McCABE v. GELFAND, N.Y. Misc., Judgment, Law, casemine.com

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Attorney(S)

Jerome Edelman for plaintiff. Kommel, Rogers, Lorber Shenkman for defendants.

Judges

CARMINE A. VENTIERA, Spec. Ref.

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Smart Summary

Factual and Procedural Background

The plaintiff, Bernard McCabe, commenced a personal injury action against defendant Sam Gelfand in 1958. In June 1960, Gelfand, the fee owner and possessor of certain real estate, deeded the property to his wife, the codefendant, allegedly without consideration, and divested himself of other assets. In April 1965, the plaintiff obtained a judgment against Gelfand, with a substantial balance unpaid. On January 3, 1967, the plaintiff initiated the present action to set aside the conveyance as fraudulent. The plaintiff moved to dismiss certain defenses asserted in the defendants' second amended answer, specifically those contained in paragraphs 7 through 9. Earlier motions regarding the statute of limitations defense were denied due to factual disputes about the date of discovery of the alleged fraud. This opinion arises from the court’s reconsideration upon reargument based on additional facts and legal contentions.

Legal Issues Presented

Whether the plaintiff’s cause of action to set aside the property transfer is grounded in actual fraud or constructive fraud.
Which statute of limitations applies to the plaintiff’s action: the six-year limitation for actual fraud or the ten-year limitation for constructive fraud under the Civil Practice Act and Debtor and Creditor Law article 10.
Whether the plaintiff’s action is barred by the statute of limitations, considering the discovery date and the nature of the fraud alleged.

Arguments of the Parties

Plaintiff's Arguments

The gravamen of the cause of action is grounded in equity to set aside a transfer for constructive fraud, pursuant to article 10 of the Debtor and Creditor Law.
This action is not for damages based on actual fraud; therefore, the six-year statute of limitations for actual fraud does not apply.
The ten-year statute of limitations for constructive fraud applies, commencing from the date of the alleged fraudulent conveyance.

Defendants' Arguments

The opinion does not contain a detailed account of the defendants’ arguments beyond the assertion of statute of limitations defenses contained in their answer paragraphs 7 through 9.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Buttles v. Smith, 281 N.Y. 226, 236	Establishes that actions grounded in constructive fraud under article 10 of the Debtor and Creditor Law fall under the ten-year statute of limitations.	Used to support the conclusion that the plaintiff’s action is governed by the ten-year limitation commencing from the date of the fraudulent conveyance.
Hearn 45th St. Corp. v. Jano, 283 N.Y. 139	Clarifies that equitable actions to set aside fraudulent conveyances are subject to a ten-year statute of limitations, not the six-year limitation for actual fraud.	Quoted extensively to affirm that the plaintiff’s suit is equitable in nature and governed by the ten-year limitation.
Erbe v. Lincoln Rochester Trust Co., 2 A.D.2d 242, 244	Distinguishes the applicable limitation periods for different types of fraud actions.	Referenced to contrast actual fraud limitations with those applicable to constructive fraud.

Court's Reasoning and Analysis

The court analyzed the nature of the plaintiff’s cause of action, determining it to be an equitable claim grounded in constructive fraud under article 10 of the Debtor and Creditor Law. This classification is critical because it dictates the applicable statute of limitations. The court distinguished this from an action based on actual fraud, which carries a six-year limitation period from discovery under CPLR 203(f). Instead, the court found the ten-year limitation under Civil Practice Act § 53 governs, running from the date of the fraudulent transfer in June 1960.

The court further reasoned that the CPLR does not shorten this limitation period due to CPLR 218(b), which preserves pre-CPLR statutes of limitations when the cause of action was not barred as of September 1963. Thus, the defense of statute of limitations was deemed inapplicable to the defendants’ answer.

Consequently, the plaintiff's motion to dismiss the statute of limitations defense was granted, and the prior order was vacated and replaced with this determination.

Holding and Implications

Holding: The court granted the plaintiff’s motion, holding that the ten-year statute of limitations for constructive fraud applies to the action to set aside the conveyance, and therefore, the statute of limitations defense is inapplicable.

Implications: This decision directly affects the parties by allowing the plaintiff’s equitable action to proceed despite the passage of time since the conveyance. The court did not establish new precedent but reaffirmed the applicability of the ten-year limitation period to constructive fraud claims under article 10 of the Debtor and Creditor Law, preserving existing legal principles.

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BERNARD McCABE, Plaintiff, v. SAM GELFAND et al., Defendants

CARMINE A. VENTIERA, Spec. Ref.

This matter has been referred to me as Special Referee to hear and determine, based upon the stipulation of the parties.

Motion for an order for leave to reargue is granted, and upon such reargument the order of June 19, 1968 is vacated and the decision heretofore rendered June 4, 1968 [ 57 Misc.2d 12] is recalled predicated upon the additional facts presented herein, and the following substituted in its stead:

In this action by the plaintiff, a judgment creditor, to set aside the alleged fraudulent conveyance of a parcel of real estate, the plaintiff moves "for an order dismissing the separate, distinct and complete defenses" contained in paragraphs "7" through "9" inclusive of the second amended answer.

The court believes that under the circumstances presented herein a short resume of the facts should be set forth for clarification.

The plaintiff commenced a personal injury action against the defendant Sam Gelfand in 1958. In June, 1960, Gelfand, who was the fee owner and in possession of certain premises, deeded the property to his wife, the codefendant herein, allegedly without consideration, and divested himself of his other assets. In April, 1965, the plaintiff recovered a judgment against Gelfand, on which a substantial balance still remains unpaid. On January 3, 1967, the plaintiff commenced the present action to set aside the afore-mentioned conveyance.

On plaintiff's prior motion to dismiss the defense of Statute of Limitations, the plaintiff based his argument on facts indicating an alleged actual fraud, contending that pursuant to subdivision 5 of section 48 of the Civil Practice Act, which was in effect on the date of the transfer of the property, plaintiff had sic years from the discovery in which to commence his action. From the facts and arguments presented, the court determined that in accordance with CPLR 203 (subd. [f]) which is applied most commonly in actual fraud cases, and which is designed to shorten the time in which to bring an action, the Statute of Limitations applicable would be six years from the commission or two years from the discovery, whichever is longer. However, in view of the fact that the date of discovery was in dispute, the court found that a question of fact existed and accordingly, the motion was denied.

On reargument, the plaintiff alleges that the gravamen of the cause of action herein is grounded in equity to set aside a transfer of property for constructive fraud and to follow the assets of the debtor pursuant to article 10 of the Debtor and Creditor Law. Plaintiff further contends that this is not an action for damages based upon actual fraud to which the six-year limitation applies, but is grounded on constructive fraud to which the 10-year Statute of Limitations is applicable.

An analysis of the second amended complaint reveals that it states a cause of action in equity grounded upon constructive fraud to set aside a transfer, which, regardless of the intent of the debtor, is forbidden by statute to the extent that there are claims by creditors (Debtor and Creditor Law, art. 10, entitled "Fraudulent Conveyances"). As such, this action falls within the 10-year Statute of Limitations (Civ. Prac. Act, § 53) which commenced to run from the date when the act constituting the alleged fraud occurred ( Buttles v. Smith, 281 N.Y. 226, 236; Hearn 45th St. Corp. v. Jano, 283 N.Y. 139; cf. Erbe v. Lincoln Rochester Trust Co., 2 A.D.2d 242, 244). Referring to the 10-year Statute of Limitations and its applicability to equity actions under article 10 of the Debtor and Creditor Law the court in Hearn 45th St. Corp. v. Jano ( supra, p. 144) stated:

"The ten-year Statute of Limitations reads as follows: `§ 53. Limitation where none specifically prescribed. An action, the limitation of which is not specifically prescribed in this article, must be commenced within ten years after the cause of action accrues.' (Civ. Prac. Act, § 53.) Since, as has been shown, the action is not one to recover damages for fraud (Civ. Prac. Act, § 48, subd. 5), nor an action at law (Civ. Prac. Act, § 48, subd. 1), but one in equity for a rescission, the ten-year Statute of Limitations applies."

This limitation cannot be shortened by the provisions of the CPLR, which provides in CPLR 218 (subd. [b]) that when a cause of action is not barred upon the effective date of the CPLR (Sept., 1963), then the Statute of Limitations applicable thereto is governed by the time limit theretofore existing. In the instant case it would be 10 years from the date of the alleged fraudulent transfer in June, 1960. Therefore, the defense of Statute of Limitations is inapplicable. Accordingly, plaintiff's motion is granted.

McCABE v. GELFAND