Metcalf v. Moses

• Decision Date: 06 February 1900
• Citation: 161 N.Y. 587,56 N.E. 67
• Parties: METCALF et al. v. MOSES et al.
• Court: New York Court of Appeals Court of Appeals

161 N.Y. 587

56 N.E. 67

METCALF et al.

v.MOSES et al.

Court of Appeals of New York.

Feb 6, 1900.

Appeal from supreme court, appellate division, First department.

Action by Manton B. Metcalf and others against Morris Moses and others. From a judgment of the appellate division (55 N. Y. Supp. 179) modifying a judgment in favor of plaintiffs for part of the relief demanded (50 N. Y. Supp. 1060), plaintiffs and certain defendants appeal. Modified.

Martin and Vann, JJ., dissent in part.

Alex Blumenstiel, John Frankenheimer, and E. J. Myers, for appellants.

James Byrne, Samuel Greenbaum, and Nelson S. Spencer, for respondents.

O'BRIEN, J.

The plaintiffs are judgment creditors of Lesser Bros., a firm engaged in the clothing business in New York, and which failed on October 2, 1896. The purpose of the action was to set aside certain transfers of real personal property, and certain judgments by confession given by the firm to various parties claiming to be creditors, on the ground that the transfers and judgments were fraudulent. The facts which disclose the various transactions present the usual complications found in all schemes to defraud creditors. They have been fully detailed in the opinion of the learned trial judge, and in that of the learned court below on appeal. A very brief reference to these facts will be quite sufficient now, since it was found at the trial, and by the learned court below upon review, that the purpose of the transfers and confessions of judgments, on the part of the firm, at least, was to hinder, delay, and defraud creditors. These findings are not questioned here, and so we are able to enter upon a review of the judgment with one important fact settled. The plaintiffs and all the numerous defendants, except two, have, by permission, appealed to this court. The main contention on the part of the defendants, who are favored creditors, through the transfers and judgments referred to, is that, while the debtors intended to perpetrate a fraud, yet their creditors were wholly innocent, and did not participate in any such purpose, but were simply seeking to obtain security for their honest debts, as they might, within the recent case of Galle v. Tode, 148 N. Y. 270, 42 N. E. 673, and other cases there referred to. The parties before the court are so numerous, and their claims so conflicting, that it will be more convenient, and tend to a clearer understanding of the case, if we group the parties together by classes, as we may, since several of the appeals depend upon the same questions:

1. The appeals of Tobias Lesser, Bernhard Moses, and Mrs. Marcus present the same questions. The trial court found that the judgments confessed to each of these parties, and the transfers to them, were made by the debtor firm for a fraudulent purpose, and that they participated in the fraudulent intent. The court below on appeal unanimously affirmed this part of the judgment, and the only ground upon which it is questioned here by the learned counsel for these particular creditors is that the finding that they participated in this fraud is without any evidence to sustain it. There are two conclusive answers to this contention: In the first place, the unanimous decision below applies to the finding of fraud on the part of the creditors as well as the debtors, and hence is conclusive in this court on the question. But, even if this were otherwise, the doctrine of Galle v. Tode would have no application. The court referred in that case to creditors pressing their claims and procuring judgments in the usual way,-either by regular suit or confession. But here the creditors took no affirmative or independent action to collect their claims. They simply accepted the advantage which the fraudulent debtor voluntarily gave them for his own purposes, and as part of the fraudulent scheme. They put themselves under his protection and into his hands. They allowed the fraudulent debtor to representthem in procuring the judgments, and his fraudulent purpose was properly imputed to them.

2. With respect to the appeal of the receivers appointed in the action brought by one of the fraudulent debtors against the other two after the fraudulent preferences were made to dissolve the partnership and distribute the assets, the courts below are agreed that the suit or the receivership was not in good faith, but part of the fraudulent scheme to obstruct, hinder, delay, or defraud creditors; that the receivers were appointed upon false and fraudulent statements made to the court, and the material facts bearing on the application were suppressed. That the court below had the power to modify the judgment as to them in the manner that it did, cannot very well be questioned. The refusal of the court below to recognize receivers, who are the product of such a fraudulent contrivance, as officers of the court and trustees for creditors, was not a legal error. Though they may have been personally innocent of any participation in the fraud, yet their authority was tainted with the vice that pervades the whole transaction. The judgment appointing them having been virtually set aside for fraud, they have no legal right to demand that they be permitted to survive the destruction of the authority creating them.

3. The learned trial court found that the transfers to Adler and...