
    Stein et al. v. Levy.
    
      (Supreme Court, General Term, First Department
    
    January 24, 1890.)
    1. Attachment—Affidavit—Fraud.
    An affidavit for attachment on the ground that defendant disposed of his property with intent to hinder and defraud his creditors alleged that defendant, for the purpose of obtaining credit from plaintiff, represented that he was perfectly solvent; that plaintiff was his largest creditor; and that all he owed besides amounted to $3,000,—when in fact he had made and delivered to his son his note for 86,400, on which he afterwards caused action to be brought and judgment to be entered by confession, and execution thereon to be levied on all of his property, which was part of a scheme of defendant to dispose of his property with intent to defraud his creditors. Meld, that the affidavit was fatally defective, as stating conclusions and inferences based on surmise, without alleging facts to justify them.
    2. Assignment for Benefit of Creditors—Preferences.
    Laws N. Y. 1887, c. 503, prohibiting preferences in general assignments to an extent exceeding one-third of the assignor’s estate, does not apply to entry of judgment by offer, unless such judgment is confessed as part of a scheme resulting in an assignment whereby the debtor’s property is devoted to preferred creditors.
    Daniels, J., dissenting.
    Appeal from special term, New York county.
    
      Herman Stein and another obtained an attachment against the property of ■ Julius A. Levy on the ground that defendant had disposed of his property with intent to cheat and defraud his, creditors. Defendant appeals from, an order denying motion to vacate warrant of attachment. See post, 934.
    Argued before Van Brunt, P. J., and Brady and Daniels, JJ.
    
      Mr. Greenbaum, for appellant. Benno Lowey, for respondents.
   Van Brunt, P. J.

Upon the affidavit of one of the plaintiffs showing a cause of action against the defendant for damages because of alleged fraudulent representations made by the defendant at the time of the sale of certain goods, wares, and merchandise upon credit, an attachment was issued against the property of the defendant upon the ground 'that the defendant had disposed of his property with intent to cheat and defraud his creditors. A motion having been made upon the papers upon which the attachment was granted to vacate the same, such motion was denied; and from the order thereupon entered this appeal is taken.

A good cause of action was set out in the affidavit; and the only question presented upon this appeal is whether there were any facts stated in the affidavit which justified the justice who issued the attachment in concluding that the defendant had disposed of his property with intent to cheat and defraud his creditors. The affidavit in question alleged certain representations made by the defendant as to his financial standing at the time he obtained the credit for the goods in question, and that, relying upon such representations, the plaintiff sold and delivered to the defendant such goods upon credits that had not then expired. Among the representations made by the defendant alleged in the affidavit were that he was perfectly solvent; that the plaintiffs were his largest creditors; and that, outside of the moneys due and owing to them, he owed only to the amount of one or two thousand dollars, and solely for merchandise. These representations, it is claimed, were false, because, at the time they were made, the defendant had made .and delivered to one Charles F. Levy, his son, a promissory note for $6,400, which note the defendant at the time knew he could not pay, and which was not made for goods sold and delivered. The affidavit further states that the defendant, having concealed the fact of his alleged indebtedness to his son Charles F. Levy, as aforesaid, from the plaintiffs, on or about the 11th of October, 1889, permitted and caused the said Charles F Levy to commence an action in this court upon said note and indebtedness, and thereafter, for the purpose of expediting judgment in said action, offered judgment in the sum of $6,000, which offer was accepted, and judgment was thereon entered in favor of said Charles F. Levy against the defendant for the sum of $6,017.90, and that an execution was issued-upon said judgment, and the sheriff thereupon levied upon the whole of the stock in trade and fixtures of the defendant under the said execution. The affidavit contains the further averment that this concealment of the promissory note, and the levy upon the execution, was part of a scheme on the part of the defendant to dispose of his property .with intent to cheat and defraud his creditors, especially these plaintiffs. It is apparent upon the face of the affidavits that most of the allegations in regard to the fraud connected with the entry of the judgment are mere surmises upon the part of the atiiant, and there is no evidence whatever to support the same. There is nothing from which we may infer that the holder of the promissory note, in the proceedings which he took, did anything more than that which the law allows, in endeavoring to secure the payment of the just claim which he had against the defendant. And the question thus presented is whether the offer to allow judgment upon the part of the defendant in the action brought by Charles F. Levy to secure the payment of the indebtedness due to him is such a fraud upon the creditors of the defendant as to warrant the issuing of an attach-merit upon the ground that such offer resulted in a disposition of the property of the defendant with intent to defraud his creditors. It is clear that, in pursuing the remedies which the law affords to both creditors and debtors for the entry of judgment, no inference of fraud or corrupt intent can obtain. If the defendant was indebted to Charles F. Levy,—which must be conceded, or otherwise no cause of action is set out in the affidavits,—the latter had a right to commence his action, and the defendant had a right to offer to allow judgment, in order that Charles F. Levy might secure a preference over other creditors by the levy of his execution. It is urged upon the part of the respondent that the fact that the defendant permitted the plaintiff’s charge of fraud to go uncontradicted and unexplained, while, in his affidavit used in support of his motion, he had full opportunity for explanation, should induce the court to indulge in every inference unfavorable to his case, and in view of that fact the charges must be considered fully proved. It will be perceived, upon an examination of the affidavit upon the part of the defendant, that it was the mere formal affidavit to entitle the party to obtain an order to show, rather than to suffer the delay attendant upon the making of a motion, and that the application to vacate the attachment was made upon the plaintiffs’ affidavit alone, there being no attempt on the part of the defendant to introduce any evidence as to the merits of this application. Under these circumstances, fraud is not to be presumed. Fraud must be proven; and the allegations contained in the plaintiffs’ affidavit, upon which the attachment was granted, in no way show any fraud, or anything further than an attempt upon the part of a creditor of the defendant to obtain that priority which the law entitles him to seek.

It is, however, suggested that, the whole of the stock of the defendant having been levied by virtue of the execution, such seizure in favor of one of the creditors of the defendant, brought about with his consent, is opposed to the policy created by chapter 503 of the Laws of 1887, and that by that act the right of an insolvent debtor to prefer one creditor, or class of creditors, to others, has been restricted to one-third of his estate, and that the provision then made was enacted to prevent abuses of this description which had so frequently arisen in the disposition of estates of insolvent debtors. By that act it is provided that in all general assignments of the estates of debtors for the benefit of creditors any preferences created therein, other than for wages or salaries, shall not be valid, except to the amount of one-third of the assigned estate, after deducting such wages or salaries, and the costs and expenses of executing such trusts; and, should said one-third be insufficient to pay in full the preferred claims to which, under the provisions of the section, the same are applicable, then said assets are to be applied to the payment of the same pro rata to the amount of each of said preferred claims. It will be seen that the act relates entirely to general assignments. It provides that, in all general assignments, any preferences therein created shall not be valid, except to the amount of one-third in value of the assigned estate, etc. The. fact of an excess of preference in no way affects the validity of the assignment. It only requires that the preferences shall be reduced pro rata until the same shall not exceed one-tliird of the assigned estate. If the policy of the law, as therein declared, should be held to apply to the judgment in question, it clearly would not render the judgment totally void, because the law in no case makes any preference inoperative, except so far as it exceeds one-third of the estate. Sow, there is no way in which it is possible to ascertain, in the case of a judgment and execution, as to what one-third of the estate would be; and, as a consequence, it seems to be clear that the provisions of the act in question can have no application to the case of a judgment, and an execution levied thereunder. The provisions of the law in reference to remedies of that description remain unaltered and unabridged; and it seems to us that it would be a violent assumption to hold that, because of the provisions of this act in reference to general assignments, the provisions of the law in regard to the entry of judgment by offer should substantially be repealed, and that which the law had hitherto permitted to be done in that respect should be held to become fraudulent acts, when, by the provisions of the act itself, if there is such an excess of preference in an assignment, it in no manner makes such assignment fraudulent and void as against creditors. It is said in the opinion of Mr. Justice Daniels, handed down herewith, that this general term has already decided, in a case not yet reported, the proposition that a debtor will not be allowed to evade or avoid this policy by confession of judgments, or the allowance of judgments to be taken against him in this manner. We think that the learned judge is mistaken in reference to the scope of the decision in the case referred to. It was held in that case that judgments which were confessed as part and parcel of a scheme resulting'in an assignment, whereby all the debtor’s property was devoted to the payment of preferred creditors, should not be allowed to stand, as the assignment and confession of judgment must necessarily be considered together, they having been part and parcel of a single scheme, and were plain violations of the law in question. But where no assignment has been made, where the confessions of judgment are not a part and parcel of a scheme in reference to ah assignment, we cannot see that the act in question has made any change in the rights which both the debtor and his creditor have in reference to the entry of judgment to secure the payment of the creditor’s claim. The law permits a creditor to sue, and the debtor to offer to allow judgment to be taken against him, and thus secure judgment without the delay incident to the ordinary procedure. Therefore, from the mere fact of a debtor’s permitting the creditor to obtain this preference which the law recognizes, no presumption against him is to arise. We think, therefore, that there was no ground for the issuing of the attachment in question, and that the motion to vacate the same should have been granted. The order appealed from should be reversed, with $10 costs and disbursements, and the attachment vacated.

Brady, J., concurs.

Daniels, J.,

(dissenting.) The attachment states the grounds upon which it was issued to be that the action was for damages for fraudulently obtaining and converting merchandise, and for the disposition by the defendant of his property with intent to cheat and defraud his creditors. In support of these facts, it was stated in the affidavit made by one of the plaintiffs that they had a good cause of action against the defendant for damages for a fraud, and for fraudulently obtaining and converting the goods, wares, and merchandise of the plaintiffs. The affidavit then proceeded to state that the defendant applied to the plaintiffs for the purchase of a quantity of tobacco. He had previously been a purchaser from the Arm, but at this time desired to increase his purchase to so large a5 extent that a statement was required of him of his financial condition. Such a statement was made by the defendant; and in the statement made he is sworn to have represented to the plaintiffs “that he was perfectly solvent; that the plaintiffs herein were his largest creditors; that, outside of the moneys due and owing them, he owed only to the amount of one or two thousand dollars, and solely for merchandise; and that they might well trust him, since his business was prosperous and increasing so that he needed those goods for sale.” The affidavit then proceeded to state that the plaintiff relied upon this statement, and sold and delivered to the defendant goods, wares, and merchandise of the value and at the price of $2,828.27, upon a credit ranging from five to nine months. This sale took place in the month of May, 1889, and no payment upon the purchase price of the goods was made by the defendant. The affidavit then proceeded to state that the defendant received the goods, and disposed of them, with the intent to cheat and defraud the plaintiffs, and that when he received them he did not intend to pay for them. It is then added that the statements made by him concerning his financial condition were false and untrue, in the, fact that he was not at the time solvent, and that the plaintiffs were not his largest creditors, but that at the time when he made the statements he had made and delivered to his son a promissory note for the sum of $6,430, payable in four months from its date, which was the 8th of April, 1889, and that the defendant knew at the time when his representations were made that his statements were false and untrue, and designed to cheat and defraud the plaintiffs. This was sufficient to establish a cause of action upon which an attachment, under the provisions of the Code, might be issued against his property; for it is provided by subdivisions 2 and 3 of section 635 that an attachment may be issued when the action has been brought for damages for the wrongful conversion of personal property, or for any other injury to such property, in consequence of negligence, fraud, or other wrongful act. And obtaining property, in the form of a sale and purchase by one person from another, by means of fraudulent representations, has been held to be such an injury to personal property as will present a case within the language of these subdivisions. Bogart v. Dart, 25 Hun, 395; Whitney v. Hirsch, 39 Hun, 325; Paper Co. v. Searing, 47 Hun, 237. And the case of Fleitman v. Sickle, 13 N. Y St. Rep. 399, is not in the slightest respect in conflict with this construction of these subdivisions- of the section; for there the attachment was issued to recover an indebtedness for goods sold and delivered, and upon the sole other ground that the defendant had assigned, disposed of, or secreted his property with intent to defraud his creditors. The same observation is also applicable to Kibbe v. Herman, 3 N. Y. Supp. 852; for this last case in no manner brought into controversy these provisions of the Code, neither was anything stated or decided in the case which would prevent an attachment issuing for the cause of action mentioned and set forth in the affidavit in this action. What it established was that the defendant, by means of false and fraudulent representations, had, in the form of a purchase, obtained the property of the plaintiff for the price, and amounting to the value, mentioned in the affidavit, and that the representations inducing the sale of the property to him in this manner were at the time and must have been known to him to have been false when he made them. The cause of action was therefore sufficiently set forth to answer all the requirements prescribed by the law to entitle the plaintiffs to an attachment.

The only other or further requirement is that contained in section 636 of the Code of Civil Procedure; and that has provided, to entitle the party to an attachment in addition to the cause of action, that it shall be made to appear, either that the defendant is not a resident of the state, or that he has departed from the state with intent to defraud his creditors, or to avoid the service of a summons, or keeps himself concealed in the state with the like intent, or that he had removed, or is about to remove, from the state with intent to defraud his creditors, or has assigned, disposed of, or secreted, or is about to assign, dispose of, or secrete, his property with the like intent. And, to bring this case within this provision of the Code, and establish the fact that the defendant had assigned or disposed of his property with intent to defraud his creditors, it was further shown by the affidavit that an action had been commenced and judgment recovered against him, by his son, upon the note which has been mentioned.

This action was commenced on or about the 11th of October, 1889; and on the!4th of the month an offer was made to allow the plaintiff in the action to take judgment against the defendant for the sum of $6,000, with costs. This offer was on the same day accepted by the plaintiff in that action; and judgment was thereupon, and on the same day, entered against the defendant, as that was mentioned in the offer which was served. An execution is stated in the affidavit to have been at once issued upon this judgment, and a levy under the execution was made on the same day “upon the whole of the stock in trade and fixtures of the defendant” which were still held for the purpose of satisfying the judgment. This levy is stated to have been made upon the property with the intention to dispose of'it, and with intent to cheat and defraud the other creditors, and especially the plaintiffs. And it is then added that, by reason of the levy, substantially all the property of the defendant, including part of the merchandise from the plaintiffs, had come into the possession of the sheriff, for the purpose of being applied upon the judgment. These proceedings indicate a decided probability that the plaintiff who made the affidavit upon which the attachment has been issued was right in his conclusion that the intention actuating the proceedings in the action in favor of the defendant’s son was really to seize and appropriate his property, and prevent other creditors from resorting to it for the satisfaction of debts owing by the defendant to them. It is to be inferred from the affidavit that substantially all the property which the defendant had was .seized and appropriated by the execution in this manner. And such a seizure in favor of one of the creditors of the insolvent debtor, brought about with his assent, is opposed to the policy created by chapter 503 of the Laws of 1887; for by that act the right of an insolvent debtor to prefer one creditor or class of creditors to others to whom he may be indebted has been restricted to one-tliird of his estate. The provision then made was enacted to prevent abuses of this description, which had so frequently arisen in the disposition of estates of insolvent debtors; and it was deemed necessary by the legislature to check and restrain it to such an extent that after the enactment of this statute no more than one-third of the property of the debtor should be disposed of by way of preference in favor of any of his creditors, after payment of the amounts that may be due from him for wages and salaries to persons in his employment. Thepolicy of the act is entirely clear; and that is to take away from the insolvent debtor the power, previously possessed by him, of appropriating all liis property to the payment of favored creditors, and allowing the others no means whatever for the payment of any part of the debts owing to them. It is true that the defendant has not made an assignment, within the language of this act; but the policy of the act is to prevent him from making a preference in favor of his creditors beyond the one-third mentioned therein. And that the debtor will not be allowed to evade or avoid this policy by the confession of judgments, or the allowance of judgments to be taken against him in this manner, has been held already in a case heard and decided by this general term, but not yet reported. This principle, under a statute still broader in its language and effect, came before the supreme court of the United States, for the consideration and construction of that tribunal, in White v. Cotzhausen, 129 U. S. 329, 9 Sup. Ct. Rep. 309. An attempt had there been made to evade the restraints of the statute by voluntary transfers of property by the insolvent debtor for the benefit of particularly specified and favored creditors. And they were held by the court to be illegal, and in contravention of the Spirit and policy of the act of the state of Illinois; and the principle was sanctioned that, no matter by what name the end is sought to be effected, it is in violation of the statute. “You may call it a mortgage, or you may make a confession of judgment, or use any other contrivance, by whatever name known, if the purpose is to dispose of an insolvent debtor’s estate, whereby a preference is to be effected, it is in violation of the statute.” 129 U. S. 344, 9 Sup. Ct. Rep. 313. And to dispose of the property pursuant to an intention to evade the language and effect of an act of this description is a fraud upon the other creditors of the insolvent debtor. He cannot, either direclly or indirectly, deprive them of the rights intended to be secured by this statute for the satisfaction, or partial satisfaction, of the debts owing to them; and to attempt to do so, whatever may be the form of the proceeding by which the object is to be accomplished or effected, is an evasion and fraud upon the law, and presents such a disposition of the debtor’s property as is forbidden by this section of the Code. That has prohibited him from assigning or disposing of his property with the intent to defraud his creditors. It was' a fraud upon the other creditors to permit his son, by his own participation and consent, to obtain judgment upon this note in the manner in which that was done, and to seize and appropriate substantially all the property of the defendant for the purpose of paying that judgment; and, if that should be permitted, or allowed to succeed, it would be a device by which the entire effect and policy of this statute could be evaded and defeated by a fraudulent and dishonest debtor. The law will permit the success of no such artifice, but will require the policy upon which the enactment of this statute has proceeded to be observed and maintained byinsolventdebtors. Theaffidavit upon which the attachment was issued was sufficient to sustain it, and the order denying the motion was right, and should be affirmed, with costs. 
      
       See Spellman v. Freedman, 7 N. Y. Supp. 693.
     
      
      See Spellman v. Freedman, 7 N. Y. Supp. 698.
     