
    The Central National Bank et al., Resp’ts, v. Sigmund J. Seligman et al., App’lts.
    
      (Supreme Court, General Term, First Department,
    
    
      Filed June 3, 1892.)
    
    1. Assignment for creditors—Judgments—Preferences.
    An insolvent firm made an assignment for creditors and allowed judgments to be taken against them on the same day for more than one-third, of their assets. The assignment and judgments were filed almost simultaneously, and under executions issued on such judgments almost all the-assets were taken and sold. The assignment was void on its face and was so treated. Held, that the judgments were a part of the scheme the effect, of which was to create forbidden preferences, and were fraudulent and void.
    2 Same.
    Creditors holding bona fide debts who secure illegal and fraudulent preferences are not entitled to any benefit by reason thereof, and where the preferences consist of judgments or an assigned account the moneys realized thereunder cannot be retained by them.
    3 Same—Creditor’s action—Parties.
    Where the plaintiffs have produced in evidence a decree made in a former action brought by them upen certain of the judgments included in this action setting aside the assignment and appointing a receiver, an objection that plaintiffs have no standing to maintain the action, but that the receiver was the proper paity, may be raised for the first time on appeal, although not taken by answer, and the decree modified by dismissing the-complaint as to those judgments.
    Appeal from a judgment of the special term.
    
      A. J. Dittenhoefer, for app’lts; Blumenstiel & Hirsch and Vanderpoel, Cuming & Goodwin, for resp’ts.
   O’Brien, J.

—Certain of the defendants composing the firm of Seligman Bros. & Co. made a general assignment on the 2d day of July, 1888. Thereafter the plaintiffs, judgment creditors, commenced this action to set aside two judgments recovered "by the •defendants, Hertz and Moses, respectively, and also an assignment •of book accounts made to the defendants Sonneborn, upon the ground that they constitute preferences exceeding one-third of the assignor’s estate, in violation of chapter 503 of the Laws of 1887. The judgment demanded is that these so called preferred ■creditors pay over to the plaintiffs the sums they have collected. From the judgment rendered in. favor of plaintiffs this appeal is taken. The general assignment, each of the judgments, and the transfer of accounts, were created on the same day, July 2d; these various documents being drawn in the office of the counsel ■for the debtors.

As indicative of the intent of the parties, evidence was offered '.to show that the demand notes, upon which the judgments are based, were given so as to authorize suit in lieu of other notes outstanding in the hands of creditors, none of which would mature until long after July 2d. The assignment and judgments were all filed within five minutes of each other, though appellant laid special stress upon the fact, it is true, that the judgments were not docketed until after the assignment was made and filed.

Under the executions immediately thereafter issued a levy was made by the sheriff, and subsequently upon- the latter being indemnified, nearly all of the assigned estate was taken and sold, except the account assigned to Sonneborn, and about $4,900 realized by the assignee. It is thus made to appear that although •over $30,000 was realized out of the assets of the insolvent firm by the creditors preferred, there came into the hands of a receiver, out of the $4,900 received by the assignee, a net surplus, after providing for expenditures, of about $544.81.

Although some question is made as to the total value of the debtor’s property at the time of the assignment, and as to whether or not the preference exceeded one-third of the assets, the finding of the learned trial judge we think is amply supported not only by the figures already given, but by the fact that the actual value of all the property, as scheduled, was but $35,621, while the liabilities, actual and contingent, were over $300,000, and, as we have already seen, the amount actually realized was less than the scheduled value of the property.

It is not necessary for us to go over in detail the evidence which warrants the conclusion reached by the trial court, that the judgments, executions, transfers of accounts and the former assignment, constituted together the general assignment which was made on July 2d. They were all executed and carried into effect simultaneously, and the result was to dispose of all the property of the insolvent debtors to three or four preferred creditors, who were thus given not only more than one-third, but practically the entire assets of the insolvent firm.

As. we have already stated, much emphasis has been placed upon the fact that they were entered after the assignment, and evidence was presented tending to show that the assignors refused “to allow these judgments to be entered before the assignment, or to give any preference by judgment.” Expressions however of this character, on the part of the assignors, cannot destroy the force and effect of their actions. The question presented was-whether or not all these transaction, were part of one scheme, the effect of which was to create forbidden preferences. If so, under the authorities the assignments and the judgment must be held to be fraudulent and void.

It is immaterial, as held in many cases, into how many parts the performance or execution of the scheme may be broken.

As said in White v. Cotzhausen, 129 U. S., 329, the law will regard all acts having for their object and effect the disposition of the estate as parts of a single transaction. It can, therefore, make no difference whether the judgments precede or follow the assignment,-if they are part of the single plan or scheme to give unlawful preferences. It is conceded that the general assignment was void on its face, and upon the entry of judgment the preferred judgment creditors, as well as all the others, treated it as absolutely void, and proceeded to enforce their claims as though no assignment had been made. As said in the case of the First National Bank v. Bard, 32 St. Rep., 1010: The single circumstance that a judgment was confessed at or about the same time the debtor executes a general assignment does not of itself, standing alone, and irrespective of other facts connected with the transaction, necessarily require the conclusion that the confessed judgment is a part of the assignment.

Here, also, the fact that the judgments were allowed to be taken on the same day, to be entered after the assignment, standing alone so far as any presumption or inference of fraud to be drawn therefrom, would not be as strong in favor of attacking creditors as judgments upon which levies were made on the same day but which were docketed prior to the assignment. The effect of the judgments is, however, to be considered with all other circumstances, for the purpose of determining the intent of the parties; and where the manner in which the judgments are allowed, andXsubsequently enforced, is inconsistent with any other view than that they were part of the scheme to give an unlawful preference, the fact of whether such judgments were entered prior or subsequent to the assignment must be immaterial. It becomes, therefore, simply a question as to whether the evidence justified the conclusions of the learned trial judge, and upon a review thereof we find no ground which would justify the setting aside of the conclusions reached, that the judgments, transfers of accounts, and general assignment were all part and parcel of one transaction or scheme, and that the defendant creditors, knew that the assignment was contemplated, thus participating in the fraud.

The law as to the effect upon the judgment has already been settled by this court, upon the second appeal in the case of the First National Bank v. Bard, 59 Hun, 529; 37 St. Rep., 275. Excepting the fact of the judgments being entered subsequent, instead of, as in that case, prior to the assignment, the facts in the two cases are very similar. The learned trial judge was therefore-right in holding, upon the findings and conclusions made, that the assignment and judgments were fraudulent and void. This brings us, however,, to the question which was expressly reserved in the Bard case, as to what results follow in respect to tire preferred creditors’ liability to account to the plaintiff in a creditor’s action such as this for the amount received by them respectively under their judgments. Here, therefore, the question is squarely presented as to whether or not the plaintiff can compel the defendants to account for such sums received under their judgments. Upon the part of the appellants it is contended that an action will not lie by one creditor to compel another creditor to pay over to him moneys received by the latter in payment of a bona fide debt, even if they are the proceeds of an unlawful preference under a general assignment. As authority for this proposition, reference is made to the case of Knower et al. v. Central National Bank, 124 N. Y., 552; 37 St. Rep., 89, and the Leather Manufacturers' Bank v. Halstead, 124 N. Y., 674; 37 St. Rep., 964. These cases are undoubted authority for the doctrine that payment by an assignee to a preferred creditor, * * * of a debt honestly due him, pursuant to the directions in the assignment, before any lien has been obtained upon the fund, is effectual to vest title in" such creditor to the money so paid, although the assignment, in an action subsequently commenced, is adjudged fraudulent and void as against creditors.

We do not, however, regard these cases as being in point. A vast difference in principle exists between a case of an honest creditor, who, in payment of an honest debt, receives from an assignee, pursuant to directions in an assignment, the amount of a preferred claim before the lien of another creditor has attached thereto, and the case of a creditor who has obtained payment of his debt by means of a fraudulent scheme upon the part of the assignor to give a preference which is prohibited by the statute. The latter case, which is the one here presented, in principle more closely resembles the cases of Berger v. Varrelmann, 127 N. Y., 281; 38 St. Rep., 813, and Manning v. Beck, 129 N. Y., 1; 41 St. Rep., 199.

The former (Berger v. Varrelmann) was a suit in aid of the assignment, and in that respect is to be distinguished from the one here brought, which is a creditor’s action to reach the property for the benefit of the plaintiff. It was therein held that the provision of the act of 1887, limiting the amount of preference, * * * is not confined to preferences in the assignment itself, but applies to those created by a separate instrument, in contemplation of the .assignment; it includes all instrumentalities which the insolvent debtor, in contemplation of a general assignment, voluntarily employs to give a preference, and it seems the want of knowledge on the part of a creditor, so preferred, that an assignment was contemplated will not avail to validate the preference.

In that case, as in this, the question was also presented as to whether or not the preference-should be scaled down to one-third, so as to conform to the statute, or whether the preferred creditors were obliged to turn over the entire amount realized. Though here was a strong dissent, the opinion of the court was against the right of the preferred creditors, under circumstances where the judgments were set aside, to retain the proceeds of any preference even to the extent of an amount not exceeding one-third of the estate of the assignors.

Manning v. Beck, supra, was, like this, a creditor’s action to reach the property for the benefit of the plaintiffs, and though the judgment in favor of the plaintiffs was reversed because there was no finding that the bill of sale attacked was executed in contemplation of making an assignment, the reasoning of the court would seemingly lead to the conclusion, and is therefore a strong argument in favor of plaintiff’s view, that the effect of a determination that judgments are fraudulent and void is to deprive the creditors so fraudulently preferred of any benefit which they may have derived under such judgment.

We are of opinion, therefore, that creditors holding bona fide debts, who secured illegal and fraudulent preferences, are not entitled to any benefit by reason thereof, and that where, as in this case, the preferences consist of judgments or an assigned account, that moneys realized thereunder cannot .be retained by them. This, however, brings us to what may be regarded as the most serious question in the case. The assignment having been set aside in a prior action, instituted by these same plaintiffs, and a receiver appointed, the question is presented whether or not the title to all of the debtor’s property did not pass to such receiver, and to him .alone, and as to whether the plaintiffs here have any standing to recover from the defendants judgment creditors, the moneys they received.

It is insisted by respondents that this objection is not available for the reason that it is not set up in the answer, nor in any defense interposed, that the receiver is a necessary party. It must be remembered, however, that this objection is not simply that the proceedings are irregular, but that the plaintiffs have failed to ■establish a cause of action, and have by the introduction of the decree appointing the receiver shown that they have no standing in court. While, therefore, this objection is not taken by the answer, the question still remains whether this failure to set up that the right of action exists in another person operates to make the defendant liable to an improper plaintiff, or to give to such plaintiff the cause of action that exists in favor of another.

We are of opinion that, whereas, in this case a decree was offered by the plaintiff and admitted in evidence showing that, with respect, to certain of the judgments, which are included with others and made the basis of this action, such judgments were in a former action also used for the purpose of setting aside the general assignment, which resulted favorably to the plaintiff and in which action a receiver was appointed, such judgments are not again .available in another action. And though the objection is'not taken by answer, it may be raised for the first time upon appeal, it being clear that the objection, even though attention had been called to it upon the trial, could not have been obviated.

In this connection it should be remembered that the complaint did not allege the former decree, nor did it contain any reference to the former action; and, therefore, there was nothing in reference thereto which could have been denied by the answer. Where, therefore, as here, in an equity action, during the progress of the trial facts are presented to the court showing that the plaintiff has no standing in court, or that the right which he seeks to enforce is one that exists in favor of another person, it becomes the duty of the court to dismiss the complaint; and where this is not done, such an objection is available upon appeal where it is shown that it could not have been oviated by other proof.

The rule as laid down in Passavant v. Bowdoin, 39 St. Rep., 238, is thus stated:

“If the plaintiffs have such a judgment (a prior judgment setting aside the assignment), then they cannot bring this action based upon the same judgments which form the basis of that decree to again have the assignment set aside; and, so far as their complaint is concerned, seeking to get a decree setting aside this assignment upon its face establishes no cause of action, it appearing that they have thereby obtained such relief on behalf of the very judgments upon which this action was based. It further appears that for the protection of this very judgment in the action in which the decree was entered declaring this assignment to be null and void they have had a receiver appointed of all the assigned estate. Our attention has not been called to any principle by which a judgment creditor, after having set aside an assignment upon the ground of fraud, can maintain an action as such judgment creditor for the purpose of collecting the assets belonging to the estate, a receiver thereof on behalf of such judgment creditor having been appointed.”

The application of this rule to the facts here presented will require that the judgment appealed from should be modified by omitting the judgments which were included in the former action,, and which the decree identifies as follows:

The judgments entered in favor of the Central National Bank on July 31st for $4,154 and $4,255 respectively, and on August. 3d for $4,330.01, in addition to all the judgments in favor of Vietor and Achelis, which are three in number, and are set forth in the complaint and decree herein. The decree as modified should require that as to all of these judgments enumerated the complaint should be dismissed.

So far, however, as the other judgments included in the complaint are concerned, and which were not included in the former action, the plaintiffs being entitled to relief herein, the decree should be affirmed.

In one other respect we are also of opinion that the decree should be modified, and that has reference to the selection of a new receiver.

It is evident that by reason of the way in which the matter was presented, no attention having been particularly called to the proceedings in the former action, in which a receiver was appointed,, the learned trial judge felt at liberty to designate another receiver. The effect, however, of the existence of two receivers of the property of the same defendants would result in confusion and possibly litigation to determine their respective rights to the fund which under the decree is required to be paid over by the defendants. Under such circumstances the receiver first appointed, unless he has been discharged, should have possession of the property. Our conclusion therefore is that the judgment should be modified as directed, and as so modified should be affirmed, without costs.

Van Brunt, P. J., and Patterson, J., concur.  