Metcalf v. . Moses

56 N.E. 67, 161 N.Y. 587, 15 E.H. Smith 587, 1900 N.Y. LEXIS 1466

Opinion

O’Brien, J.

The plaintiffs are judgment creditors of Lesser Brothers, a firm engaged in the clothing business in 17ew York, and which failed on October 2, 1896. The purpose of the action was to set aside certain transfers of real and personal property and certain judgments by confession given by the firm to various parties claiming to be creditors, on the ground that the transfers and judgments were fraudulent. The facts which disclose the various transactions present the usual complications found in all schemes to defraud creditors. They have been fully detailed in the opinion of the learned trial judge and in that of the learned court below on appeal. A very brief reference to these facts will be quite sufficient now, since it was found at the trial and by the learned court below upon review that the purpose of the transfers and confessions of judgments, on the part of the firm, at least, was to hinder, delay and defraud creditors. These findings are not questioned here, and so we are able to enter upon a review of the judgment with one important fact settled. The plaintiffs and all the numerous defendants, except two, have, by permission, appealed to this court. The main contention on the part of the defendants, who are favored creditors, through the transfers and judgments referred to, is that while the debtors intended to perpetrate a fraud, yet their creditors were wholly innocent and did not participate in any such purpose, but were simply seeking to obtain security for their honest debts, as they might within the recent case of Galle v. Tode (148 N. Y. 270) and other cases there referred to. The parties before the court are so numerous and their claims so conflicting that it will be more convenient, and tend to a clearer understanding of the case, if we group the parties together by classes, as we may, since several of the appeals depend upon the same questions.

(1) The appeals of Tobias Lesser, Bernhard Moses and Mrs. Marcus present the same questions. The trial court found that the judgments confessed to each of these parties and the transfers to them were made by the debtor firm for a fraudulent purpose and that they participated in the fraudulent intent. The court below on appeal unanimously affirmed this part of the judgment and the only ground upon which it is questioned here by the learned counsel for these particular creditors is that the finding that they participated in this fraud is without any evidence to sustain it. There are two conclusive answers to this contention. In the first place the unanimous decision below applies to the finding of fraud on the part of the creditors as well as the debtors, and, hence, is conclusive in this court on the question. But even if this were otherwise the doctrine of Galle v. Tode would have no application. The court referred in that case to creditors pressing their claims and procuring judgments' in the usual way, either by regular suit or confession. But here the creditors took no affirmative or independent action to collect their claims. They simply accepted the advantage which the fraudulent debtor voluntarily gave them .for his own purposes and as part of the fraudulent scheme. They put themselves under his protection and into his hands. They allowed the fraudulent debtor to repre sent them in procuring the judgments and his fraudulent purpose was properly imputed to them.

(2) With respect to the appeal of the receivers appointed in the action brought by one of the fraudulent debtors against the other two, after the fraudulent preferences were made to dissolve the partnership and distribute the assets, the courts below are agreed that the suit or the receivership was not in good faith, but part of the fraudulent scheme to obstruct, hinder, delay or defraud creditors, that the receivers were appointed upon false and fraudulent statements made to the court and the material facts bearing on the application were suppressed. That the court below had the power to modify the judgment as to them in the manner that it did, cannot very well be questioned. The refusal of the court below to recognize receivers, who are the product of such a fraudulent contrivance, as officers of the court and trustees for creditors, was not a legal error. Though they may have been personally innocent of any participation in the fraud, yet their authority was tainted with the vice that pervades the whole transaction. The judgment appointing them, having been virtually set aside for fraud, they have no legal right to demand that they be permitted to survive the destruction of the authority creating them.

(3) The learned trial court found that the transfers to Adler and Lilianthal were fraudulent, but as to these two defendants the judgment. has been reversed.. The order does not state that the reversal was upon the facts, and, hence, we must presume that it was for some error of law committed at the trial. In the form in which the record comes here we think that this part of the judgment of the learned court below cannot be sustained. The findings of fact to the effect that both of these defendants participated in the fraud have not been disturbed and they sustain the legal conclusions. In order to sustain the reversal in such cases in this court the respondent must show that some error of law is involved in the judgment of the trial court. (Parker v. Pay, 155 N. Y. 383 ; People v. Adirondack Railway Co., 160 N. Y. 225; Lannon v. Lynch, 160 N. T. 483.) Adler was "the superintendent of the manufacturing department connected with the clothing business in which the firm of Lesser Bros, was engaged. He was sent for by Tobias Lesser and told to go to his attorney, as the former had arranged to make the transfer of the accounts for his benefit to secure the sum of $20,000. Adler followed this direction, and, it being conceded that the purpose which Tobias Lesser had in view was to defraud creditors, the trial court could have found, as it did, that the former was chargeable with knowledge of this intent. The circumstances connected with this transfer do not differ from those leading to the judgments by confessions' already referred to. Indeed, it is not suggested in the opinion below that there was any error of law in the findings with respect to this claim, but, on the contrary, the findings were assumed to be correct. The reversal as to this party proceeded entirely upon the ground, as we understand the opinion, that it was not necessary to interfere with the transfer of the accounts in order to satisfy the plaintiffs’ judgment. But the omission of the trial judge to give effect to such consideration’s did not present any question of law. When a failing debtor attempts to make separate transfers of his property in favor of two or more parties, with the intent to defraud creditors, and such transfers are subsequently attacked by a judgment creditor and the court finds that all are fraudulent, it is not bound, as matter of law, to preserve to some of the parties in whose favor the transfers were made and who participated in the fraud, the fruits of the transaction upon some nice calculation which may show that the claims of the honest creditor who makes the attack can be satisfied by setting aside the transaction as to others. The court is not bound to consider the question as to how far the effect of the judgment shall be limited by the amount of the plaintiffs’ claims, but has the power to set them all aside. All the transfers being equally affected with the vice of fraud, the court is not bound to hear argument to show that some of them should stand and others fall, but may properly decline to discriminate between parties, all of whom are participants in the fraud. So we think that Adler cannot be heard in this court, under these circumstances, to allege that there was legal error in the judgment with respect to the disposition made of his claim.

The same considerations, we think, apply with equal force to the defendant Lilianthal. The trial court found that he also participated in the fraud, and no error of law can arise upon the finding, unless it can be shown that there was no evidence whatever to sustain it. The fraudulent intent of the grantor in the conveyances to this defendant being admitted, the circumstances were such that knowledge of this purpose on the part of the grantee could have’been inferred as a reasonable conclusion. Lilianthal, like all the other parties referred to, simply followed the directions which the failing debtor gave to him. He did not take any independent action. He did not even ask for the conveyance, but merely accepted wliat was offered to him by the debtor. He knew that the •latter was about to fail and that he had many creditors. It is difficult to believe that a business man who has been tendered and receives a conveyance of the property of the failing debtor under such circumstances can be entirely innocent of the intent and purpose behind the transaction. All we mean to say, however, is that when the trial court after hearing all the parties and having the benefit of their presence and appearance, and after weighing all the circumstances, refuses to adopt such a theory and in fact reaches a contrary conclusion, this court cannot say that such a finding is without any evidence to sustain it. The various steps, by means of which the whole transaction was consummated, were of such an unusual character that the learned trial judge was warranted in finding that none of the parties benefited by it could have been entirely ignorant of its real scope and purpose. Therefore, since we are bound to assume that the learned court below upon the appeal considered only questions of law arising upon the facts found, we think that the record does not disclose any legal error that warranted a reversal of any part of the judgment of the Special Term.

The judgment should be affirmed, except as to the defendants Adler and Lilianthal, and as to them it should be reversed and that of the Special Term affirmed, with costs.

Paekee, Ch. J., Geay, Baetlett and Haight, JJ., concur ; Maetin and Yann, JJ., concur as to the affirmance and dissent as to the reversal.

Judgment accordingly.