids an assignment of the firm assets made by the firm, and whether such a fraud, affecting a distinct portion of the assets devoted to a special class, is inseparable, and must, as matter of law, be held to vitiate the entire trust, we will first consider the case upon the theory discussed by the court below. The burden was upon the plaintiff to show by affirmative evidence that the enforcement of the provisions of the assignment must necessarily work a fraud upon the creditors of the assignors, or one of them, and that it could not legally be carried out without producing such a result. It has in some cases been held that assignors for the benefit of creditors, who contemplate and provide in their assignment for an illegal disposition in any respect of their property, are not at liberty, in an action to set it aside, to show, as proof of innocence of fraudulent intent, that the assigned fund was insufficient to satisfy the prior valid provisions of the assignment, and could not, therefore, be affected by the alleged illegal provision, and are estopped from controverting the existence of the conditions which they had provided for. Collomb v. Caldwell, 16 N. Y. 485, and cases there cited. It has, however, been frequently held that it may be shown, in rebuttal of an inference of fraudulent intent arising from provisions for the payment of individual debts, there were in fact no such debts or individual assets to be affected by such provision, (Turner v. Jaycox, 40 N. Y. 470;Bogert v. Haight, 9 Paige, 297,) or that the property formerly belonging to the firm had become the property of purchaser making the assignment. (Dimon v. Hazard, 32 N. Y. 68,) and other circumstances showing that no fraud in fact was intended. Dimon v. Hazard, supra; Hurlbert v. Dean, 41* N. Y. 97. The principle that a party may be inquired of as to his intent in doing an act, where such intent is material, tends strongly to confirm the proposition that the presumption of fraud arising from the provisions of an assignment may be repelled by parol evidence. Seymour v. Wilson, 14 N. Y. 567;Hunt v. Johnson, 44 N. Y. 27.

The plaintiff in this case, anticipating the probable defense, did not rely upon the presumptions of fraud arising from the assignment alone, but undertook to establish the fact affirmatively that, in the actual circumstances of this case, the execution of the provision in question would necessarily operate as a fraud upon creditors. It is unnecessary, therefore, to assail the doctrines enunciated in Collomb v. Caldwell, 16 N. Y. 485,Barney v. Griffin, 2 N. Y. 365,Goodrich v. Downs, 6 Hill, 438, and similar cases; for, conceding them to the fullest extent claimed, the facts of this case do not bring it within their operation.

It is lawful for an insolvent member of a firm to devote his individual property to the payment of firm debts, to the exclusion of his individual creditors. Dimon v. Hazard, 32 N. Y. 65;Saunders v. Reilly, 104 N. Y. --, ante, 170; Royer Wheel Co. v. Fielding, 101 N. Y. 504, 5 N. E. Rep. 431; Kirby v. Schoonmaker, 3 Barb. Ch. 46; and it follows from the same principle that he may also apply it to the payment of any debt owing by him to his partners in the firm, and no inference of fraud can legally be derived from such dispositions of his individual property. This case was decided by the general term, as appears from their opinion, solely upon the ground of a fraud alleged to have been intended by Rosenthal upon his individual creditors. The argument of the respondent is, in brief, that Rosenthal having $20 more individual property than Rindskopf, the law will assume that he, by placing that sum in a common fund with other individual assets, and directing the payment of their aggregate individual indebtedness therefrom, intended to commit a fraud upon his individual creditors, because, it is said, if the excess of Rosenthal's individual assets is distributed pro rata among each and all of the individual creditors of both parties according to the amount of their respective claims, that Rindskopf's creditors will necessarily receive something to which Rosenthal's creditors were equitably entitled.

We think this argument, upon the facts of the case, is defective in several particulars. It is not at all certain that such a result would follow in this case; for, if Rindskopf's contingent liabilities never became fixed, there would be only $300 of his individual debts to be paid as against $2,850 of Rosenthal's, and in that event private property of Rindskopf's would be taken to pay Rosenthal's individual debts. We also think the result claimed does not follow from the premises assumed by the court below, but that it would necessarily be produced only by the existence of exact equality of interest in the firm assets by both members, or a greater...