Webb v. Thomas

Headnote

Assignment fob Benefit of Cbeditobs—Prefebence to Indobsers. An assignment made by a firm for the benefit of its creditors is not, in the absence of fraud, invalid because it prefers the indorser, and not the holder, of a valid unpaid note, though such indorser is at the time a member of the firm.

Appeal from special term, Montgomery county.

Actions by Charles J. Webb and Harry E. Lincoln against J. Melvin Thomas and William T. Pettengill, copartners under the firm name of Thomas & Pettengill, and William J. Kline, assignee of said firm, and by ¡Simon Rawitser and another against the same defendants, to set aside an assignment for the benefit of creditors on the ground of fraud. From a judgment of the special term in favor of defendants, plaintiffs appeal. Affirmed.

The following opinion was delivered at special term by Stover, J.:

“This is an action brought to set aside a general assignment for the benefit of creditors upon the ground that it was fraudulent. The plaintiffs are judgment creditors of the assignors. I have examined the testimony and briefs of the parties, and think that the only serious question to be considered by the courtis that raised by the proofs with respect to the claim described in the assignment as in favor of W. T. Pettengill, one of the assignors. That clause in the assignment, is as follows: ‘The said several claims existing on the 15th day of April, 1889, except such as are mentioned in Schedule A. created since that time, and are more particularly set forth in class marked “two” in the schedule to accompany this assignment, and being then in favor of the said firm’s creditors, respectively, as follows.' Then follows a list of creditors, perhaps fifty or more-in number, and in which list the name of AV. T. Pettengill appears. The nature or amount of the indebtedness is not set forth. In the schedule filed by the assignors appears a statement of "the creditors of said firm, with the nature and amount of the indebtedness, and in that list appears the name of W. T. Pettengill. held by David Cady, amount §1,200, and the character of the indebtedness, ‘indorsement.’ The oral testimony given upon the trial shows that the defendant Pettengill indorsed a note for §1,200 for the benefit of the firm, and that the firm received the proceeds and benefit of the note. At the time of the assignment the note was held by the First National Bank, or by David Cady, who was the cashier of said bank; and this was the claim referred to in the assignment and schedules. It is claimed on the part of the plaintiffs that this was a fraudulent preference. I do not think that the evidence establishes such fraudulent character. As has been repeatedly held, fraud must be proven, and the fraudulent intent must have existed at the time of the transaction, although it may be evidenced by the acts of the parties in relation thereto. The burden of establishing such fraud is upon the plaintiff, and the evidence should be clear in order to warrant the court to find that it was fraudulent. In this case the defendant Pettengill stood in the position of surety for the firm. The firm had had the benefit, and in making the assignment it had a right to prefer Mr. Cady, or the First National Bank; and it seems to me that this is all that this transaction accomplished. It is true that W. T. Pettengill is named as a debtor, but this, at most, it seems to me, would raise a presumption of fraud; and when the intent was inquired into, and the whole transaction was made to appear, the fact would appear that he was not the creditor in such a sense that he received an illegal preference by the payment of the debt under the assignment, but indirectly, so far as the firm paid the debt, he, as surety for the firm, received the benefit. I do not understand that the law prohibits such .a transaction. An insolvent copartnership may prefer any creditor within the limit as to the amount prescribed by the statute, so long as the debt is a just debt against the partnership; and, while it is immaterial what form the transaction takes if it be in fact a fraudulent one, and deprives creditors of their just rights

in the property, on the other hand, it makes no difference as to the manner in which the preference is exercised if it is free from the intent to defraud creditors, . and the conveyance not in a form prohibited by law. In other words, it is the intent with which the act is done that characterizes it as fraudulent or otherwise. I do not think the proofs in this case would warrant 'a finding that the firm intended at the time the assignment was made to make a fraudulent preference in favor of W. T. Pettengill. As it would have been free from doubt if the debt had been characterized as due to the First National Ban)t, or Mr. Cady, I do not • think that using the name of W. T. Pettengill in describing the debt made the transaction fraudulent, the actual facts appearing. It was upon the plaintiffs to show the fraud, and-I do not think the proofs do this. This case is quite unlike Frazier v. Truax, 37 Hun, 587 . In that case a person was named as creditor who had no connection whatever with the debt, and it was sought to explain the preference by proving a paroi trust in favor of a third party. The distinction is quite apparent, for in this case there is no question as to the validity or the amount of the indebtedness.

“In regard to the claim of H. Inman & Son, it appeared that the firm had had transactions with both firms, and that the actual indebtedness was to the corporation, the Inman Manufacturing Company. This, too, wás a valid debt, and the evidence shows that the name of Inman & Son was not inserted with any fraudulent purpose.

“I think the plaintiffs have failed to sustain the allegations of the complaint. The decree will be in favor of the defendants. ”