
    Timothy M. Spelman et al., Resp’ts, v. Moritz Friedman et al., App’lts.
    
    
      (Court of Appeals, Second Division,
    
    
      Filed January 20, 1892.)
    
    1. Assignment for creditors—Action by general creditor to set aside CONFESSED JUDGMENTS.
    A general creditor may maintain an action to set aside judgments confessed by a debtor, for an amount greater than one-third of his assets, immediately before making a general assignment.
    2. Same—Pleadings.
    Where the complaint in such an action alleges that all the transactions were done in contemplation of, as well as in fraud of, the assignment and with the intent to prevent a distribution of the property of the assignor, it is not demurrable because it does not state that the judgment creditors knew that the assignor intended to make an assignment.
    Appeal from a judgment of the general term of the supreme court in the first judicial department, affirming an interlocutory judgment entered upon the decision of the court at special term.
    This action was brought by the plaintiffs, as general creditors of the defendant Josephine M. Soussman, to set aside three judgments confessed by her in favor of certain of the other defendants, together with the executions issued thereon and levies made thereunder, as in violation of the statute restricting preferences in general assignments for the benefit of creditors. (Laws 1887, chap. 503). Several of the judgment creditors demurred upon the ground that the complaint did not state facts sufficient to constitute a cause of action.
    The general term affirmed the interlocutory judgment of the special term, overruling such demurrers, but certified that the question involved was of sufficient importance to render a decision" by this court desirable before proceeding further. Code Civ. Pro., 1190, par. 4. _ t
    _ The facts appear in the opinion.
    
      Alex. B lumenstiel, for app’lts; John W. Boothby, for resp’ts.
    
      
       Affirming 27 St. Rep., 392.
    
   Vann, J.

The plaintiffs were general creditors of the defendant Soussman on the 14th of May, 1888, when she made a general assignment of all her property for the benefit of her creditors to the defendant Phillips, who accepted the same, and it was thereupon recorded in the office of the clerk of the city and county of Mew York, at a quarter past twelve in the afternoon of that day. A few hours before Mrs. Soussman, being insolvent, confessed a judgment in favor of the defendants Jaffrey and others for the sum of $2,110.80 ; a second, in favor of the defendant Sigisman .for $2,056.38, and a third, in favor of the defendants Preedman for $2,802.27, and the respective judgment rolls were filed in said clerk’s office at seven, eight and nine minutes past ten in the forenoon of the day on which said assignment was made and recorded. Immediately after the entry of said judgments, executions were issued thereon against the property of Mrs. Soussman to the defendant Grant, as sheriff, who by virtue" thereof, just before the delivery of said assignment, levied upon, all her property, which was not worth three times the amount of said judgments. After setting forth the foregoing facts the complaint further alleged “ that the said judgments were confessed and the said executions issued and levies made, in contemplation of the said assignment and for the purpose of preferring the said persons in whose favor the said judgments were confessed out of the property of the said defendant Soussman, in fraud of the said assignment, for more than one-third of the net assets of the said defendant Soussman, and to prevent the said assets from going into the hands of the defendant Phillips, as such assignee, and being distributed tó the plaintiffs and the other creditors of the said defendant Soussman, pursuant to the statute in such •cases made and provided and pursuant to the provisions of the .•said assignment, and are fraudulent and void as against the de.fendant Phillips, as assignee.”

It was further alleged that the assignee, after due notice of the facts, refused to bring an action to set aside said judgments, executions and levies, although requested by the plaintiffs so to do. The relief demanded was that the judgments, executions and levies be declared void as to the assignee; that the sheriff be directed to turn over the property levied upon by him to the assignee; that the proceeds thereof be applied pursuant to the terms and conditions of said assignment; and that all of the defendants, except the assignee, be restrained from disposing of or interfering with the property so levied upon.

A copy of the assignment and of the several rolls of the confessed judgments were annexed to and made a part of the complaint, from which it appeared that the debts for which such judgments were recovered were preferred in the assignment and that they were the only preferences therein, except wages and salaries actually owing to the employees of the assignor.

In support of their demurrer the defendants contend that as the plaintiffs are not judgment creditors of the assignor, they have no standing to maintain an action of this character. If this were an ordinary creditor’s suit, brought to set aside the assignment as a fraudulent obstruction to the rights of the plaintiffs, it would be .necessary for them to allege that they had exhausted their remedy at law. It is well settled that a simple contract creditor cannot attack, as fraudulent, the transfer by his debtor of property applicable to the payment of the debt, until after the recovery of judgment, the issue and levy of an execution or its return unsatisfied. Dunlevy v. Tallmadge, 32 N. Y., 457; Adee v. Bigler, 81 id., 349; Adsit v. Butler, 87 id., 585; Wait on Fraudulent Conveyances and Creditors’ Bills, 106; Code Civ. Pro., § 1871; 2 E. S., 173, § 38.

The plaintiffs, however, do not attack the assignment, but seek to uphold and enforce it. Their theory is that it is a valid instrument and that it vested in the assignee the legal title to all the property of the assignor. They rest upon the assignment, making their action subsidiary and not hostile thereto, and aim to protect the property in the hands of the assignee, as they claim he should have protected it, to the end that its proceeds may be distributed by him according to the provisions of-the assignment. As beneficiaries under the trust they are trying to have it enforced, through the assignee, by taking such action as they allege he should have taken, not for their exclusive advantage, but for the benefit of all similarly situated. They do not seek to discover assets or to obtain a lien, but-to cause certain effects in which they have an interest to be administered and distributed according to the assignment without spoliation or waste. A cestui gue trust is not required to establish his debt by an action at law in order to compel an enforcement of the trust, or to protect the trust property from unlawful interference.

As the plaintiffs acknowledge the validity of the assignment and come in under it, what use could they make of a judgment if they had one? If they were in a situation to issue an execution,, it would be improper for them to levy upon the assigned property. What could they do in aid of the assignment with, that they cannot as well do without, a judgment recovered and execution re: turned? Their ultimate right to share in the assets, and the refusal of the assignee to bring an action that is necessary for the protection of the assets, gives them the right to bring it as auxiliary to the trust. His right to maintain an action depends on. the act of 1858,- Laws 1858, chap. 314, and their right comes through his refusal to sue. As he can sue for the benefit of simple contract creditors, Southard v. Benner, 72 N. Y., 424, why cannot simple contract creditors sue, making him a party, upon his refusing to sue in their behalf ? What reason is there for limiting action .to judgment creditors, when creditors at large have an equal right to share in the benefits ? What virtue is there in a judgment as the basis of an action when it is not needed in order to fully share in the fruits of the action ? The line of reasoning suggested by these inquiries finds support in the authorities which recognize a distinction between an action of this kind and a creditor’s bill. The function of a creditor’s bill is to establish and enforce a lien upon property alleged to belong to the debtor, to take it from the possession of whomsoever may claim to own it, and to cause it to be sold to pay the judgment creditor’s debt, who thus obtains an advantage over all the other creditors. It is exclusive in object and result, and benefits the active at the expense of the inactive creditor. It is necessarily hostile to a general assignment, which it must destroy in order to succeed as to any property transferred thereby. Loos v. Wilkinson, 110 N. Y., 195; 18 St. Rep., 110.

The act of 1858 authorized a new class of actions, analogous in many respects to creditors’ bills, to be brought for the benefit of all the creditors alike, by the assignee or other representative of an insolvent estate, to set aside fraudulent transfers by the debtor. Such actions require no lien, but are maintainable by force of the statute. Southard v. Benner, supra; Reynolds v. Ellis, 103 N. Y., 116, 123; 2 St. Rep., 786. When the assignee neglects or refuses to bring such an action, after notice of the facts, as was declared by this court in Dewey v. Moyer, 72 N. Y., 70, 78, “itis. abundantly established that the creditors may commence an action to reach the property (fraudulently transferred) making the assignee, the debtor and his transferees parties defendant.” So in Crouse v. Frothingham, 97 N. Y., 105, 113, it was said that if the: “ assignee refuses in a proper case to proceed and get in the assigned. property, the creditors collectively, or one in behalf of all who may come in and join, may compel the execution of the trust in equity.” While in the cases cited the actions were brought by judgment creditors, it was not intimated that this was. essential, and we find no case that so holds.

We think that the action can be maintained by any of the creditors who would be benefited by the result, including both. judgment creditors and creditors at large. Harvey v. McDonnell, 113 N. Y., 526; 23 St. Rep., 501; Preston v. Spaulding, 120 Ill. 208, 214; Goncelier v. Foret, 4 Minn., 1; Holt v. Bancroft, 30 Ala., 193, 204; McDougald v. Dougherty, 11 Ga., 570; Weir v. Tannehill, 2 Yerger, 57; 2 Barb. Ch. Pr., 149.

The appellants further contend that their demurrer should be ■sustained because it does not appear from the complaint that they knew that the assignor intended to make an assignment.

The- act of 1887 changed the policy of the state with reference to preferences in general assignments. Laws 1887, ch., 503, § 30. Prior to the passage of that act there was no restriction upon the power of an insolvent debtor to give such preferences as he chose when making an assignment either by that instrument alone or by ■other transfers in connection with it. The object of the act was to change the law by placing a limit to the power to prefer in a general assignment and it should be liberally construed, as has been held in relation to similar statutes, “ so as to suppress the mischief and advance the remedy.” White v. Cotzhausen, 129 U. S., 329, 341; Preston v, Spaulding, 120 Ill., 208; Appeal of Miners' National Bank, 57 Pa. St., 193, 200.

Accordingly the assignor should not be allowed to subvert the statute by artifice or evasion, especially when the creditor preferred participated in the unlawful design. Whatever is done in connection with, or in contemplation of the assignment, with the intent to defeat the operation of the statute, falls within the spirit of its prohibition and should receive the condemnation of the courts. When the assignment is part of a scheme to circumvent the law, the judgments are confessed by the debtor, executions issued thereon by the creditors and levies made upon the property of the debtor in their behalf, as parts of the same scheme, it is the duty of the courts to see that the object of the legislature is not defeated by such acts, which, although not a part of the assignment, are done in contemplation of it and with the intent of both ■debtor and creditor to frustrate the statute. Such is the case made against the defendants by the complaint as we construe it. It appears from that part of the complaint already quoted that the “judgments were confessed * - * in contemplation of the ■said assignment and for the purpose of preferring the said persons In whose favor the said judgments were confessed, out of the property of the said defendant Soussman, in fraud of the said ■assignment, etc.” Those were the acts and this the intent of the debtor. But it is also as distinctly alleged that “the said executions (were) issued and levies made in contemplation of the said assignment and for the purpose of preferring * * * in fraud of the said assignment * * * and to prevent the said assets from going into the' hands of the * * * assignee and being ■distributed * * * pursuant to the statute *' * * and pursuant to * * * the assignment, etc.” These were the .acts and this the intent of the judgment creditors. All the transactions which the plaintiffs seek to set aside are alleged to have been done in contemplation of, as well as in fraud of, the assignment and with the intent to prevent a distribution of the property of the assignor according to the assignment and the statute. The debtor confessed the judgments and the creditors issued the executions and caused the levies to be made, participating in the same fraudulent purpose and jointly contemplating, that is expecting, or looking forward to, the assignment as about to be made.

The connection between the acts alleged to be illegal and the assignment is emphasized by the preference in the latter of the same debts.for which the judgments were confessed, so that if the judgments are set aside, the judgment debtors will still be preferred to the extent of one-third of the assets of the assignor, or all that the law allows. Their efforts to secure more than this by a palpable evasion of the statute should not succeed, and the instrumentalities employed to effect that object have been properly adjudged void by the judgment of the courts below. Berger v. Varrelmann, 127 N. Y., 281; 38 St. Rep., 813 ; Manning v. Beck, 129 N. Y, 1; 41 St. Rep., 199.

The cases cited leave nothing further to be said upon the subject, as, according to either, the complaint sets forth a good cause of action, so far as the point under consideration is concerned.

The judgment should be affirmed, with costs, but with leave to the appellants to answer on payment of costs.

All concur, except Bradley, J., not voting.  