Wilson v. Marion — 25 N.Y.S. 1066

Majority

p. 1066

WILSON v. MARION et al.

(Supreme Court, General Term, Fifth Department.

October 20, 1893.)

Headnote

Assignment for Benefit of Creditors—Purchaser from Assignee.

The title of a purchaser in good faith from an assignee for benefit of creditors is not affected by the fact that after he had paid the price, but before he received his deed, the assignment was set aside, as in fraud of creditors; and it is immaterial that the fraudulent character of the assignment was apparent on its face, since 2 Rev. St. p. 137, § 5, providing that the title of a purchaser in such case shall not be affected “unless it should appear that such purchaser had previous notice * * * of the fraud rendering void the title” of his grantor, refers to actual,, and not constructive, notice.

Appeal from judgment on report of referee.

Action by Joseph G-. Wilson against Margaret A. Marion and •others to set aside an assignment for the benefit of creditors made by •defendants Marion, composing the firm of Marion & Co., to defendant •John F. Kinney, and also to set aside a deed by defendant Kinney to -defendant Patrick Fahy of land sold under the assignment. The referee found that the assignment was fraudulent and void as to plaintiff, but that defendant Fahy took a good title to the land pur•chased by him. Plaintiff appeals.

Affirmed.

The opinion of Hon. George F. Yoeman, the referee before whom the cause was tried, is as follows:

p. 1067

The defendants Marion made a general assignment for the benefit of their creditors to the defendant Kinney. A part of the property conveyed was the real estate described in the complaint herein. The said assignee sold this real estate at public auction, and it was bid off by the defendant Fahy. This purchase was for a fair price, and was made honestly. The consideration was paid at the time of the purchase. After the purchase and payment, and before the delivery of the deed by the assignee, Fahy was told that an action had been commenced by one Booss to set aside the assignment, upon the ground that it was fraudulent as to him. This action is brought by a judgment creditor of the assignors, and attacks the assignment as fraudulent and void, and the conveyance to Fahy illegal. It is claimed that the assignment is fraudulent for two reasons: (1) Because it contains a provision that individual debts should be paid out of firm assets before all of the firm debts are paid; and (2) because it directs the payment of certain debts as firm debts, which the proof shows are individual debts. In Booss v. Marion, 129 N. Y. 536 , 29 N. E. Rep. 832 , upon substantially the same proof, this assignment was held fraudulent on both grounds, and was adjudged void as to the creditors attacking it in that action. The question therefore to be considered here is the validity of Fahy’s title to this real estate. It is contended that the assignment conveyed no title to the assignee, and therefore he could not pass any title to Fahy. This is placed upon the first ground for holding the assignment fraudulent It is argued that, since the terms of the assignment show that it is fraudulent as- to creditors, it. has no force between the parties to it. The general rule is that the instrument is good between the parties, and only voidable when attacked by one who has been defrauded by it It is not easy to see why there should be, in principle, any difference in the effect of the instrument based solely upon the source from which the proof to establish the fraud comes, whether it be from the face of the instrument or from extrinsic proofs. It is held in the Booss action that this assignment was fraudulent as to the creditors attacking it. There is no holding in that case that it was not good between the parties to it, and it seems to me that it was clearly a valid instrument between them.

It is further claimed that Fahy’s title is affected by the fraud, and can therefore be set aside by an attacking creditor. The statute (2 Rev. St. p. 137, § 5) provides that in case like this the title of a purchaser for a valuable consideration shall not be affected or impaired “unless it should appear that such purchaser had previous notice of the fraudulent intent of his immediate grantor, or of the fraud rendering void the title of such grantor.” It is not claimed that, at the time that Fahy purchased and paid the consideration for this land, he had actual notice of anything relating to the fraud, but it is claimed that the fact that the assignment was fraudulent upon its face was constructive notice to him, and vitiated his purchase. This claim cannot be supported under the law of this state. The notice referred to in the statute is actual, and not constructive, notice. Steams v. Gage, 79 N. Y. 102 ; Farley v. Carpenter, 27 Hun. 359 . To taint Fahy’s title, the plaintiff must show that Fahy has allied himself with the fraudulent transaction in such a way as to make him an actual participant in the fraud. “If he knew or had believed the motives of his grantor (or the assignor) to be fraudulent, then, by aiding him in his scheme, he made himself a party to the fraud, but no evidence is competent proof to affect him, or his right to the possession of his property, which falls short of proving the nature of the transaction, and of illustrating the guilty participation of the vendee.” Bush v. Roberts, 111 N. Y. 282 , 18 N. E. Rep. 732 . I am of the opinion that Fahy is not charged with constructive notice of the fact that the assignment was fraudulent upon its face. It is true it is the duty of purchasers of real estate to investigate the title of their vendors, and to take notice of adverse rights of third parties, which the purchasers have the means of discovering, and as to which they are put upon inquiry; but the matters of which purchasers have constructive notice, by reason of the contents of the instruments through which they deduce their title, relate to “some actual outstanding title, lien, or equitable interest,” and do not relate to such rights as defrauded creditors at large have by reason of a fraudulent sale made by a debtor. Parker v.

p. 1068

Conner, 93 N. Y. 124 , 125. The fact that Faliy was told, after his purchase- and payment, and before he received the deed, that an action had been, commenced by Booss to set aside the assignment as fraudulent as to himself, does not make him a participant in the fraud perpetrated by the Marions, because he had acquired his right and paid his money before he received-this information, and because this information could be, at most, merely constructive notice within the authorities above cited, if it were that. It did not apprise him of any fact showing the assignment fraudulent, but merely informed him that a certain person claimed it to be fraudulent as to himself. It did not follow from this that it was fraudulent, or that, if fraudulent, it was fraudulent as to any other person besides Booss, or because of the insolvency of the assignor.

Argued before DWIGHT, P. J., and LEWIS and HAIGHT, JJ.

P. M. French, for appellant.

Edward F. Wellington, for respondents.

Judgment appealed from affirmed, with costs, on the opinion of the referee.

Cases cited

Booss v. Marion 129 N. Y. 536 N.Y. 1892-01-20 p. 1067
Stearns v. Gage 79 N. Y. 102 N.Y. 1879-12-02 p. 1067