Opinion
June Term, 1898.
A. Blumenstiel, for Herman Cantor, appellant.
Benno Loewy, for Leopold Weil Bro., creditors, respondents.
Benjamin N. Cardozo, for Joseph Ullman, a creditor, respondent.
Winthrop Parker, for L. Erstein and other creditors, respondents.
On the 26th of November, 1887, the firm of S. Fleischer Co. made a general assignment for the benefit of creditors to one Rosenthal. The assignee accepted the trust and qualified by giving the bond required by statute. Thereafter the firm of Wilmerding, Hoguet Co., and others, judgment creditors of the assignor, brought suit to set aside the assignment to Rosenthal upon the ground that the same was given with intent to hinder, delay and defraud the creditors of the assignor. This suit was prosecuted to, and resulted in, a decree which was entered on the 16th of November, 1888, setting aside the assignment as against the plaintiffs, appointing a receiver and directing the delivery to him of all of the assigned property. The decree was thereafter modified by directing the assignee to pay to the receiver the sum of $4,831.47. The assignee having failed to make such payment, he was, on the 1st of April, 1889, by an order entered in a proceeding instituted by another creditor of the assignor, removed and one Herman Cantor, the appellant herein, appointed in his place. Rosenthal was then directed to file his accounts, which he neglected to do. It was, however, thereafter determined that Rosenthal was accountable for and chargeable with the sum of $8,309.96, which he was ordered to pay to the substituted assignee, and he having failed to make this payment, the substituted assignee, by leave of the court, brought an action against the sureties upon his bond to recover the same. The action was prosecuted to, and on the 25th of November, 1892, resulted in a judgment in favor of the substituted assignee. The judgment was subsequently paid by the sureties, and this was all of the money or property which the substituted assignee received, Rosenthal having absconded and taken with him all the money, property and assets received or held by him as assignee. On the 22d of December, 1892, an order was made upon the consent of the attorneys for Cantor, directing him, as such substituted assignee, to comply with the terms of the decree entered in the suit of Wilmerding and others, so far as certain payments therein mentioned were concerned, and on the day following he, out of the moneys collected on the judgment against the sureties above mentioned, paid to the receiver the sum of $5,109.36. This payment on the accounting of Cantor was objected to by certain creditors of S. Fleischer Co., and the referee before whom the accounting was had sustained the objection and required the substituted assignee to account for such sum. The referee's report was thereafter confirmed by an order of this court, and from that order Cantor has appealed.
The sole question, therefore, presented related to the ruling of the referee surcharging the accounts of the substituted assignee with the sum of $5,109.36 paid to the receiver above mentioned. The appellant is undoubtedly correct in his contention that the plaintiffs in the Wilmerding suit obtained a lien on the property and assets assigned to Rosenthal, but the money with which the payment here was made was not made out of or derived, either directly or indirectly, from such property or assets. It was money recovered by the substituted assignee from the sureties on the bond of the original assignee. But it is suggested that this money was a substitute for the property and assets originally assigned, and that, therefore, the lien acquired by the decree in the Wilmerding suit attached to it equally with the property and assets originally transferred. That this contention is unsound is settled by the principle declared in the case of People v. Chalmers ( 60 N.Y. 154). In that case, as here, certain judgment creditors brought suit to set aside an assignment, and a decree was entered setting the same aside and directing the assignee to pay a certain sum to the receiver therein appointed, and he, having failed to make the payment decreed, an action was brought against the sureties on the assignee's bond by the judgment creditors, and it was held that the failure of the assignee to pay to the receiver was not a breach of a condition in the bond for which the sureties were liable, and in delivering the opinion of the court, CHURCH, Ch. J., said: "The statute was intended to protect the interests of creditors under valid assignments made for their benefit, and creates the requisite machinery for accomplishing that object; and to that end it should be fairly and liberally construed; but it was not intended to secure the payment of assets upon judgments obtained in hostility to the assignment. The judgments obtained in behalf of the creditors prosecuting the bond declared the assignment void for fraud. As to them the assignment was a nullity, and the judgments obtained by them are conclusive. It follows that they were not and could not be prejudiced by the assignment. It never for an instant placed the property beyond the reach of legal process. They might have levied upon it by execution, and the process of injunction, and the appointment of a receiver were open to them." Applying this principle to the facts in this case, it necessarily follows that the money recovered by the substituted assignees from the sureties upon the bond of the original assignee belongs to the general creditors of the assignor, to be distributed under the assignment. It does not belong, or any part of it, to judgment creditors who have repudiated the assignment and who have acted in hostility to it. If I am correct in this conclusion, then it also follows that the plaintiffs in the Wilmerding suit did not have and never had any lien on or claim to this money, upon the ground that it was a substitute for the original assets on which they did have a lien. This money was not substituted for the original assets; it did not arise out of or arise from the use of the assigned estate in any way. It came into existence simply and solely by reason of the liability of Rosenthal to perform his duties under the assignment, and that liability did not extend towards or in favor of judgment creditors acting in hostility to the assignment. The property transferred to the assignee by the assignor was at most an incidental factor in creating the liability of the sureties. The property assigned determined not the liability of the sureties, but simply the extent of it. It was simply because Rosenthal failed to produce the assets put into his hands or to account for the proceeds thereof when called upon to do so that the sureties became liable to to pay any sum whatever. The rule is well settled that the interest of a creditor in a trust estate ceases when the trust fund is wasted or destroyed. The nature of his claim is of no importance, for as soon as he becomes unable to trace the property upon which he had a lien, that moment he assumes the position of a common creditor. ( Matter of Cavin v. Gleason, 105 N.Y. 256.) Therefore, the preferential right of Wilmerding, Huguot Co., and others, against the property transferred to Rosenthal ceased when the latter absconded and took with him the assigned estate. This fact would have enabled them to share with the other creditors acting under the assignment in the fund in question, were it not for the fact that they have lost that right by repudiating the assignment and obtaining the decree which, so far as they are concerned, wholly destroyed it. The fund was not created for their benefit. It must be applied under the assignment "in satisfaction of the debts of the assignor," because the statute so declares (Laws of 1877, chap. 466, § 9).
The order amending the decree by directing the substituted assignee to pay to the receiver the sum which he did is of no importance. That order was made upon the consent of the substituted assignee, and without notice to the general creditors, the parties interested in the fund and in whose interest it was his duty to act.
It follows that the order appealed from was properly made and must be affirmed, with ten dollars costs and disbursements.
BARRETT, RUMSEY and O'BRIEN, JJ., concurred.
Order affirmed, with ten dollars costs and disbursements.