
    Abraham Pines, Respondent, v. Waldemar Eitingon, as Trustee of the Estate of Samuel Weiner, Etc., Appellant.
    (Supreme Court, Appellate Term, First Department,
    May, 1914.)
    Insurance (fire) — actions on policies of — defense of fraud committed by insured — nullification of agreement ab initio.
    Where upon the destruction by fire of the goods of a certain firm its creditors, of which plaintiff was one for less than $500, entered into a trust and composition agreement by which defendant was to collect the assets, including the claims upon policies of fire insurance, and pay first the expenses of administration, wages, etc., next, creditors whose claims did not exceed $500 each, and lastly creditors whose individual claims exceeded $500 each, pro rata according to the amount of assets collected, a successful defense of suits on said policies of fire insurance because of fraud committed by the insured nullifies the agreement ab initio because of a clause therein that “in the event that suits shall be brought on the aforesaid fire insurance policies which shall be unsuccessful by reason of fraud or misrepresentations on the part of the parties of the first part, then this agreement and the trust thereby created shall be null and void,” and the class of small creditors is not entitled to any distribution of the assets.
    Appeal by defendant from a judgment of the Municipal Court of the city of New York, borough" of Manhattan, first district, in favor of plaintiff, entered after a trial upon an agreed state of facts by a judge without a jury.
    Rosenthal & Heermance, for appellant.
    Henry H. Silver, for respondent.
   Bijur, J.

This appeal raises only a question as to the construction of an instrument. Fire destroyed the goods of a certain firm. Plaintiff and others were creditors of said firm. All the creditors entered into an agreement appointing the defendant trustee to collect the assets of the firm, including the claims on the policies of fire insurance. The trustee was authorized to pay out of all the proceeds, first, the expenses of administration, wages, etc., next, creditors .who hold claims not exceeding $500 each, and third, creditors whose individual claims exceed $500 each, pro rata according to the amount of assets collected. Plaintiff is a creditor to the amount of less than $500'.. It is stipulated that the proceeds of the assets collected now in the hands of the trustee are sufficient to pay all the expenses of administration and all the creditors for less than $500 each, in full, and that suits have been instituted on the fire insurance policies but that said suits are being contested on the ground of fraud committed by the assured. This last-mentioned fact raises the question at issue.

The trust and composition agreement contains the following clause: In the event that suits shall be brought on the aforesaid fire insurance policies which shall be unsuccessful by reason of fraud or misrepresentations on the part of the parties of the first part, then this agreement and the trust thereby created shall •be null and void.”

It seems to me that the meaning of this clause is that a successful defense of the suit on the policies on the ground of the fraud of the assured nullifies the agreement ah initio, and that the class of small creditors is not entitled to any distribution of the assets until the suits as brought have resulted in a recovery. If that were not so, the clause would be without any meaning. If its only purpose were to defeat a distribution to the large creditors in the event of failure of recovery, it would be unnecessary to provide for the nullification of the agreement in that event, because the distribution to the large creditors would be, from the very nature of the case, substantially defeated in the event of failure of recovery on the policies, even though the agreement then remained in force.

Judgment reversed, with costs, and complaint dismissed, with costs.

Guy and Pendleton, JJ., concur.

Judgment reversed, with costs.  