Hickok v. Cowperthwait

[1] The fraudulent character the transactions condemned by the judgment under review was considered by this court, so far as Frank H. Cowperthwait, the judgment debtor, is concerned, on the appeal from a judgment dismissing the Complaint. Hickok v. Cowperthwait, 134 App. Div. 617 , 119 N. Y. Supp. 390 . The opinion then delivered, concurred in by the entire court, discussed the evidence presented in that record. So far as the judgment is concerned, the evidence is not substantially different, except that the fraud of Frank H. Cowperthwait is more clearly demonstrated by the fact that upon this trial an attempt was made to give a] third explanation of the purposes of the transfer. As was pointed out in the opinion when the case was here before, when examined in supplementary proceedings he gave one explanation of the transfer; upon the trial, he abandoned that as palpably false and untenable, and attempted a second, inconsistent with it, but equally unsatisfactory; upon this trial, a third attempted explanation is made. As pointed out ¡by Mr. Justice Clark in his opinion, such attempts by new evidence | and new theories to meet the difficulties of the case, as indicated in the opinion previously given, are entitled to little credence and merit ¡severe condemnation. The fraudulent purpose of Frank H. Cowperthjvait being clearly established by evidence entirely competent as against him, the burden of proof then devolved upon the other defendants!to show an innocent purpose upon their part. This burden has not been met.

[2] As pointed out in the previous opinion, the mere existence of an antecedent debt is not sufficient to establish, an innocent purpose on the part of the grantee, when fraudulent intent upon the part of the grantor is shown. On the contrary, the very fact that such a debt existed may furnish a pretext to the grantees toj unite with the grantor in a fraudulent purpose to put his property in a position, not where the antecedent creditors may be secured, but 'where the judgment debtor may continue to use the property for his oiwn purpose, as manifestly he did in this case. The position of the defendants Aymar in this case is not helped by the evidence upon this trial, and for the reasons stated by Mr. Justice Jenlcs in his opinion on the Aymar appeal ( 137 App. Div. 94 , 122 N. Y. Supp. 78 ) it is impossible to close

I recommend that the judgment appealed from be affirmed; but, in view of the full discussion in the two opinions above referred to, it seems to me that further discussion is unnecessary. Judgment affirmed, with costs. All concur, except THOMAS and CARR, JJ.

(dissenting). Mary E. Cowperthwait, dying in 1888, by her will made her husband, Frank H. Cowperthwait, and her son, Frederick S. Cowperthwait, trustees to pay the income of her property to the former for his life, with remainders to her children and grandchildren. The questions here involved are: (1) Whether transfers

of stock by Frank to Frederick, as trustee, for moneys diverted from the wife’s estate by Frank, and for moneys advanced by certain of the children, are fraudulent as against judgment creditors of Frank and Frederick; (2) whether Aymar became a pledgee of certain of such stock in fraud of such creditors. Frank received and used personally $16,400 of money belonging to his wife’s estate, as follows: $2,900 from property sold October, 1904; $7,500 at a date earlier than that; and $6,000 June 29, 1904, the date of the transfer of the stocks. A judgment for $11,949.84 in favor of one Gerard, recovered against Frank in 1894, was on January 21, 1897, purchased by the wife’s five children, each contributing $2,400 therefor, and the judgment was assigned to Frederick, trustee. For this Frank gave each child his note for $2,400, still unpaid except the interest in part. This transaction is conceded. On or about June 29, 1904, Frank suggested to his father that the sisters and brothers should be protected respecting their mother’s estate and the Gerard judgment, and on that day the father executed to Frederick 11 assignments of certificates of stock, aggregating 99 shares of the Brooklyn Chair Company and 308 shares of the common stock and 63 shares of the preferred stock of the Brooklyn Factory & Power Company. These assignments were inclosed with a letter from father to son:

“Dear Fred Enclosed are the assignments of my interest in various stocks held by different parties, that I agreed to give you when you were here on the 29th ult. to execute the deed of the Waverly Ave. property. They are made out to you as trustee of the Gerard judgment that you took up in 1897, and I hope that in time you will realize enough from them to make you whole, incldg. interest to date of final settlement. Any excess obtained to be paid towards liquidating the other debts of mine after Nancy and Daisy are taken care of.

“Yours, etc., Father.”

The action is to set aside certain of these transfers. The original assignments and the subjects thereof were thereafter somewhat modified. All the stock as originally assigned had been issued to Frank and by him pledged to creditors, and stood on the books in the name of the pledgees, and after the assignments Frank (1) procured the release of certain stock and transferred it unincumbered to Frederick,

On November 5, 1906, Aymar delivered to Frank the 30 and 25 shares of the Power Company for the purpose^ of issuing them directly to Frederick, trustee, and to these 55 shares the father procured to be added 5 shares standing in Frederick’s (as trustee) name, and caused on November 5, 1906, two new certificates to be issued to his son, Frederick Cowperthwait, trustee, and Frederick as trustee indorsed the' same to Aymar as collateral to his debt. About December 14, 1906, Aymar returned to Frank the 49 shares of Chair stock, the latter purchased one additional share, and caused ¡the 50 shares, in certificates of 25 shares each, to be reissued to Frederick, trustee, on December 28, 1906, and the latter indorsed them to Aymar as security for his debt. Frank took the 52 shares of Power stock transferred to Frederick, trustee, October 25, 1904, indorsed] by the latter, and pledged it as collateral for a note of $5,000. February 16, 1907, Frank paid the note, caused the 52 shares to be reissued in two certificates of 25 and 27 shares to Frederick, trustee, who at I the father’s instance indorsed the certificate for 25 shares, and the former transferred it to one Boardman as security for money with which I to pay the note. On June 17, 1907, Frederick, trustee, transferred the 27 shares to Frank, who transferred them again to Frederick October] 19, 1907. One Bug-bee held as security 36 Power shares, one-half common and one-half preferred. October 1, 1906, Frank obtained the 16 shares preferred and caused it to be reissued as follows: October 4, 1906, 12 shares to one Meech, to whom James sold it; 6 shares October 4, 1906, to “Frank H. Cowperthwait, trustee,” to which he added a share bought by himself, and caused on October 19, 1901, a new certificate for seven shares to be issued to Frederick as trustee. Prior to June 29, 1904, the father had placed 85 shares of Power stock in his son’s name, to be pledged to secure the son’s note indorsed by the father. It was discounted by the People’s Trust Company, and Fjranlc took the money. On November 5, 1906, the Trust Company exchanged this certificate for two, one for 35 shares and one for 50 shares, issued to Frederick, trustee, and indorsed by him to the company. j

On June 22, 1907, Frank procured a certificate of 29 shares of

After this general review of transactions subsequent to the transfer of June 29, 1904, it is necessary to examine critically the final status of Frederick, trustee, what was in fact done by James, and whether the plaintiff’s rights became superior to those of the beneficiaries and Aymar by reason of a fraud tainting their holdings. Any intelligent conception and judgment of the transaction must keep in constant foreground that all of the stock in the assignments of June 29, 1904, was held by creditors, and that mere equities were carried to Frederick, trustee, which could be saved from extinction and made valuable only by most prudent and skillful financiering, and if the father, best equipped for that duty by experience and relation to the industries involved, and the trustee honestly co-operated for that end, their action would not amount to a fraud that would undo the original assignments. October 25, 1904, the father transferred 52 shares Power common to Frederick, trustee, and received it back indorsed by the latter and raised $5,000 on it at the State Bank. The father had a right to give to Frederick, trustee, only the equity in the manner adopted. Follow these shares. February 16, 1907, Frank paid the note and had the 52 shares reissued to Frederick, trustee. June 17, 1907, for a purpose not appearing,- Frank took the 27 shares and held until October 19, 1907, and returned them to Frederick, where they remain. The 25 shares Power were transferred to one Boardman on February 16,

Take the next act indicating fraud as alleged in the order alleged by plaintiff’s counsel. In this, Frank, having procured from Bugbee. pledgee, 18 shares Power Pr., which was subject to the assignment of June 29, 1904, sold 12 shares to Meech, put tine! remaining 6 shares in his own name as trustee on October 4th, and pn October 19th transferred them, with an additional share, to Frederick, trustee. The result of this manipulation is that the trustee lost his equity in 18 shares pledged to Bugbee and got 7 shares free, so Jar accomplishing the necessary purpose of clearing the incumbrances on the assigned stock. discover, but it is no-,000 more than he re-What the 12 shares to Meech brought I do not ticeable that the father paid the State Bank $1; ceived from Boardman. June 29, 1904; Frank had assigned his equity in 30 shares Power and 49 shares of Chair held by Aymar as collateral, and to Aymar’s holding Frank had added 25 shares Power issued to him in May, 1905. Aymar permitted Frank to reissue to Frederick, trustee, this stock, adding 5 shares received frpm Frederick, trustee, whereupon it was returned to Aymar, who has it. Analyze this act. In all the stock returned by or to Aymar, save the 5 shares of Power, the trustee had an interest subject to the rights of Aymar, and the only change was one of form; the trustee taking the certificates directly and then transferring to Aymar. But it ¡is said that the trustee subjected 5 shares to Aymar’s debt. So he did, but he received the equity in 25 shares of Power that he had not had, and one additional share of Chair stock. I find here no evidence that the father, or trustee, or Aymar, were robbing the trust, or that Aymar did an improper thing. I

In the matter of the People’s Trust Company the father procured the exchange of the 85 shares Power, pledged ¡before June 29, 1904, for the father and son’s obligation for the father’s debt, for two certificates, issued to the trustee and by him indorsed, and later Frank procured the surrender of 35 shares by depositing 29, and sold the 6 remaining shares to Crane, to whom they were' issued. Undoubtedly this transaction was to get 6 shares released to sell to Crane for cash. I do not find from the evidence as to whether jFrank made any payment to the trust company to procure the release. Whether the trustee received an equivalent at that or any time for his equity in these six shares will be considered. But at this juncture it may be claimed that the father was indebted therefor to the trustee, although it should be observed that somebody, presumably the father, was paying the interest necessary to carry the loans for which all jthe stock was pledged. It has been noticed that the father in February, 1907, had two certificates of Chair stock, 25 shares each, issued to the trustee, which Frank had caused to be reissued in place of shares pledged severally to

From deficiency in the evidence I cannot ascertain how much Frank’s cash payments exceeded his receipts, but excluding unshown payments of interest, which must have been considerable, the sum does not seem to exceed $1,220 as shown by defendant’s statement. If the correct view be that the father, owing honest debts to his children, could only keep the collateral in trust therefor unaffected by fraud by leaving the assigned shares untouched by him, and leaving Frederick to struggle with the load and escape the burden of it as best he could, then the assignments were fraudulent. But, as will appear later, the debt was honest; its payment was sacredly obligatory. The father’s property interests were fragmentary and in precarious condition. The son was 24 years of age, and it required the resources of the father to readjust the loans, paying one here and contracting another there, borrowing anew and selling stock where a little could be set free. Had it not been done, all would have been sacrificed. I do not regard the father’s vigilance and interposition as an evidence of fraud, but as exhibiting a sense of just obligation. It is true that the assignments were made in June after actions begun in May against Frank and Frederick to recover judgments for causes of action based on negligence arising in February, 1904, whereon judgments were recovered in January, 1907, upon which were executions returned unsatisfied, and following which were proceedings supplementary to execution, and the receiver was appointed in December, 1907. These facts must be considered in arriving at a judgment concerning the nature of the acts of the defendants: The Gerard judgment against Frank was recovered in 1894. It was assigned to Frederick, trustee. The five children paid each $2,400. The judgment was a debt on June 29, 1904. Frank had some $16,400 of the mother’s estate.

Why should Frank not undertake to secure these debts? And he

3The father’s statements on his examination jin supplementary proceedings, contrasting with his testimony in tjiis action, may make against the probity, of his motive, but that does not affect the son’s integrity in receiving the transfers. Frank did state, it appears, that he used the dividends to some degree for his personal expenses; on the trial he stated that all were used for payments of interest or principal upon loans; but beyond this testimony as first given by Frank, ^ " defendants, I find no were used for Frank’s not available against Frederick and the other evidence that any moneys received from stocks own purposes. It may be that Frank was begtiiling his own children, as well as seeking to defraud other creditors, and that his claims and lpate him, yet when I d July 5, 1904, I find declarations present too many varieties to exet look at what he wrote and did on June 29 an that he made a valid trust, which neither he nor Frederick could undo and which could not be wrecked by any changed or manipulations that either permitted. The beneficiaries acquired interests which were beyond disturbance by misconduct on the part of the trustee or his father. It would be a dangerous doctrine that ja trust may be found fraudulent because the trustee abused his office.!

It is urged that upon former appeals all questions here involved have

In this connection it will be noted that much of the evidence upon which reliance is placed to find fraud on the part of the father and son is not admitted as against Aymar and the Herman Capelle Company, another pledgee of stock accused of a fraudulent holding. This is so-as to Frank’s evidence in supplementary proceedings received against, him alone; so, as to Frank’s agreement with Boardman; so, especially as to Aymar, the transaction with Boardman that followed, and the transaction with the United States Rattan Company; .so, as to much of the above history of the 52 shares pledged to the State Bank; so, as to Capelle, the delivery of the 25 shares to Aymar and the exchange of certificates by Aymar; so, as to Aymar and Capelle, the exchange of the 85 shares with the People’s Trust Company; so, as to Aymar and Capelle the transaction with the Bugbee stock. It would appear that it was the executed purpose of the trial court to exclude, as to Aymar and Capelle all evidence of subsequent dealings with the stock by Frank save as they were severally privy to it. With such: matter absent from the record, the case against Aymar has no support, and in my judgment the finding of fraudulent participation by the trustee is not sustained. The letter from Frank to the son, dated' July 6, 1904, states that the assignments are specifically to realize money to pay the Gerard judgment, and to apply any excess to his indebtedness to the estate, giving a preference over the last purpose to-

The judgment should be reversed, and a nejw trial granted; costs to abide the final award of costs.

CARR, J., concurs.