Adams-Flanigan Co. v. Di Donato

Shearn, J.: This action was brought under the Bulk Sales Act, chapter 507 of the Laws of 1914 (amdg. Pers. Prop. Law [Consol. Laws, chap. 41; Laws of 1909, chap. 45], § 44). The complaint was dismissed on ■ the merits. The facts, all of which are stipulated, are briefly as follows: About April 9, 1915, one Sirico made eighteen promissory notes payable to his own order and indorsed the notes. These notes were thereupon indorsed by defendant Baselice for the accommodation of Sirico and were thereafter delivered to the plaintiff, in payment for property sold and delivered to Sirico by the plaintiff. The notes were each for $40, and those maturing June 1, July 9 and August 9, 1915, were paid by the indorser Baselice on or about their due dates. The notes maturing respectively June 9 and September 9, 1915, were not paid, but were protested and went to judgment. On September 9, 1915, Baselice sold out his business without complying with the provisions of the Bulk Sales Act. Thereafter two other notes became due, on October 11 and November 9, 1915, went to protest, and judgment was entered on November 23, 1915. On the very day that judgment was obtained on the notes of October 11 and November 9, to' wit, on November 23, 1915, Baselice paid the judgment obtained on the two notes maturing June 9 and September 9, and also paid the note maturing October 11, 1915, which last note was included in the judgment recovered on November 23, 1915. Thus, on November 23, 1915, when the payment was made, Baselice was still indebted to the plaintiff on one note, the one that matured November 9, 1915. The judgment entered November 23, 1915, is still unsatisfied. [344] The remaining notes falling due monthly between December 9, 1915, and October 9, 1916, were not paid. This action was begun in July, 1916. The parties submitted to the Special Term as the question for décision: Was the plaintiff, after November 23, 1915, a creditor of Baselice within the meaning of the Bulk Sales Act ? The question arises because of the payment by Baselice on November 23, 1915, of all indebtedness that had matured up to September 9, 1915, the date of the transfer attacked. Under the recent decision of this court in Apex Leasing Co., Inc., v. Litke (173 App. Div. 323) the plaintiff was not after November 23, 1915, a creditor within the meaning of the Bulk Sales Act, for the purpose of subsequently maintaining an action to set aside the bill of sale, because the matured indebtedness existing on September 9, 1915, was satisfied by the payment of November 23, 1915. The appellant contends, however, that on September 9, 1915, the liability of Baselice upon the entire series of notes indorsed by him for the accommodation of Sirico was absolute, and no part of it contingent and that, therefore, the plaintiff was a creditor on September 9, 1915, and at all times thereafter down to the commencement of this action. This contention is unfounded. While it has been held that an accommodation indorser of a non-negotible instrument is liable as a co-maker and not entitled to notice of protest, in the case of negotiable paper he is liable as indorser. His contract with a bona fide holder is that on due presentment the note will be paid according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken he will pay the amount thereof to the holder. (Neg. Inst. Law [Consol. Laws, chap. 38; Laws of 1909, chap. 43], §§ 113, 116; Blanchard v. Blanchard, 201 N. Y. 134, 137, 138.) It is between the maker and indorser that the relation of suretyship exists. A liability with an “ if ” in it is contingent. The contingency in the case of an accommodation indorser of negotiable paper is the dishonoring of the note and notice of protest. It was held in Apex Leasing Co., Inc., v. Litke (supra), following Matter of Hevenor (144 N. Y. 271), that contingent liabilities were not within the protection of the Bulk Sales Act. Accordingly, as the only debt of Baselice fixed and [345] capable of being definitely ascertained at the time of the transfer, was satisfied before suit, and as the transfer was only void against creditors existing at the time of the transfer, no cause of action was made out. Nevertheless, because on the day when the matured indebtedness was satisfied, i. e., on November 23, 1915, Baselice was then indebted to the plaintiff on the note maturing November 9, 1915, included in the judgment entered on November 23, 1915, it is urged that the plaintiff at all times down to the commencement of the action continued to be a creditor and that the action may be maintained. This is based upon the argument that the payment of the debt that had matured at the time of the transfer is effective to defeat an action brought under the statute solely because the debtor has by the payment purged himself of fraud. It is then argued that the debtor could not in equity purge himself of the fraud without paying all that he owed at the time the payment was made. But this is not the ground upon which it is held that payment of the debt existing at the time of the transfer defeats an action brought under the statute. The ground is that the payment satisfied the debt, and, therefore, the party to whom the payment was made cannot be said to be a creditor, the creditor’s status always relating back to the time of the transfer. The right of the creditor to maintain an action under the statute ceases when he accepts payment of all indebtedness matured, fixed and ascertainable at the time of the transaction complained of. The right is not revived merely because, after the transfer attacked, an additional debt has accrued in favor of the creditor, any more than would be the case if the creditor, whose claims existing at the time of the transfer were thereafter satisfied, acquired the status of a creditor by becoming the assignee of a claim due some third person, which claim matured subsequent to the transfer sought to be set aside. If, as might well be the case, it should be deemed desirable to give a right of action to one holding a series of obligations, some of which matured previous to the transfer and others subsequent thereto, the remedy should be given by legislation and not by construction. Especially should this be so in dealing with a statute which, as was held by this court in [346] Apex Leasing Co., Inc., v. Litke (supra), is in derogation of the common law and must be strictly construed. The judgment should be affirmed, with costs. Laughlin and Dowling, JJ., concurred; Clarke, P. J., and Page, J., dissented.