
    The Continental National Bank, on Behalf of Itself and All Other Creditors of J. Prevost Mason, Respondent, v. Nettie H. Moore, Formerly Nettie H. Mason, Appellant, Impleaded with The Fidelity and Casualty Company of New York, Respondent.
    
      JFraudulent assignment of life insurance policies — evidence of the fraudulent intent — where the assured dies before judgment annulling the assignment the creditors take the proceeds of the policies — the proceeds may be administered by the Supreme Court — correct practice repseribed—pi'oof of a defalcation by a bank clerk — competency of the letter book — admissions by the bank clerk made before the assignment.
    
    In an action brought by a bank on behalf of itself and all other creditors of J. Prevost Mason, deceased, under section 7 of the Personal Property Law (Laws of 1897, chap. 417) to set aside, on the ground that it was fraudulent as to creditors, an assignment by Mason to his wife of certain policies of life insurance which had originally been made payable to his executors, administrators or assigns, it appeared that Mason was a note teller in the plaintiffs employ; ^ that on January 12v,l-9Ql$ he confessed to the bank officers in the presence of hi¡3 wife .that he was defaulter to the extent of $12,000, and that he was insolvent; that on Janyiary 16, 1901, he was arrested on the charge of being a '"defa'íiitér and’ was'Mtoitted''to bail; that three days later he assigned the insur- - áncé'^oliói’és rh quesfibiTtOdiis wife. February 1,1901, he committed suicide. •■fJNp letters pfi administration were issued upon his estate. The assignment of ¿..the^poficies recifed po. consideration, and Mason's wife paid none of the premiums 'due upon the.polipies.
    íféMfthát the"evidence 'justified tíieinference that the assignment of the policies v'w¿sínadenbhontem^)'látídn of Mason’s suicide, and for the purpose of defraud-R'.ing his ¿íé(dittífS; .-it
    yipt Ma^9n’s.;(irsditors'5vpere-entitled-.to'¡receive not only the cash value of the ^poliqies fti.the .time.gf the assignmentJ)pt the entire proceeds thereof;
    That,, as no letters of administration had been issued on Mason’s estate, it was ' prop'erYor th'é éuprémb C&urt tb"administer the fund instead of remitting it to '’■MttiySurrópíé'a Crfurtf*:*-'- iz
    That the e0iTeeLpr.acti.cefW,QU'ld<ha,ve;.been to' enter an interlocutory judgment i3 dirictiflg^thq app.qintment'Qf,a,r,eferee.tp advertise for and take proofs of the claims of creditors and report thereon. .
    Upon the tnal'ttie plaintiff, for 'ttíe purpó'se of proving the defalcation, showed ■fhatjt wasMason-^ duty tgjiollept drafts of^ customers of the bank deposited for ‘collection and payable elsewhere than in tiie city of New York; that he had made false entries in the books of the bank, crediting himself with §12,000 purporting to.consist of .four out of.town drafts received for collection. A letter book ofYheUanlt was received in evidence for" the purpose of showing that it contained no entry relating to the forwarding of those drafts. This letter book was not kept by Mason,..but it appeared that it was the course and custom of the bank, when drafts were forwarded for collection, to copy the lettqr.of .a.dvioe accompanying the drafts- into the, letter book. The duty of "writing such' letters devolved upon Mason,'who.'had the supervision if not the ""actual'charge ¿f this lira'h’tih of fhé plaintifE’s business.
    
      ■EelW, tliafc-tiheletter-book was competencia evid'eiftib;'
    That Masqfl!s‘admissión,---th£Ít-"{ie had appropriated;to,liis-own use_§12,000 of the plaintiff’s funds and was then without property, having been made prior to :-* tlio ás'áigtirifétit of tkeáúsürance'-politoiesvand’dn-'the'pfé'seiibettbf':Ms -¡Wife, was ‘‘'cbifipetehtmpOff'thLb-lssne Of-fraud! and'S'lSb^s-éVi'detíCe'-'bfkki's'-'ind'ebtMness to '■■' tlie.b'ank'. V- Sr-"w.wí as.n --a y.:-..v.- v.w.s.:i.....-,w — i,w,? \ ;
    ViM ApSkAA’hy ti'i'é' d'éfénd’anty N'et,tÍ6ifFIrMObr'e,jffof-i,rierly’N"ét'tí.'é''‘-H. Mason, from a judgment of the Supreme Court in favor ofs'tlie plaintiff, and. the: defendanty.ThezFidelityt,and Casualty Company-of New Yórkj'éntéfbdfii- th’e’bfBbe of tKe:'c‘l6Tk 'bf'-'t'he'b'dtiti'ty 'd'f-*NeW:York ón^ftie^Blst'day'yí Nb¥b.mti¿¥,'''49Ó'2,íiip'bfítifhb^dhcisi,OM','ó'f'tiie'*c'qurt, 'Mde tl)¡e:t$.ail¿bi;;1p| ¡ei¡rtain,-ipsiir$mpe„tpoljpigg afl4 ap.poin.tmg a.-reepivor.
    
      
      David McClure, for the appellant.
    
      John L. Cadwalader, for the plaintiff, respondent.
   Laughlin, J.:

The plaintiff, claiming to be a creditor of J. Prevost Mason, deceased, brings this action in behalf of itself and all other creditors, pursuant to the provisions of section 7 of the Personal Property Law (Laws of 1897, chap. 417), to have an assignment of two polieiés of insurance upon the life of the decedent to his wife declared void as against his creditors upon the ground that at the time of making the same he was insolvent, and that the assignment was made in fraud of the rights of his creditors. The decedent for many years prior to the 12th day of January, 1901, was a note teller in the employ of the plaintiff, liis salary at that time being $1,800 per annum. The plaintiff contends that on or prior to that day he misappropriated $12,000 of its funds. At that time he held two policies of insurance upon his life, one for $8,000 and another for $2,000, payable to his executors, administrators or assigns. On the 12th day of January, 1901, the decedent, in the presence of his wife, admitted to officers of the plaintiff that he had taken funds of the bank to the extent of $12,000, used the money for the support of his family, and in effect that he was insolvent, and on the following day made a like admission in the presence of his wife to officers of the defendant surety company, which was surety for his conduct to the bank. On the sixteenth day of the same month he was arrested for the defalcation, and admitted to bail on the nineteenth, pending his examination before a United States commissioner. Three days later the insurance company made a notation upon each of the policies of Insurance as follows : “ At the request of the insured this policy is made payable to Nettie H. Mason, his wife, if she is'living at the time of the death of the insured, otherwise to Grace E. Mason, his daughter.” On the first day of February, thereafter, he committed suicide by shooting himself in his bedroom at home. Between the date of the assignment of the policies and his death no premium fell due upon either, and his wife paid none of the premiums. The surety company paid $7,000 to the bank and asserts the right to be subrogated to that extent to the claim of the bank, and for that reason was made a party defendant. The insurance company was also joined as a party defendant; but subsequently, upon its motion, the action was discontinued against it upon its paying the amount of its liability into the City Trust Company of New York to the credit of and to abide the event of this action.

The appellant urges a reversal of the judgment setting aside the assignment of the insurance policies to her and directing the payment of the proceeds thereof to the creditors of the decedent upon three grounds, which will be considered in t.he order stated, viz.: First, that it has not been shown that the plaintiff is a creditor of the decedent; second, that prejudicial errors were committed in the - reception of evidence; third, that the plaintiff has failed to show fraud or want of consideration for the assignment.

First. The indebtedness of the decedent was shown both by his declarations and by records of the bank kept by him or under his direction. It. was his duty, among other things, to collect drafts of customers of the bank deposited for collection and payable elsewhere than in the city of New York. It was shown that he made false entries in the books of the bank, crediting himself with $12,000 purporting to consist of four out of town drafts received for collection. It appears that the customers of the bank from whom, according to his entries, the drafts were received, deposited no such .drafts for collection, and he was not charged with the receipt of the drafts for which he thus gave himself credit. This evidence, which was all manifestly competent, established jprima facie that the entries crediting him with these drafts were false and fictitious, and were made for the purpose of apparently balancing the account and covering up his misappropriation of $12,000 by the false credit of a like amount.

Second. As a further item of proof on this subject, a letter book of the bank was received in evidence for the purpose of showing that it contained no entry relating to the forwarding of those drafts for collection. This letter book was not kept by the decedent and it was received in evidence under appellant’s objection and exception. It appeared that, according to the usual course and custom of the plaintiff, when drafts were forwarded for collection they were inclosed with letters of advice which were copied in the letter book. The duty of writing such letters devolved upon the decedent, and he had the supervision, if not actual charge, of this branch of the business. In these circumstances, we think, the evidence was competent ; but, even if it were not, its reception does not constitute prejudicial error for, as has been seen, the defalcation was shown without it. The decedent’s admission that he had appropriated to his own use and spent in the support of his family $12,000 of the plaintiffs funds, and was then without property, was received under objections and exception duly taken by the appellant. This evidence was clearly competent upon the issue of fraud, the declarations having been made before the assignment and in the presence of the appellant; and, therefore, it was properly received. Moreover, these declarations constituted admissions against the interest of the decedent and .were, therefore, evidence of his indebtedness to the bank as against the voluntary assignee of the insurance policies. (1 Greenl. Ev. [16th ed.] § 147; Steph. Dig. Ev. [Beers’ N. Y. ed.] arts. 25, 28; White v. Chouteau, 10 Barb. 202; County of Mahaska v. Ingalls, 16 Iowa, 81.)

Third. The assignment of the policies was apparently voluntary. No consideration was recited, and the circumstances under which it was made fairly justify the inference that it was made in contemplation of the suicide and for the purpose of putting the insurance beyond the reach of his creditors. The decedent was married, and his daughter, to whom in the event of the death of his wife, he finally directed that the policies should be paid, had been born before either of the policies had been taken out. One of the policies was issued in 1881 and the other in 1888, and both were originally made payable to his estate, and so remained until after the discovery of this defalcation and his arrest therefor. Pending the examination of the criminal charges against him he ordered the change of beneficiaries and took his own life. These events occurred in such rapid succession that in the absence of any other explanation they fairly justify the inference that the decedent, contemplating the act which he shortly thereafter committed, knew that if the policies remained payable to his estate the insurance would go to his creditors, and for the purpose of averting that and leaving them without redress he directed the change of beneficiary. The fact that no letters of administration have been taken out upon his estate tends, with the other facts, to show his insolvent condition.

The appellant finally contends that the judgment should in any event be modified so that the creditors will receive only the cash value of the insurance policies at the time of the alleged assignment. The cash value of one of the policies is shown and it appears that the other had a cash value, but the figures are not given. The appellant. relies principally upon cases which arose under the Bankruptcy Act, but they are not in point for the reason that subdivision a of section 70 of the Bankruptcy Act (30 U. S. Stat. at Large, 566) expressly provides that the bankrupt may pay or secure to the trustee the cash surrender value of any insurance policies payable to him or his estate or personal representatives within thirty days after the cash surrender value thereof has been ascertained, and continue to hold, own and carry the policies free from the claims of participating creditors, and in the event of his failure to secure or pay to the trustee such cash value within the time specified, the policy shall pass to the trustee as assets. This provision conferred upon the bankrupt rights which he would not otherwise have in this State, .where such policies of life insurance are not exempted from the claims of creditors. (Steele v. Buel, 104 Fed. Rep. 968.) If these policies had remained payable to the estate of the decedent of course the insurance could be reached by his creditors. The attempted transfer being set aside as fraudulent and void as against the creditors and the insurance having become payable by the death of the decedent before the judgment annulling the transfer, it would seem both upon principle and authority that the full value of the policy having become fixed by his death, the entire insurance inures to the benefit of the creditors and not merely the cash value thereof. (Stokoe v. Cowan, 29 Beav. 637; Schondler v. Wace, 1 Camp. 487; McKown's Estate, 198 Penn. St. 96; Catchings v. Manlove, 39 Miss. 655; Ionia County Savings Bank v. McLean, 84 Mich. 625.)

The case is not, we think, distinguishable in principle from those holding that wdiere a transfer of property made by a debtor is set aside on the ground of fraud at the instance of his creditors, their rights attach not merely to the value of the property prior to the assignment, but to the property itself, including appreciation or increase in value. (Gillett v. Bate, 86 N. Y. 87; Warner v. Blakeman, 4 Abb. Ct. App. Dec. 530.)

We do not approve of the form of judgment that has been entered in this case, but, inasmuch as the appellant is not interested in that question, her claims not being sustained, the regularity of the judgment as to form is not before us; nevertheless we should point out the proper practice in such cases. Section 7 of the Personal Property Law contemplates that the property recovered in an action such as this shall either be administered by the court for the benefit of all creditors of the decedent or paid into the Surrogate’s Court to be there administered according to law. It is doubtless discretionary with the court whether to administer the property itself or hand the administration over to the Surrogate’s Court. As has been seen, no letters of administration have been issued on the estate of the decedent and consequently there is no proceeding pending in the Surrogate’s Court. It was, therefore, perhaps, proper for the court to hold and administer the fund, but in doing so we think an interlocutory judgment should have been entered, directing the appointment of a referee to advertise for and take proof of the claims of creditors and report thereon. (See National Tradesmen's Bank v. Wetmore, 124 N. Y. 241, 254.) Instead of that this judgment appoints a receiver, to whom appellant is directed to deliver the policies, and the trust company is directed to pay the proceeds of the policies ratably to the plaintiff, the surety company, “and to such other creditors as shall after six weeks’ advertisement in the New Torh Law Journal appear and prove their claims before said receiver and contribute to the expenses of this action.” It would seem as though the validity of the claim should be first determined, and be finally adjudicated by the court before the trust company should be required to pay over the money, except the costs of the action.

It follows that the judgment should be affirmed, with costs.

Van Beunt, P. J., O’Brien, Ingraham and McLaughlin, JJ., concurred.

Judgment affirmed, with costs.  