Kennedy v. Thorp

courts which affected only the personal property of the debtor, ex proprio vigore, and the judgments pronounced were based upon that distinction. Were it otherwise, it is shown that the debtor had no real estate, and the amendment allowed by Judge Cardozo remedied the defect. The Glen Cove Starch Manufacturing Company could have proceeded against the defendant Bradley, to recover -the goods in specie, or their value, in an action founded upon the fraud alleged to have been committed, or they could waive the tort, affirm the sale, and sue as for goods sold and delivered. It is conceded that their judgment was recovered upon an alleged sale and delivery of the goods, and the right to proceed, as for a tort, was waived and merged. Although such was the legal result of the form of action adopted by them, it did not prevent them from assailing the assignment, on the ground that it was made wifh intent to defraud creditors. The gravamen of the two causes are entirely different. The fraudulent representations by which they were induced to sell their goods were proved for the purpose of showing an intent to accumulate property for a fraudulent purpose, in conjunction with similar transactions, but not by them as suitors, but by the receiver, who represents the interest of the creditors as well as those of the debtor, and who is a trustee for all parties (Bostwick v. Beizer, 10 Abbott Pr. 197; Porter v. Williams, 9 N. Y. 142 ; The Chautauque County Bank v. White, 6 N. Y. 236 ). This action cannot be regarded as commenced by the Glen Cove Starch Manufacturing Company. The receiver takes the property of the debtor if the assignment cannot be sustained, inasmuch as the assignee has no title to it or its proceeds. The fraudulent conveyance, in such an action as this, may be annulled, and the creditor permitted to proceed to a sale upon his execution, or the property sold, and the proceeds applied to the payment of debts, according to their legal or equitable priorities (cases, supra). It was the duty of the receiver, if the facts and circumstances warranted it, to essay to get the assets of the debtor, by attaching an assignment which he believed was fraudulently made to hinder and delay the creditors in the collection of their debts. The plaintiff is, therefore, rectus in curia. There ,is no doubt that the assignor,

Bradley, made purchases when he was insolvent. He had a right to do so. It was not evidence per se of a fraudulent intent, though it was a fact to he considered with reference to the general design which he had in view. His false representations, however, were wholly unjustifiable, having been addressed on the subject to which they related (Nichols v. Pinner, 18 N. Y. 295 ; S. C. 23 N. Y. 264 ). It may also be said that he had a right to make an assignment preferring creditors, but, nevertheless, the exercise of both rights may have been with the intent to defraud. An act lawful in itself may be done with a fraudulent intent, and the facts and circumstances surrounding the defendant militate much against his honesty. He not only purchased largely within a short time before he made an assignment, but obtained many of the goods bought on representations as to his solvency which were false. The greater part of the goods thus obtained were shipped, and the creditor prevented, therefore, from reclaiming them. His purchases, within six weeks prior to the assignment, were more than enough to pay his confidential debts, but so little in excess as to justify the conclusion that his scheme was to get goods enough to protect that class of creditors, and then to assign. His explanation of the causes of his failure, I admit, was plausible. He lost by stock operations, and by the failure of his brokers, whose notes he had to take for the margin deposited with them, and his credit was seriously injured by the conduct of some of his creditors, who, by offering his paper at large discounts, depreciated his ability to meet his engagements. These causes precipitated, he says, the assignment, which he had not designed to make until almost immediately before it was executed. It appears, however, that his stock operations were based upon money which was not part of his capital, and that he had made gains, though not sufficient to cover the losses and margins withheld. These explanations, however, are not sufficient to remove the effect of his extraordinary conduct in making the purchases he did by false statements. I should he much disposed to regard his assignment as honestly executed, were it not for this element. It was that, indeed, which justified his creditors in assailing his credit, and, when it was assailed, he could not defend it. It is

true that he says he did not know that he was not solvent, but that cannot avail him. When inquired of on that subject, in reference to a purchase on credit, he was bound to know it. If a man may be excused, by a supposition or belief that what he says is true, under such circumstances, with all the means of knowledge at hand, and particularly when it relates to his own personal affairs, then the remedies for fraud accomplished would be valueless, and commercial transactions rendered very insecure in their results. The law does not, however, countenance such conduct. Whether a party misrepresenting a material fact, knows it to be false, or makes the assertion without knowing whether it be true or false, is wholly immaterial; for the affirmation of what one does not know or believe to be true is equally, in morals and inlaw, as unjustifiable as the affirmation of what is known to be positively false (1 Story Eq. § 193). This proposition was adopted by the Court of Appeals in Bennett v. Judson ( 21 N. Y. 238 ). The defendant, Bradley, fraudulently obtained goods with the intention of transferring them, or their proceeds, for the purpose of securing a certain class of creditors, to the exclusion of others, and the two things formed one general design. If he had returned to the sellers, from whom his recent purchases were made, their goods, or some portion of the proceeds, his conduct would have secured a more favorable consideration, and an honest intent, in assigning the rest of his assets, might have been gathered from all the circumstances then disclosed. I do not arrive at this conclusion entirely free from doubt, but I should entertain greater doubt of the propriety of upholding the assignment.

I think the judgment should be affirmed.

Judgment affirmed.