Summary
stating that "after B had failed, within the fixed six-year time, to sue on his contract, he was thereafter no creditor of A, at all, and had no right or position as to contesting his former debtor's act of divesting himself of his assets"
Summary of this case from Tolle v. FenleyOpinion
Argued May 26, 1949
Decided July 19, 1949
Appeal from the Supreme Court, Appellate Division, First Department, SHIENTAG, J.
Wilmurt B. Linker, Ramon Siaca and James Harper, Jr., for appellant. William F. Bleakley, John F. Kiernan and Louis Haimoff for respondents.
E.H. Rollins Sons (as its corporate name then was, being now United Associates, Incorporated, defendant above named), failed, in January, 1932, to pay to plaintiff, the State of Rio De Janeiro, a balance which then became due from the former to the latter, on a contract for the sale and purchase of the State's bonds. This suit was commenced in December, 1940, nearly nine years after the default. Special Term, as affirmed by the Appellate Division, arrived at these conclusions:
1. That, since the relationship between the two parties to the bond sale agreement was contractual only, and involved no trust, actual or constructive, the six-year Statute of Limitations (Civ. Prac. Act, § 48) applied, and had barred the action (on the debt) before it was started.
2. That claims, asserted in this suit, against certain individual defendants (former officers or directors of the debtor corporation and/or another corporation which had acquired certain of its assets) for alleged unlawful diversion of the debtor's assets, were likewise barred by the applicable statutes of limitation.
3. That a transfer of assets from the debtor corporation to a new corporation (defendant E.H. Rollins Sons, Incorporated) attacked in a separate count in this complaint, was, under sections 271-273 of the Debtor and Creditor Law, fraudulent as to creditors of the "Old Rollins" Corporation, including plaintiff, despite lack of actual intent to cheat.
4. That, although the statutory period of limitations as to setting aside such a fraudulent conveyance is ten years (Civ. Prac. Act, § 53) and although ten years did not elapse here between conveyance and suit, nevertheless, the right to set aside such a transfer is based on the existence of a valid enforcible claim and, since plaintiff, because of the running of the six-year statute on its contract debt, had no enforcible claim thereon when this suit was brought (see No. 1 above), the suit, insofar as it challenged the fraudulent conveyance, was likewise barred.
We agree with all of the above conclusions, but comment further on No. 4 above, since there seems to be no New York decision on the point.
If A's liability to B on contract matured on January 1, 1940, but remained unpaid, and if A on that same date made to C a transfer of assets deemed fraudulent under the Debtor and Creditor Law, the time for suing on the contract claim expired January 1, 1946. The period for bringing a suit to set aside the unlawful transfer would, however, run to January 1, 1950 ( Buttles v. Smith, 281 N.Y. 226, 236). But after B had failed, within the fixed six-year time, to sue on his contract, he was thereafter no creditor of A, at all, and had no right or position as to contesting his former debtor's act of divesting himself of his assets. A creditor's bill attacking his debtor's transfer is adjective and ancillary only, to the creditor's right to collect his original debt. In the case relied on at Special Term ( Remington-Rand v. Emory Univ., 185 Ga. 571) the rule is explained thus: "where the debt is barred, equity will not proceed to make the vain and empty gesture of setting the conveyance aside, or of attempting to subject the property to such barred debt. The right to equitable relief in such instances is dependent upon the right to enforce the debt."
The conclusion arrived at in the paragraph just above is not in conflict with the holding of American Surety Co. v. Conner ( 251 N.Y. 1, 7) that article 10 of the Debtor and Creditor Law has abrogated the ancient rule ( Briggs v. Austin, 129 N.Y. 208) that a judgment and lien were essential preliminaries to equitable relief against a fraudulent conveyance, and the further holding of that case that the debt may be established and the conveyance challenged, in a single suit. But plaintiff here, combining its two counts in one complaint as it had a right to do, waited too long to sue its debtor for the moneys due on the bond purchase, and so abandoned every right to enforce it, directly or by creditor's bill against the debtor's wrongfully transferred property. Section 270 of our Debtor and Creditor Law, construed in American Surety Co. v. Conner ( supra) to mean that one suit may contain both law and equity counts, that is, on the debt and to set aside a transfer, is identical with section 1 of the Uniform Fraudulent Conveyance Act. In Massachusetts, where the Uniform Law is in effect, the Supreme Court has held that the essential bases of a statutory proceeding to set aside a fraudulent conveyance is a presently enforcible indebtedness, since a suit to reach and apply transferred property to the satisfaction of a plaintiff's claim, is incidental to that claim, and if the underlying claim be not established, for any reason, the whole suit fails and must be dismissed ( Blumenthal v. Blumenthal, 303 Mass. 275; to the same effect see 1 Glenn on Fraudulent Conveyances and Preferences [Rev. ed.], § 88).
It follows that the courts below were correct in dismissing this complaint, in its entirety.
The judgment should be affirmed, with costs.
LOUGHRAN, Ch. J., LEWIS, CONWAY, DYE, FULD and BROMLEY, JJ., concur.
Judgment affirmed.