
    Manning et al. v. Beck et al.
    
    
      (Supreme Court, General Term, Fifth Department.
    
    October 19, 1889.)
    Assignment for Benefit of Creditors—Preferences.
    An insolvent debtor gave a bill of sale of his stock of goods, worth 811,000, to his son, a large part of the consideration being an alleged existing indebtedness. The residue of the debtor’s estate was inventoried at $3,000. On the day after the execution of the bill of sale the debtor executed a general assignment for benefit of creditors. Held, an attempt to create a preference, and that the assignment would be set aside at the suit of a creditor.
    Appeal from special term, Monroe county.
    Action by George G. Manning and others against Lewis P. Beck and others, to set aside an assignment as in fraud of creditors. There was an order granting an injunction, and continuing the stay theretofore previously made in an order to show cause why the injunction should not be granted; also an order for the appointment of a receiver, and directing defendants to turn over certain property to such receiver, and to account to him therefor; and defendants appeal.
    Argued before Barker, P. J„ and Dwight and Macomber, JJ.
    
      H. H. Woodward, for appellants. E. E. Wellington, for respondents.
   Macomber, J.

The object of this action is to set aside the general assignment for the benefit of creditors made by the defendant Lewis P. Beck to the defendant H. Israel Weinberg. On the 3d day of January, 1889, the defendant Lewis P. Beck, by a bill of sale, transferred all of the stock of goods and fixtures in his store, consisting of a general assortment of boots and shoes, to the defendant William H. Beck, who is his son, for the expressed consideration of $11,977.32, being supposed to represent 90 per cent, of the inventoried value of the stock, and 70 per cent, of the cost of the fixtures. Payment was made as follows: $5,754.85 by the satisfaction of an alleged indebtedness owing by Lewis P. Beck to his son, William: $743.63 by William’s assuming the back rent of the store, which was owing by Lewis P. Beck to the defendant Weinberg; $855.10 by William’s like assumption of three outstanding notes made by his father, Lewis P. Beck, and indorsed by himself; $118.23 in cash; and the residue of such purchase price was represented by, and included in, 12 promissory notes made by William, varying in amounts, and differing in times of payment. These 12 notes correspond exactly with 12 other promissory notes then outstanding, owing by Lewis P. Beck, as maker, and were so drawn, with one or two exceptions, that they should mature at the same time that the note for which it was given should mature. These notes were severally transferred to the holders of the antecedent notes. One day thereafter, namely, on the 4th day of January, 1889, the above transaction being supposed to have been completed, the defendant Lewis P. Beck executed and delivered to H. Israel Weinberg the general assignment for the benefit of creditors already mentioned, which was recorded on the following day. The defendants, and each of them, so far as disclosed by the affidavits, stand upon the legality of the original sale by the father to the son, and claim that there still remains for distribution among the creditors no more than was actually received by the assignee, which is an amount that will scarcely pay the expenses of administering upon the estate, though the same is stated in the inventory to be of the value of about $3,000.

From the relations existing between Lewis P. Beck and his son, William, it is quite true that each knew substantially the financial condition of the other. On the 31st of October, 1888, the father had executed to his son a chattel mortgage to secure an alleged indebtedness then existing in the form of notes, which mortgage contained a provision that the mortgagor might sell for cash, as agent of the mortgagee, and pay the proceeds to the latter, to be applied upon outstanding notes. A subsequent mortgage was given on the 3d day of December, 1888. Neither of these chattel mortgages was filed, and the same, so far as the affidavits show, remained a matter of personal confidence between the parties thereto. An attempt seems to have been made to give the possession of this property into the hands of William under these mortgages, but the same was ineffective, because the mortgagor still made sales of the stock in trade, bought new stock, and handled the same substantially as he had theretofore done; though in form, but not in substance, the proceeds of such sales were turned over to the mortgagee, William,- and the same were ostensibly reloaned to the father from day to day to enable him to carry on the business. The answer of the defendant Lewis P. Beck alleges that on the 31st day of December, 1888, William surrendered to him the store, and kept no further account of sales or of moneys received there on any account, and that the said chattel mortgages were canceled. During the time that William was nominally in possession of the store and property, Lewis P. Beck purchased on credit goods to the amount of $2,931.84, of which $1,442 thereof was purchased from the plaintiff, the sellers having no knowledge of the existence of the chattel mortgages, or of the relation of William thereto. Though the assignment for the benefit of creditors is without preferences in name, the assignor did, by the above transaction, effect a preference, which is contrary to the act of 1887, (chapter 503, Laws 1887.) The bill of sale by which the son, William, was enabled to take substantially all of the property of the debtor, must be deemed to be a part of a general scheme of the assignor to give an unlawful preference to his son. The execution of this bill of sale, followed so closely by the formal act of executing an assignment for the benefit of creditors, must be regarded as an attempt on the part of the debtor so to place his property that none of the creditors other than the favored ones should share in the same. That this was an attempted mode of eluding the laws is corroborated by the fact that the assignee himself stands in the relation of a preferred creditor, inasmuch as he was the recipient of a payment of the indebtedness due him for rent before the execution and acceptance by him of the assignment. Under these circumstances it would not be supposable that he would be solicitous to, or that he would in fact bring an action to, set aside any of these acts of his assignor upon the ground that they were a fraud upon the assignment.

The counsel have argued that there is no fraud in the assignment, but that whatever acts are justly complained of were those of the debtor preceding the assignment, and that these may be set aside and declared of no effect by suitable action in equity. It is true that when there is fraud upon an honest assignment, by prior fraudulent transfers of property by the assignor, or by a subsequent withholding of property from the assignee, a remedy "is given to the assignee which may avoid the fraudulent acts, and secure all the property of the assignor for distribution under the assignment. Loos v. Wilkinson, 110 N. Y. 210, 18 N. E. Rep. 99. This principle, however, does not prevent a creditor from attacking the assignment itself, where it was made by the assignor with a fraudulent intent, whether such intent be disclosed by the contents of the assignment itself or by contemporaneous acts. A voluntary surrender, by an insolvent debtor, of dominion over his entire estate, as was substantially done in this instance, and the transfer of the whole, or substantially the whole, of his property to a portion only of his creditors, in order to give them a preference over others, whether made by one instrument or more, whatever form the same may take, when such transfer operates as an unlawful preference in fact, the assignment itself may be assailed by a creditor, and the same set aside as a fraud upon the act. White v. Cotzhausen, 129 U. S. 329, 9 Sup. Ct. Rep. 309, where the language of the court by Mr. Justice Harlan (129 U. S. 336, 9 Sup. Ct. Rep. 310) is peculiarly applicable to the facts disclosed in this case: “After he had executed the conveyances, bill of sale, warrant of attorney, and transfers, to which reference has been made, he was left without anything that could be reached. * * * So completely was he stripped by this transaction of all property, that consequently, when his deposition was taken, he admitted that he owned nothing except the clothing he wore. He recognized his hopelessly insolvent condition, and formed the purpose of yielding to creditors the dominion of his entire estate; and it is too plain to admit of dispute that in executing to his mother, sisters, and brother the conveyances, bill of sale, warrant of attorney, and transfers in question, his intention was to give them, and their intention was to obtain, a preference over all other creditors. What was done was in execution of a scheme for the appropriation of his entire estate by his family to the exclusion of other creditors.”

The order appealed from should be affirmed, with $10 costs and disbursements. All concur.  