App. Div.] the creditor cashes it without authority or even on a forged indorsement, that constitutes payment, on the theory that the only obligation of the drawer is to have funds on hand to meet the check and that when his funds are appropriated in payment of the check that ends his liability to the payee. The appellant relies on Burstein v. Sullivan (supra); Sage v. Burton (84 Hun, 267, cited approvingly in Allen v. Tarrant & Co., 7 App. Div. 172), and Morrison v. Chapman (155 id. 509) as sustaining that proposition; but in Bernheimer v. Herrman (44 Hun, 110, followed in Falk v. Starr, 31 Misc. Rep. 756); Morris v. Hofferberth (81 App. Div. 512); Siegel v. Kovinsky (93 Misc. Rep. 541); Thomson v. Bank of British North America (supra); and Shepard & Morse Lumber Co. v. Eldridge (171 Mass. 516, cited with approval in Kearny v. Metropolitan Trust Co., supra) and People's Trust Co. v. Smith (215 N. Y. 489) the rule is stated to be that a payment by check constitutes a payment only when the check is paid in due course, and that payment thereof on a forged indorsement is not such payment, and that in the absence of proof of facts constituting estoppel against the payee he may sue the drawer and the latter must look to the bank which has wrongfully charged his account with the payment. Without further considering the authorities I am of opinion that in the case at bar neither the delivery of the check nor the subsequent payment thereof on the forged indorsements constituted payment. It was the defendant's check drawn against its own funds, and the drawee having wrongfully paid it could not lawfully charge it against the defendant. It was no more a payment than if the defendant had issued a draft or order on itself to the order of the plaintiff and subsequently honored the same on forged indorsements without exercising due care to discover whether or not they were genuine. It follows that the judgment should be affirmed, with costs. CLARKE, P. J., SCOTT, DAVIS and SHEARN, JJ., concurred. Judgment affirmed, with costs. First Department, April, 1917. [Vol. 178. KOBRE ASSETS CORPORATION, Respondent, v. First Department, April 20, 1917. Bankruptcy-fraudulent transfers — authority of liquidating trustees to whom assets have been transferred under composition agreement to set aside fraudulent transfer under section 19 of Personal Property Law-effect of confirmation of composition agreement. A liquidating trustee to whom the assets of a bankrupt are transferred pursuant to a composition agreement duly approved by the Federal court is a trustee for creditors and may, under the authority of section 19 of the Personal Property Law, maintain an action to set aside a fraudulent transfer by the alleged bankrupt notwithstanding the provisions of section 14 of the Bankruptcy Act of 1898 providing that upon the execution of a composition agreement the bankrupt shall become discharged from all his provable debts. A trustee may, under section 19 of the Personal Property Law, maintain an action without the recovery of a judgment against the insolvent debtor. The effect of the confirmation of a composition agreement under which the assets of a bankrupt are transferred to a trustee is to substitute for the claims of the creditors against their debtors a right to share in the consideration agreed to be transferred. APPEAL by the defendant, Hyman D. Baker, 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 22d day of November, 1916, denying his motion for judgment on the pleadings, consisting of an amended complaint and answer. J. A. Seidman, for the appellant. Virginius Victor Zipris, for the respondent. George Edwin Joseph, by leave, for the defendant Kobre, as administratrix. LAUGHLIN, J.: The point presented by the motion was whether a cause of action is stated against appellant, and as I view it that presents ultimately two questions of law. They are whether a liquidating trustee to whom the assets or a bankrupt are App. Div.] First Department, April, 1917. transferred pursuant to a composition agreement duly approved by the Federal court is a trustee for creditors and authorized by section 19 of the Personal Property Law (Consol. Laws, chap. 41; Laws of 1909, chap. 45) to maintain an action to set aside a fraudulent transfer by the alleged bankrupt, notwithstanding the provisions of subdivision c of section 14 of the Bankruptcy Act (30 U. S. Stat. at Large, 550), by which it is declared that upon the execution of a composition agreement the bankrupt shall become discharged from all his provable debts; and if the action be not authorized on that theory whether such liquidating trustee becomes vested with title and authority the same as a trustee in bankruptcy who could by virtue of the bankruptcy statute maintain the action. The allegations of the complaint material to the decision of the appeal are in substance as follows: That Max Kobre, whose widow being administratrix has been permitted to file a brief, was conducting with his wife as copartner in the city of New York, a private bank which became insolvent, and on the 4th day of August, 1914, Eugene Lamb Richards, Jr., as Superintendent of Banks, "took possession of the choses in action, assets, property and business" of the bank for the purpose of liquidating the same under our State laws;* that two days later an involuntary petition in bankruptcy was duly filed against the copartnership as individuals and as copartners, and fifteen days thereafter the Federal court duly appointed said Richards temporary receiver of the same property that he had taken as Superintendent of Banks and he duly qualified; that thereafter and on October twenty-sixth the alleged bankrupts duly filed an offer of composition and subsequently filed an amended composition and they were referred to the referee in bankruptcy who reported favorably on the latter, and it was duly accepted by more than a majority in amount and number of the creditors, and on November 30, 1915, on due notice to the creditors, the amended composition, which provided for the organization under the laws of this State of a holding company to which all of said property was to be transferred for the purposes of liquidation and distribution as pro *See Banking Law (Consol. Laws, chap. 2; Laws of 1914, chap. 369), § 57 et seq.-[REP. First Department, April, 1917. [Vol. 178. vided in the amended composition to which reference is made in the complaint, was duly confirmed and approved, and that prior thereto and on the 25th day of May, 1915, the plaintiff had been organized under the laws of New York as such holding company in accordance with the amended composition agreement; that the decree of the Federal court confirming the composition agreement required that the copartners and Richards as such temporary receiver transfer and set over to the plaintiff "all choses in action and property and assets in their possession or otherwise, or to which the said Max Kobre or his creditors or this plaintiff in their behalf were entitled to," and the decree further provided that no provision thereof should be so construed as to give Kobre or any person other than the plaintiff "the right to retain any properties, choses in action or assets to which the depositors and creditors were entitled to at the closing of the bank and prior thereto, and that the plaintiff at any time thereafter" should have " the right to bring any and all proceedings to obtain the transfer, possession and title of any property, real or personal, which it is claimed is or was part of the assets" of the copartners or of either of them; that such property was transferred to the plaintiff in conformity with the composition agreement and decree, but that at the time the bank was so closed Kobre held an assignment from the Fifth Avenue Amusement Company of a contract, a copy of which is annexed to the complaint, under which it was entitled to receive the sum of $6,500 in monthly installments, and after the closing of the bank and after the filing of the said involuntary petition in bankruptcy and by an instrument in writing delivered to appellant, he pretended to sell, transfer and assign his right, title and interest in said contract to the appellant without consideration, and that said assignment was executed by Kobre with intent to give and was received by the appellant with intent to take a preference and benefit over and to the exclusion of the creditors of Kobre in violation of the provision of section 60 of the Bankruptcy Act, and that at that time Kobre knew that he was insolvent, and the appellant knew of the insolvency and that said assignment from. Kobre to the appellant was made wholly without consideration and with intent to defraud App. Div.] First Department, April, 1917. the creditors of the assignor of the chose in action and of the moneys due thereunder to which moneys the plaintiff is entitled for the benefit of the creditors, and that said assignment was made with the collusive understanding and agreement that the moneys due thereunder would be retained by the appellant until the said bankruptcy proceeding had been disposed of and that then the agreement or the moneys due thereunder would be returned to the assignor by the appellant; that Kobre failed and omitted to deliver to the plaintiff the said agreement assigned to him by the Fifth Avenue Amusement Company, and by him assigned to the appellant; that at no time mentioned in the complaint did the copartnership or the members thereof have sufficient assets after the payment of the expenses and disbursements of the bankruptcy proceeding to pay their creditors in full; that the plaintiff by virtue of the provisions of the composition agreement and decree thereunder became vested with and is entitled to all the property and assets and choses in action transferred or retained by Kobre preferentially or in fraud of his creditors and to all the property which prior to the filing of the petition in bankruptcy he could by any means transfer or which might have been levied upon or sold under judicial process against him, and that there has become due under said agreement so assigned to Kobre and by him assigned to the appellant the sum of $6,500, together with interest thereon from the 1st day of March, 1915, and that the plaintiff has no adequate remedy at law. The judgment demanded against the appellant is to have the assignment by Max Kobre to the appellant declared void on the ground that it was preferential and fraudulent as against the creditors of the private bank as well as against the plaintiff, and that he be compelled to deliver the same up in order that it may be canceled. Section 60 of the Bankruptcy Act provides, among other things, that a person shall be deemed to have given a preference if, being insolvent, he has, within four months prior to the filing of the petition, made a transfer of any of his property and the effect of the transfer will be to enable any of his creditors to obtain a greater percentage of his debt than any other APP. DIV.- VOL. CLXXVIII. 5 |