Opinion
December 3, 1951.
Action for judgment declaring null and void an assignment and transfer by the husband of plaintiff Schiff to a corporation of all the assets of his business, and directing the return to her by the defendant marshal of a bond furnished to him to procure a sale of the aforesaid assets pursuant to levy made by him under a judgment obtained by her against her husband. Plaintiff Schiff and the impleaded defendant surety company and the defendant marshal appeal from an order which denied their motions to strike out a defense and counterclaim in the answer of the defendant trustee in bankruptcy of the corporate transferee, by which the trustee seeks to have the lien of plaintiff Schiff's judgment declared null and void and to recover from her, the marshal, and surety the amount of the proceeds of the sale. On February 4, 1949, plaintiff Schiff instituted an action against her husband (defendant Schiff) for $2,065. On February 17, 1949, defendant Schiff, doing business under the name of Alvee Sportswear Co., transferred the assets of the business to a newly organized corporation, defendant Alvee Sportswear Co., Inc. On March 29, 1949, she obtained judgment against her husband for $2,173.56. Upon execution duly issued, defendant Marx, a city marshal, levied on the assets of the husband's business on April 5, 1949. On April 7, 1949, defendants Schiff and Alvee Sportswear Co., Inc., served on the marshal a claim that the assets belonged to the corporation. The marshal demanded of plaintiff Schiff an indemnity bond, which she furnished, with the impleaded defendant surety company as surety thereon. The proceeds of the execution sale on April 20, 1949, which were paid to plaintiff Schiff, resulted in partial satisfaction of her judgment to the extent of $1,943.84. On July 22, 1949, an involuntary petition in bankruptcy was filed against Alvee Sportswear Co., Inc. After adjudication in bankruptcy, respondent New York Credit Men's Adjustment Bureau, Inc., was elected trustee. Order affirmed, without costs. Although the counterclaim cannot be sustained on the theory that plaintiff Schiff's lien became null and void by reason of subdivision a of section 67 of the Bankruptcy Act ( U.S. Code, tit. 11, § 107, subd. [a]) because it attached within four months of the date when the petition in bankruptcy was filed, nevertheless it does state facts sufficient to constitute a cause of action for conversion. The defense also is sufficient. The denials, in the answer, of the allegations of the supplemental complaint as to lack of consideration and failure to give notice to creditors are, by virtue of rule 90 of the Rules of Civil Practice, given effect in the defense. The time to plead to the counterclaim is extended to twenty days after the entry of the order hereon. Subdivision a of section 67 of the Bankruptcy Act, and Schwartz v. Armstrong Co. ( 179 F.2d 766), relied upon by the trustee and Special Term, are not applicable here. The levy was made within four months of the filing of the petition; but the trustee pleads that the sale and delivery of the balance of the proceeds of sale, after deduction of expenses and fees, also took place before the filing of the petition. There is no allegation that the sale by the marshal was not in accordance with law or that the purchaser was not a bona fide purchaser. ( Fischer v. Pauline Oil Co., 309 U.S. 294; Levor v. Seiter, 69 App. Div. 33; Botts v. Hammond, 99 F. 916; 4 Collier on Bankruptcy [14th ed.], pp. 126-128, 141-142; 4 Remington on Bankruptcy [5th ed.], p. 391.) However, the counterclaim pleads ownership by the bankrupt at the time the sale was made. There is no admission that no notice was given to creditors of the transferrer. If the transfer to the bankrupt was not made in violation of section 44 Pers. Prop. of the Personal Property Law or otherwise in fraud of creditors, it had a right of action for conversion which has passed to the trustee. It is to be noted that in the present state of the pleadings it cannot be held, nor is it urged by appellants, that the notice of claim of ownership complied with section 696 of the Civil Practice Act, and that therefore no cause of action lies against the marshal and the surety company unless brought as provided in section 697 of the Civil Practice Act. Nolan, P.J., Johnston, Adel, Sneed and MacCrate, JJ., concur.