
    William Lesser, as Trustee of the Estate of William F. Bang, Bankrupt, Respondent, v. Bradford Realty Company, Appellant.
    First Department,
    December 7, 1906.
    Bankruptcy — complaint to set. aside fraudulent transfer sustained — when action properly brought in equity.
    When a pleading is challenged as not stating facts sufficient to constitute a cause of action, all the facts stated will be held to be true, and it will be held to state all facts which can be implied from the allegations by reasonable and fanintendment.
    In an action by a trustee in bankruptcy to set aside a bill of sale and agreement by the bankrupt filleged to have been intended to operate as a mortgage and to give an unlaw-ful preference contrary to the Bankruptcy Law, an allegation that the hill of sale was intended to and did create a preference in favor of the defendant “and thereby gave.to it a greater percentage of its debt than that of any other creditor of the same class,” is a sufficient allegation that the “enforcement ”. of the'transfer will have that effect.
    It is not necessary to allege specifically that the transfer complained of is voidable'by the plaintiff as trustee when facts are set out showing that the transfer is voidable andjudgment is asked declaring it void.
    When facts are alleged showing the unlawful preference, the filing of the petition in bankruptcy, the adjudication of bankruptcy, the demand of the trustee .for possession of the property transferred and the defendant’s refusal to deliver it, the complaint sufficiently shows the trustee’s title to the property transferred.
    When i(¡ is alleged that said -bill of sale and agreement were not filed pursuant to the laws of the State of New York, etc., the allegation is sufficient to admit proof. that neither the original nor copy was filed as required by the statute regulating the filing of chattel mortgages.
    Such action by á trustee in bankruptcy is properly brought in equity when the complaint asks that the instrument and agreement in the form of the bill of sale be declared to be a mortgage.
    Whenever it is necessary in an action of this character to set aside a written instrument to enable the trustee to reclaim property unlawfully transferred, the action should be laid in equity and not at law.
    Appeal by the defendant, the Bradford Realty Company, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 11th day of January, 1906, upon the decision .of the court, rendered after a trial at the New York Special Term, overruling the defendant’s demurrer to the second amended complaint.
    
      George P. Fall, for the appellant.
    
      James F. MxcNaboe, for the respondent.
   McLaughlin, J.:

The defendant appeals from an interlocutory judgment overruling a demurrer to the complaint, upon the ground that it does not state facts sufficient to constitute a cause of action. The action is brought to set aside the transfer of certain personal property of one Bang, a bankrupt, upon the ground that it was in violation of subdivisions a and b of section 60 of the United States Bankruptcy Law (30 U. S. Stat. at Large/ 562, as amd. by 32 id. 199, § 13). These provisions provide, in substance, that a person shall be deemed to have-given a preference, if, being insolvent, he has, within' four months before the filing of the petition, or after the filing of the petition and before the adjudication, made a transfer of any of his property and the effect of the enforcement of such transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any Other of such creditors of the same class, and if such preference be given and the person receiving it, or to bé benefited thereby, or his agent acting therein, shall have reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable by the trustee, who may recover the property or its value from such person. They further provide that in such a case the period of four months shall not expire until four months after the date of the recording or registering of the transfer, if by law such recording or registering is required.

When the validity of a pleading is challenged by demurrer upon the ground that'it does not state facts, sufficient to constitute, a cause of' action, all facts stated will be held to be true, and it will also be held to state all facts that can be implied from the allegation by reasonable and fair intendment. (Sage v. Culver, 147 N. Y. 241.) When this rule is applied to the allegations of the complaint here under review, I am of the opinion that it states a cause of action.

The.complaint alleges that the petition in bankruptcy was filed on the 1st of December., 1903, and on the 15th of March, Í9.04, plaintiff was appointed trustee; that on the 15th of May, 1903, Bang owed debts to various creditors amounting to $40,000; that oñ the date last mentioned Bang was the owner and in possession of certain personal property in a hotel named, consisting of linen, furniture, silverware, bedding, etc., of the value of $30,000; that he then made an. alleged bill of-sale of the same to the defendant, which was intended to and did operate as a mortgage, and at the same time he entered into an agreement with the defendant relative to the making and delivering of' three promissory notes, amounting in the aggregate to $10,000 ; that on the 23d of November, 1903, he made an alleged bill of sale to the defendant, which purported to be confirmatory of the prior agreement. Then follow allegations that, there was no consideration given' or received for the alleged bill of sale or agreement of May 15, 1903; that there was no delivery of the property to the defendant until about-November 23, 1903, and that the agreement of May fifteenth was not filed pursuant toi the laws of the State of New York, in the office of the register of.the county of New York until after November 15,1903 ; that possession of the property was not taken by the'defendant until the twenty-third of November, which filing and taking possession were within four months next preceding the filing of the petition-in bankruptcy. .It then alleges that at the time of the execution and- delivery of the alleged bill of sale and agreement, and at the ■ time defendant -took possession of the property named,-Bang w;as insolvent within the meaning of the United States Bankruptcy Law; that the defendant at the time of-the filing of such .-alleged bill of sale, had reasonable cause to believe Bang was insolvent; that said bill of sale and agreement were intended to and did create a preference in favor of the defendant and “ thereby secure to it a greater percentage of its debt than that of any other creditor of the same class; ” that prior to the commencement of the action plaintiff had demanded in writing of the defendant all of the property covered by the alleged bill of sale and defendant had refused to comply with the request.

This complaint is criticised in several respects: (1) It is urged that there is no allegation in it to the effect that the enforcement of the transfer will be to enable the defendant to obtain a greater percentage of its debt than any other creditor of the same class. But this is fairly to be inferred from what is alleged, viz., “ said alleged bills of sale and agreement were intended to and did create a preference in favor of the defendant * * "* and thereby secure to it a greater percentage of its debt than that of any other creditor of the same class.” It was unnecessary for the pleader to use the exact words of the statute. All that was necessary was to set out ■facts showing a violation.

(2) The complaint does not contain an allegation to the effect that the transfer complained of is voidable by the plaintiff as trustee of the bankrupt. It is unnecessary to allege that specifically, when facts are set out showing that the transfer is voidable, and by reason of that fact judgment is asked declaring it void.

(3) Criticism is also made because the plaintiff does not allege facts sufficient to show title in himself to the property transferred. The answer to this is that facts are stated showing "the unlawful preference, the filing of the petition in bankruptcy and the adjudication of Bang a bankrupt, the demand of the trustee for possession of the property transferred and defendant’s refusal to deliver it. This sufficiently shows plaintiff’s interest.

(4) The complaint is also claimed to be defective because there is no allegation in it to the effect that defendant did not .comply with the statute as to the filing of the alleged mortgage within four months of the filing of the petition in bankruptcy. The statute in relation to filing of chattel mortgages provides that every mortgage or conveyance intended to operate as a mortgage of personal property, which is not accompanied by an immediate delivery and followed by an actual and continued change of possession, is absolutely void as against the creditors of the mortgagor and as against subsequent purchasers and mortgagees in good faith, unless the mortgage or a true copy thereof is filed as directed. (Lien Law [Laws of-1897, chap. 418], § 90, as amd. by Laws of 1900, chap. 248.) The objection here made is that it cannot be said, from the allegations of the Complaint that the defendant had not complied with the statute 'by filing a copy '. I think this is to be fairly inferred from what is alleged. The allegation is “ that said alleged bill of sale of Mtiy 15th, 1903, and the said agreement of May 15th, 1903, were not filed pursuant-to the laws of the State of .New York in the office of the Register of the County of New York until after November 15th, '1903.” This allegation is sufficient to admit prool that neither the original nor copy was filed.

Finally, it is claimed that the action Cannot be maintained because it is in equity instead of at law. I am of the opinion that the action is properly brought in equity. Plaintiff alleges that the agreement of May 15, 1903, while in form a bill of sale,, was intended to and in fact did operate as a.mortgage, and he asks that it be so adjudged. Such adjudication necessarily requires the exercise or the equitable powers of the court. The rule now seems to be well settled that whenever it is necessary, in an action of this character, to set aside a written instrument to enable the trustee to reclaim property unlawfully transferred, the action must be brought in equity and not at law.. (Houghton v. Stiner, 92 App. Div. 171; Dyer v. Kratzenstein, 103 id. 404; Vollkommer v. Frank, 107 id. 594; Bryan v. Madden, 109 id. 876.)

It follows that the judgment appealed from is right anfi should be affirmed, with costs, with leave to the defendant to withdraw its demurrer and serve an answer on payment of the costs in this court and in the court below.

Ingraham, Clarke, Houghton and Scott, JJ., concurred.

J udgment affirmed, with costs, with leave to defendant to. withdraw demurrer and to answer on payment of costs in this court and in the court below. . Order filed.  