App. Div.]

FIRST DEPARTMENT, MARCH TERM, 1897.

the summons stating the sum of money for which judgment will be taken, and the case is one embraced in section 420. The only effect of the notice, therefore, is to permit the plaintiff to take judgment for the sum stated in it in a proper case, and to limit the amount of his claim in case the defendant does not appear. The law prescribes no other effect to this notice. If the plaintiff should attempt to take judgment without the appearance of the defendant he is not saved from the necessity of applying to the court unless his action is one of those mentioned in section 420 of the Code. This is so whether he has served a notice or not. If the action is brought for any other cause than one of those mentioned in section 420, the notice is entirely useless, except, perhaps, it may be sufficient to limit the amount of the plaintiff's recovery, but if the defendant appears the notice at once is rendered of no importance. No judgment can be taken against the defendant then until a complaint has been served upon him, and his liability and the rights of the plaintiff are measured entirely by the allegations of the complaint. Unless he is in some way misled, the fact that a notice has been served with the complaint can be of no possible importance, because he knows that, whatever may be the notice, the cause of action is contained in the complaint which is served upon him. It is difficult to see how he could be misled in such a case, after he has appeared and received a copy of the complaint. There is no reason, therefore, why the complaint, even though notice was served with the summons, should set up any particular cause of action. There is no provision in the Code requiring it, and it is not apparent how any harm could come to the defendant from insisting upon it. It cannot be said to be in any respect an irregularity to serve such a complaint as this, although a notice was served with the summons.

For that reason we think the order was erroneous, and that it should be reversed, with ten dollars costs and disbursements, and the motion to set aside the complaint denied, with ten dollars costs.

VAN BRUNT, P. J., PATTERSON, O'BRIEN and INGRAHAM, JJ., concurred.

Order reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs.

FIRST DEPARTMENT, MARCH TERM, 1897.

[Vol. 15.

SAMUEL F. MYERS, Plaintiff, v. MARCUS A. MYERS and SIMON BLUMAUER, Defendants.

In the Matter of the Application of THE NEW YORK LIFE INSURANCE AND TRUST COMPANY.

NEW YORK LIFE INSURANCE AND TRUST COMPANY, Appellant; LOUIS CLARK, JR., Receiver of the Property of S. F. MYERS & Co., Respondent.

Receiver of a firm — permission to levy on property in his hands — granted only when the firm is solvent or when the receiver is appointed to delay creditors.

The appointment of a receiver of a partnership who has taken possession of the assets of the firm, merely for the convenience of its members, and to enable them to settle their affairs between themselves at their leisure, is no answer to a motion made on behalf of an execution creditor for leave to levy his execution upon the assets of the firm in the hands of the receiver, if it appears that the firm was solvent when its property was put into the hands of the receiver. Nor is the fact of actual insolvency, at the time in question, an answer to such a motion, if it appears that the appointment was procured with intent to hinder, delay or defraud creditors, and not with the intent that all the assets of the firm should be actually devoted to the payment of its debts.

APPEAL by the New York Life Insurance and Trust Company from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 2d day of January, 1897, denying its application for an order that the warrant of attachment issued by it should be levied on the property of the firm of S. F. Myers & Co., now in the hands of a receiver.

Charles E. Rushmore, for the appellant.

B. F. Einstein, for the receiver.

Hubert E. Rogers, Frederic A. Ward and Benjamin D. Silliman, for certain creditors.

RUMSEY, J.:

On the 13th day of August, 1896, the appellant here procured a warrant of attachment against the property of S. F. Myers & Co., in an action commenced on that day. Upon the same day an action was begun by one of the members of the firm against the others

App. Div.]

FIRST DEPARTMENT, MARCH TERM, 1897.

for a dissolution of the partnership and a distribution of its assets. In that action Louis Clark, Jr., was appointed receiver, and as such he took possession of the assets of the firm. A motion was made at Special Term, by the appellant here, to require the receiver to deliver to the sheriff the leviable assets of the firm upon the ground that by the issue of the warrant of attachment the appellant had acquired priority over the receiver, but that motion was denied, and thereupon the appellant moved before the Special Term for an order that the sheriff be permitted to levy his warrant of attachment upon those assets, in spite of the order appointing a receiver, and of the fact that the receiver had taken possession of the property of the firm. It has been settled by two recent adjudications of this court that the appointment of a receiver of a partnership, who had taken possession of the assets of the firm, and only for the convenience of the members of the firm to enable them to settle their affairs between themselves at their leisure, is no answer to a motion of this character made on behalf of an execution creditor, if it appears that the firm was solvent at the time when its property was put into the hands of a receiver. (Matter of Thompson, 10 App. Div. 40; Schloss v. Schloss, 14 id. 333.) Nor is it an answer to such an application that the firm was actually insolvent when the assets went into the hands of a receiver, if it shall be made to appear by the applying creditor that the appointment of the receiver was procured with the intent to hinder, delay or defraud creditors and not with the intent that all the assets of the firm should be actually devoted to the payment of its debts. Therefore, upon motions of this nature there are two questions to be examined. The first is whether at the time of the appointment of the receiver in an action for the dissolution of a partnership the firm was actually insolvent, and if it shall appear that it was so, then whether the applicant has shown that the receivership was made with fraudulent intent, and if that has not been made to appear, but, on the contrary, it is fairly to be inferred that the receivership was constituted solely with the intent to close up the business of the firm and distribute its assets pro rata among its creditors, the motion will be denied and the receiver will be left to dispose of the property and divide the proceeds.

APP. DIV.-VOL. XV. 57

FIRST DEPARTMENT, MARCH TERM, 1897.

[Vol. 15.

We have examined with care the proofs presented in this case as to the financial condition of the firm of S. F. Myers & Co., and are of the opinion that on the 13th day of August, 1896, and for some time before that, this firm had been in a state of hopeless insolvency." In fact the appellant hardly denies the insolvency. The papers used by it upon procuring the warrant of attachment afford of themselves proof that such was the condition of the firm. While the warrant was procured solely upon the ground of the falsity of the statements made by Samuel F. Myers, upon the faith of which the appellant was induced to purchase the paper in question, yet the facts which show the falsity of his statements as to the condition of his firm go far to establish, not only that he lied to the agent of the appellant about their condition, but that in fact that condition was one of absolute and hopeless insolvency at the time when he was representing that the assets of the firm were hundreds of thousands of dollars above their liabilities. Samuel F. Myers does not take the trouble to give any explanation or denial of the outrageous fraud which he practiced upon the appellant, nor is there any evidence produced to disprove the allegations of the appellant in that behalf. There is other evidence upon the subject which tends to show that the assets of the firm were very considerably below their liabilities, and that many of their debts were past due, and, generally, that the firm was in an embarrassed condition at the time when this receiver was appointed. Upon all the evidence we agree with the conclusion reached by the learned justice below, that the firm of S. F. Myers & Co. was insolvent when this receiver was appointed.

But the appellant insists that, although the firm was insolvent, yet that it has been made to appear by the papers presented upon this motion that the receiver was appointed in pursuance of a design to hinder, delay and defraud the creditors of the firm, and that for that reason, within the decision in Schloss v. Schloss (supra), this motion should have been granted. In considering this question it must be recollected that the fact that a certain member of the firm of S. F. Myers & Co. perpetrated an atrocious fraud upon the appellant shortly before the appointment of this receiver, is not conclusive, if, indeed, it is any, evidence, that the receivership was procured with a fraudulent intent. The fact of the perpetration of that fraud, not denied

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FIRST DEPARTMENT, MARCH TERM, 1897.

and not explained, warrants us in looking with great suspicion at the testimony of the witness who perpetrated it and who so nonchalantly passes it by without explanation or denial. But of itself it does not establish that the subsequent act was done with a fraudulent intent. The same may be said of the conveyance of the real estate to the wife of Myers. While the evidence of the indebtedness of the firm to her stands solely upon the testimony of interested parties, and the transaction is one which an honest receiver would undoubtedly cause to be questioned before he finally accepts it as legitimate and honest, yet, upon the papers here, it cannot be said that its dishonesty is established.

Outside of these two facts there is very little in the case which tends to show that the appointment of this receiver was procured for the purpose of delaying or defrauding creditors. The order for the receiver is in the usual form, the powers given to him are just such as would be given to a receiver appointed to close up the affairs of the partnership, and, so far as his acts under the receivership are disclosed, they appear to have been done for the sole purpose of disposing of the property to the best possible advantage and carrying out his trust for the interests of all who are concerned. We think that the appellant, upon whom has been put the burden of showing that the appointment of this receiver was procured for the purpose of delaying or defrauding creditors of the firm, has failed to make the necessary proof to establish that fact. We have examined the testimony with care, and while we find that it discloses some acts of these partners, which, in view of their record as set out in the papers, should be closely scrutinized by the receiver before he allows so large a portion of their assets to go into the hands of their own family, yet we cannot disagree with the conclusion formed by the judge below, that upon the whole the evidence that this receivership was not made with fraudulent intent is of greater weight than the evidence that it was so made.

For these reasons we have concluded that the case is not brought within the exception in the cases above cited, and that the order must be affirmed, with costs.

VAN BRUNT, P. J., PATTERSON and O'BRIEN, JJ., concurred; INGRAHAM, J., concurred in result.