Shotwell v. Dixon

Putnam, J.: An insolvent debtor may prefer his creditors to as great an extent as his property permits by payments, assignments of choses in action, by giving mortgages, bills of sale or confessions of judgment, or by any transfer of his property, such preferences not being made in a general assignment by the debtor for the benefit of creditors. (London v. Martin, 79 Hun, 229; Knapp v. McGowan et al., 96 N. Y. 75; Claflin Co. v. Arnheim, 87 Hun, 236; Maass et al. v. Falk et al., 146 N. Y. 34; Hoffman v. Susemihl, 15 App. Div. 405 ; Gomez v. Hagaman, 84 Hun, 148; Tompkins v. Hunter, 149 N. Y. 117.) But it has been held that the provisions of section 30 of chapter 466 of the Laws of 1877, as amended by chapter 503 of the Laws of 1887, limiting the amount of preferences in a general assignment for the benefit of creditors to one-third in value of the assignor’s estate, is not confined to the assignment itself, but applies to preferences created by separate instruments in contemplation of the assignment. (Berger et al. v. Varrielmann, 127 N. Y. 281.) The case above cited was considered and distinguished in the opinion of Peckham, J., in Manning et al. v. Beck et al. (129 N. Y. 1). In the case last cited the following facts appeared: The plaintiffs were judgment creditors of Louis P. Beck, and brought the action against him and William H. Beck and H. Israel Weinberg, to set aside a bill of sale by Louis P. Beck to his son, William H. Beck, and an assignment for the benefit of creditors to the defendant Weinberg. It was shown that Louis P. Beck, on January 3, 1889, being indebted to his son to the amount of nearly $5,000, and being the owner of a stock of goods in a store, and the fixtures therein, on that day conveyed them all by a bill of sale to his son. The consideration therefor was an agreemént of the son to take the goods described in it as payment of the debt due him, and his assumption of certain debts of the father which he agreed to pay, and the payment of a small amount in cash to the father. At the [262] time William H. Beck knew that Louis P. Beck was insolvent. It appears from a statement of the facts in the case of Manning et al. v. Beck et al. (54 Hun, 102,104) that the property thus transferred to the son was substantially all the property of the assignor. In the case cited, therefore, it appears that William H. Beck, knowing that his father was insolvent, took a bill of sale of substantially all his estate in payment of his own debt and other debts, the payments of which he assumed. This bill of sale was dated on January 3, 1889j and the next day the general assignment was made to Weinberg, the assignor therein, before its execution, substantially divesting himself of all his property. It was held, however, by the Court of Appeals that the provisions of chapter 503 of the Laws of 1887 did not prevent a creditor from obtaining payment of, or securing a preference of, his debt from the insolvent debtor; that if he accepted a payment of or security for his debt with a knowledge that the debtor intended to make an assignment, and that the payment or security was made or given in contemplation thereof, and would result in a violation of the provisions of the statute, the payment or security would be illegal and void; but that if the creditor accepted the payment or security in ignorance of any such existing intent on the part of the debtor, the provisions of the act of 1887 did not apply, and the transfer was not made invalid by the fact that the debtor did thereafter make a general assignment. Judge. Peokham, in his opinion, quotes with ajiproval the following extract from the opinion delivered in Lake Shore Banking Co. v. Fuller (110 Penn. St. 156), viz. : “ Nor can we agree that a mere intent of the debtor, unexpressed to the creditor, to give him a preference by paying or securing the debt, although he at the time contemplated and soon after executed a general assignment, operated to defeat such preference on the ground that it is contrary to the act of 1843. Such an intent is not unlawful, and cannot be inferred from a proper act. But even if it were, the creditor who has a perfect right to accept payment or security of his debt, and has not participated in the alleged -unlawful i/ntent, should not be compelled to forfeit his preference in that amount. He at least is innocent, and may in good conscience hold the advantage he has obtained.” The question in this case, therefore, is, did the several appellants, [263] when they received payment of, or security for, their debts against the firm of Dixon & Wilkins on the 30th day of December, 1895, know said firm intended to make a general assignment—know that said payments or securities were intended by Dixon & Wilkins as an unlawful scheme to avoid the provisions of the act of 1887 ? It must be remembered that if the evidence in the case is capable of an interpretation equally consistent with a lawful as with an unlawful intent, the former meaning must be given to it. (Morris et al. v. Talcott, 96 N. Y. 100.) And also that the burden was upon the plaintiff all through the case to show the knowledge of the several appellants of the unlawful scheme of the assignors, if any existed. (Maass et al. v. Falk et al., 146 N. Y. 34, 41.) After a careful examination of the evidence contained in the case, we are unable to find a scintilla of testimony showing that the several appellants respectively, although probably aware that the firm was insolvent, knew when they received payment of, or security for, their claims, that Dixon & Wilkins intended to make a general assignment. Each of the1 appellants Firmer W. Brown, Byron D. Brown and Edward S. Childs had small claims against Dixon & Wilkins. The transaction between such creditors and the firm was simply a payment of such claims by the check of Littauer Brothers. This was a lawful transaction, whether the firm was solvent or insolvent. If Dixon & Wilkins then intended to make a general assignment, there is no proof whatever that said appellants knew that fact. If the intention existed, it was an undisclosed one, and the creditors were not compelled to believe in an unlawful purpose on the part of their, debtor when a lawful intent was just as probable. The above suggestions apply to the appellant Walter W. Dixon. It is true he was the father of one of the assignors, and that he was an indorser for the firm, but there was no evidence whatever to show that on the 30th day of December, 1895, he had any knowledge of their undisclosed intent to make a general assignment on tire next day. His debt, and those the payment of which he assumed, were valid claims against Dixon & Wilkins. The transaction by which said debts were paid or secured was legal, although the firm was insolvent, and, in the absence of all evidence, knowledge of an unlawful intent on the part of the assignors cannot be imputed to him. [264] It is not clear that the members of the firm of Dixon & Wilkins intended to make a general assignment on the 30th day of December, 1895. The witness, Baltie H. Dixon, sworn by the plaintiff, testified that the intent to make an assignment was first formed on the thirty-first day of December, and there is no testimony in the case to contradict him, or to show when this intent of the assignors to make a general assignment was formed. But assuming that, from the facts and circumstances shown, the trial judge was authorized to find an unlawful intent on the part of the assignors at the time they made the preferential payments or securities to the said appellants, we think there is no evidence to justify the finding that either of such appellants knew of such intent. The payment of $275 to the appellant Byron D. Brown might, perhaps, be held unauthorized, as, from the evidence, it appears to have included an individual claim of the creditor against one of the firm of Dixon & Wilkins, were it not for the fact that in the complaint the claim is alleged to be a partnership debt of Wood & Wilkins. The appellant could properly rely upon the admissions and allegations contained in the complaint. The conclusions above arrived at render it unnecessary to consider the position taken by the appellants, that the judgment rendered in the court below, in any view of the case, was unauthorized Under doctrines laid down in Central National Bank et al. v. Seligman et al. (138 N. Y. 435) and Abegg et al. v. Bishop et al. (142 id. 286), and other authorities; and also the alleged error of the court below in granting an additional allowance against each appellant on the whole amount involved as to all of the defendants. The judgment should be reversed and a new trial granted, costs to abide the event. All concurred, except Landon, J., dissenting.