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In re Assignment of Whitney & Kitchen

Supreme Court of New York, Appellate Division

July 7, 1911

In the Matter of the Assignment of WHITNEY & KITCHEN, a Copartnership Composed of GIRARD N. WHITNEY and JAMES V. GERAGHTY, to BAYARD L. PECK. JOHN F. MCINTYRE, Claimant. In the Matter of the Assignment of GIRARD N. WHITNEY to BAYARD L. PECK. In the Matter of the Assignment of JAMES V. GERAGHTY to BAYARD L. PECK.

SUBMISSION of a controversy upon an agreed statement of facts, pursuant to section 1279 of the Code of Civil Procedure.

COUNSEL

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Thomas F. Gilroy, Jr., for the claimant.

Daniel Burke, for the assignee.

DOWLING, J.:

Girard N. Whitney and James V. Geraghty were stockbrokers in the city of New York, doing business under the firm name and style of Whitney & Kitchen. On January 16, 1908, the firm made a general assignment for the benefit of its creditors, without preference, to Bayard L. Peck, and on January 25, 1908, the members of the firm made individual general assignments, without preference, to the same person, who duly qualified as assignee under all three assignments on January 17, 1908, February 24, 1908, and March 25, 1908, respectively. Thereafter, and on June 3, 1908, the claimant, John F. McIntyre, commenced an action against 'Girard N. Whitney and James V. Geraghty, copartners, doing business under the firm name and style of Whitney & Kitchen, and Bayard L. Peck, as assignee for the benefit of creditors of said copartnership,' to recover the sum of $30,337.50, with interest, upon allegations of the copartnership of defendants in the business of stock brokerage under the firm name of Whitney & Kitchen; of the making of the firm assignment before referred to; of the purchase by the copartnership at plaintiff's special instance and request of 500 shares of Amalgamated Copper Company stock at the then market price of $90 a share, including the commission of said copartnership; of the deposit by plaintiff with the copartnership of the sum of $5,000 in cash as margin upon said transaction and as part payment of the purchase price of said shares; of an agreement by the copartnership to advance for plaintiff the balance of the purchase price of said shares and to hold them as collateral security for such advances; of the further deposit by plaintiff with said copartnership, at its demand and request, between August 7 and October 23, 1907, of sums aggregating $25,000 as margins upon the transaction and as partial repayment of the advances made by the copartnership. The complaint then further alleged: 'Seventh. On information and belief, that on or about the 27th day of July, 1907, the defendants Whitney and Geraghty, composing the said copartnership

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as aforesaid, without the consent or knowledge of plaintiff, and in violation of his ownership and of his rights in said stock, and in violation of the said agreement between plaintiff and said copartnership, disposed of said five hundred (500) shares of stock of the Amalgamated Copper Company and converted the same to their own use. Eighth [as amended]. That prior to the commencement of this action, and on January 16th, 1908, January 17th, 1908, and January 19th, 1908, plaintiff duly demanded from the defendants Whitney and Peck, as assignee as aforesaid, and on January 21st, 1908, plaintiff duly demanded from the defendant Geraghty the return to him of said stock, and at said times duly offered to pay the balance due thereon, but said defendants and each of them failed and neglected and refused to return the same, and on information and belief said stock is not and was not then and has never since said conversion been in the possession of said defendants or of any of them.' It was further set forth that plaintiff did not know of the conversion of his stock until January 16, 1908; that the highest market price of the stock between July 27, 1907, and that date was $90.371/2 per share; and that due proof of claim had been presented against the assigned estate of the copartnership to the assignee, who had rejected the same. Thereafter the complaint was dismissed by stipulation against the defendant Peck, but he continued in the action and took part in the argument of the subsequent appeals. The suit having been sent to a referee to hear and determine, judgment was thereafter entered on his decision in favor of the plaintiff and against the defendants 'Girard N. Whitney and James V. Geraghty, copartners, composing the firm of Whitney & Kitchen,' in the sum of $11,485.21 damages, together with $977.40 costs and disbursements. On appeal to this court the judgment was modified by increasing it to $36,356.53, with costs of the appeal amounting to $249.29 (McIntyre v. Whitney, 139 A.D. 557). On appeal to the Court of Appeals the judgment of this court was affirmed, with costs (201 N.Y. 526). Included in the judgment in its present form is an allowance granted pursuant to the provisions of section 3253 of the Code of Civil Procedure. Thereafter proof of claim of the amounts due under the various judgments was duly filed with the

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assignee, wherein the plaintiff gave notice that he 'claims that the copartnership of Whitney & Kitchen, consisting of James V. Geraghty and Girard N. Whitney, general partners,' is justly indebted to him in the amount thereof. At the same time he filed similar proofs of claims against the individual estates. The assignee rejected all of the claims against the copartnership estate beyond the principal thereof, with interest down to the time of the making of the assignment, and rejected in toto the claims against the individual estates.

The questions presented for decision are: (1) Are the judgments recovered a valid claim against the copartnership estate for the whole amount thereof with interest, or only for the amount admitted by the assignee? (2) Are the claims based on said judgments provable against the individual estates of the members of the firm, as well as against the copartnership estate, and if so, are they to be preferred in payment over the other firm debts and equally with the claims of individual creditors of the individual estates? To the first question we believe the answer must be returned that the judgments are final and conclusive upon the assignee and all other persons interested in the copartnership estate, as well as upon the assignors. So far as the interest is concerned the members of the firm determined the question for themselves when they directed their assignee, by the terms of the assignment, to pay and discharge in full, so far as the funds were sufficient, 'all the debts and liabilities now due or to grow due from the said copartnership, parties of the first part, with all interest moneys due or to grow due thereon.' But even apart from this provision the assignee could not question the judgments, or seek to separate them and allow part and disallow the rest, when the judgments themselves are not attacked for fraud or collusion. 'Where a cause of action has been prosecuted or reduced to judgment, the cause of action is swallowed up and merged in the judgment, which is a higher and superior sort of security.' (20 Am. & Eng. Ency. of Law [2d ed.], 599.) 'After the recovery of this judgment, whether it was recovered for a tort or upon contract, the recovery became a debt which the defendant was under obligations to pay; and the law implied a promise or contract on his part to pay it. The previous cause of action

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whatever it was, became merged in the judgment.' ( Gutta Percha & R. Mfg. Co. v. Mayor, etc., 108 N.Y. 278.) 'I am of opinion that, in the absence of any suggestion of fraud, collusion, undue advantage or mistake, a judgment recovered against an assignor for benefit of creditors, even after the making of the assignment, on a litigation of the merits and on a deliberate and intelligent decision by a court of competent jurisdiction, is conclusive on the assignee, as to the fact and amount of an indebtedness established thereby on a consideration existing before the assignment.' (AUSTIN ABBOTT, Referee, in Ludington's Petition, 5 Abb. N. C. 322.)

This is so even when the assignment is made pending the trial of the action. 'Where during the pendency and before the trial of an action, the defendant makes a general assignment for the benefit of creditors, and the action, after a trial at which the defendant appears and defends, results in a judgment in favor of the plaintiff, the judgment in the action is not only competent evidence as to the amount of the plaintiff's claim against the assigned estate, but, in the absence of fraud or collusion in the recovery of the judgment, is conclusive evidence thereof against the assignee and the defendant's other creditors.' (Matter of Roberts,98 A.D. 155.) So in Merchants' Nat. Bank v. Hagemeyer (4 A.D. 52) an assignee was allowed to become a party to an action where the assignment was made after the action was commenced, on the ground that the judgment to be rendered would be conclusive upon the assignee, whether made before or after the assignment. We are of the opinion, therefore, that whatever was incidental to the recovery of the judgment and involved therein as a necessary result of the litigation, including the costs and allowance therein, as well as the interest accruing because of the delay, became final and conclusive as against not only the ...


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