Shaffer v. Martin

The trial court made full and exhaustive findings of fact, among which was the following: That the bill of sale above set forth was “executed and delivered by the said defendants Richard Curran and Frances T. Goler, and was received and accepted by said defendants George H. King, Rosa R. King, and Sabina C. Martin, with intent to hinder, delay, and defraud the just creditors of .the said defendants Richard Curran and Frances T. Goler of their lawful claims, debts, and demands, and particularly to so hinder, delay, and defraud the judgment creditors and other creditors of the partnership, and that said defendants [Curran and Goler] have no other property than that attempted to be conveyed by said bill of sale, out of which the judgments above set forth [the ones against the firm] can be collected.” That no testimony was offered upon the trial to prove that Richard Curran was ever appointed guardian for his children. That neither the defendant Frances T. Goler, nor her husband, nor any other agent of hers, knew the source from which the $2,700 had been derived, at the time it was contributed to the partnership capital by Richard Curran; nor did they have such knowledge prior to the year

The defendants’ first difficulty lies in the fact that about $2,000 of the consideration of this instrument consisted in interest upon, or use of, the $2,700 claimed by the defendant Martin, and which was never the property of Richard Curran’s children, but belonged to Richard Curran himself, as the tenant by the curtesy in the real estate from which the money was realized. And, where land in which one has an interest as tenant by the curtesy is sold, the moneys obtained therefor represent the land; and the tenant by the curtesy is, in any event, entitled to interest thereon during his life. In re Camp, 126 N. Y. 377 , 27 N. E. 799 . The testimony in the case shows that the property transferred by the .bill of sale was of the value from $7,000 to $8,000,—an amount evidently, in the estimation of the parties to the bill of sale, sufficient to pay the debts which made up its consideration. The effect of this transaction is that $2,000 of the consideration, the property of one of the firm, is turned over to one of his children, and his creditors deprived of it,—an element sufficient of itself to taint the transaction with fraud. Eliminating the $2,000 from the consideration, and we have the children of one of the partners and two favored creditors obtaining the property for $2,000 less than its value, which is a strong indicia of fraud upon the other creditors.

■ But the respondent claims that not only the interest on the $2,700 was fictitious and fraudulent, but the princinal itself did not form a valid consideration for the bill of sale, for the reason that the chil

Long ago Lord Chancellor Thurlow said, in Ex parte Apsey, 3 Brown, Ch. 265: “Where one, by abusing his trust, advances trust moneys to the partnership, that will not raise a contract between the partnership and the person whose money it is.” In Jacques v. Marquand, 6 Cow. 497 , the principle was laid down that a partner who holds money in his individual right, in trust for another, cannot subject the firm to an action for the money by applying it to the use of the firm, without the knowledge or privity of the other member or members of the firm; otherwise where it is applied with their knowledge or privity. And it was also held that where a partner borrows money on his individual credit, and afterwards applies it to the payment of partnership debts, or lends it to the firm, this does not make the original lender a creditor of the firm. The court in that case fortified its position by reference to a large number of English cases, and this case has been followed, without substantial dissent, in this state. Hollembaek v. More, 44 N. Y. Super. Ct. 107 ; Willett v. Stringer, 17 Abb. Prac. 152 ; Tallmadge v. Penoyer, 35 Barb. 120 -126, and cases cited; Denton v. Merrill, 43 Hun, 228 . And the same doctrine is asserted in 17 Am. & Eng. Enc. Law (1st Ed.) p. 1071, and cases cited in note 3. No privity could be established between the children of Curran and the firm, as to this §2,700, until its payment was adopted by the firm with the knowledge and assent of all its members; and thus, in equity, the relation of debtor and creditor was established between the children and the firm.

It is unnecessary to consider the question as to whether the advance of the new capital needed by the firm was in any sense a loan to the firm, and whether it did not bear the same relation to the creditors of the firm that an original advance of capital might have done, or whether the circumstance was material, in view of this advance of capital, whether the other partner knew the source from whence it came, as we have reached the conclusion, as will be hereinafter stated, that the other partner had no notice, as a matter of fact, of the source of this advance. The testimony as to whether this notice was given at the time the money was advanced is confined to the statements of Richard Curran and George W. Goler; Curran testifying that Goler had such notice, and Goler absolutely denying that any such notice "was given, or that he had any knowledge of the same. Pregnant facts developed by the testimony serve to confirm-the testimony of Goler. Curran testifies that, though he had this money for 13 years, he had in no manner notified his children of the fact that he had put

In examining the findings of the learned trial judge, it appears that he reached the conclusions from the evidence which we here reach,— that the other partner had no notice either of the fact of the children’s interest in the money, or of any facts sufficient to put her upon inquiry. But the learned counsel for the appellants the Kings contends that, although the bill of sale from Curran may be fraudulent and void so far as the claim of Mrs. Martin is concerned, still, as to the consideration advanced by the Kings, that should be protected out of the property covered by the bill of sale, in the proportion that the amount of the claim of the Kings bears to the whole consideration of the bill of sale. The respondent answers that the whole bill of sale is void, because it is obnoxious to the statute of frauds. Rev. St. (Banks & Bros., 9th Ed.) p. 1887, § 1, so far as it affects this question, is as follows:

“Every conveyance or assignment in writing or otherwise, of any estate or interest in lands, or in goods, or things in action, or of any rents or profits issuing therefrom, * * * made with the intent to hinder, delay or defraud creditors or other persons of their lawful suits, damages, forfeitures, debts or demands, and every bond or other evidence of debt given, suit commenced, decree or judgment suffered, with like intent, as against the persons so hindered, delayed or defrauded, shall be void.”

The Penal Code (section 586) makes such conveyance or transfer a misdemeanor.

In Hyslop v. Clarke, 14 Johns. 458 , 465, it was held that where a conveyance is good in part, and bad in part, as against the provisions of a statute, it is void in toto, and no interest passes to the grantee under the part which is good. That cáse disclosed that an assignment had been made, where certain creditors were preferred, who had honest claims, and the trustee was directed, after the payment of such claims, to pay other creditors, upon their releasing such portions of their debts as the surplus did not pay. The court held that this provision was coercive and unjust, and made the whole instrument void. The court says at page 465:

“It appears to be an established rule that where a bond is void in part, a& against the positive provisions of a statute, the whole bond is void. This distinction was taken in the ease of Norton v. Simmes, Hob. 14, between a bond made void by statute, and by the common law; for, upon the statute of Hen. VI., if a sheriff will take a bond for "a point against that law, and also for a due debt, the whole bond is void, for the letter of the statute is so; for a statute is a strict law; but the common law doth divide according to common reason, and, having made that void which is against law, lets the rest stand; as is Y. B. 14 Hen. VIII. pi. 15. It is mentioned, also, as a saying of Lord Hobart, that the statute is like a tyrant. Where he comes, he makes all void. But the common law is like a nursing father, and makes void only that part where the fault is, and preserves the rest. Maleverer v. Redshaw, 1 Mod. 35. The principles upon which the ease of Norton v. Simmes was decided are applicable to deeds of every description which are void in part as against the statute [referring to the provisions of the statute]. This applies to the whole deed, even though a part of it may have been good at common law. Indeed, if the whole of the conveyance made in violation of the statute is not held to be void merely because it may be held to be good in one particular, it would be very easy to elude the statute in every case. One good trust might always be inserted, so that what could not be accomplished directly would be attained indirectly.”

Upon a similar state of facts, the same view was entertained by the court of errors in Grover v. Wakeman, 11 Wend. 187 , 188.

In Goodrich v. Downs, 6 Hill, 438 , a debtor assigned nearly all his property in trust,—the trustee to sell the same, and apply the proceeds to the payment of four of his creditors; making no provision for the payment of the others, and providing that the surplus remaining after-paying the four creditors should be returned to the assignor. Held, that this last clause made the assignment void, and the four preferred creditors, though having just claims, could not be protected.

In Mittnacht v. Kelly, 3 Abb. Dec. 301, there was a chattel mortgage shown to have been given upon a horse, wagon, and harness, and upon a store of merchandise, “with the increase and decrease thereof.’ It was held that these last words quoted invalidated the whole instrument, in an action brought by the mortgagee to recover the value of the horse, buggy, and harness, that had been levied upon by a creditor of the mortgagor. The court says at page 302:

“True, in this case the horse, wagon, and harness in question did not constitute part of the stock in trade, which was the subject of the ‘increase and decrease’ spoken of, yet if, as to the stock in trade, the mortgage was fraudulent as against creditors, that fraud infected the whole mortgage, and it is wholly void;” citing cases.

In line with the decisions quoted are Russell v. Winne, 37 N. Y. 596 ; Curtis v. Leavitt, 15 N. Y. 96 ; Baldwin v. Short, 125 N. Y. 553 , 26 N. E. 928 . In the last case the question was as to whether the conveyance of a house and lot was fraudulent as against creditors. Part of the consideration was a debt of $8,000, which was justly due from the grantor to the grantee. It was sought to protect the grantee to the extent of this indebtedness, but Finch, J., sustaining the law as-laid down in Hyslop v. Clarke, supra, says:

“The contention that the conveyance to Mrs. Short may be sustained to the extent of the adequate and honest part of the consideration is fully answered by the authorities which hold that, where a deed is fraudulent against creditors, it is wholly void, and cannot stand to any extent as security or indemnity'..”

“If a contract be in its nature entire, and in one part, it satisfies the statute, and in others does not, then it is altogether void; but, if these parts are severable, then it may be good in part and void in part.”

But, in case the contract is severable, it must appear upon the face thereof, and not be established by proof outside of the contract itself.

The facts by which the defendants King seek to separate their claims do not appear in the bill of sale. They are shown aliunde the instrument, and when thus shown they vary the legal effect of the instrument. There are cases where the conveyance or sale was capable of being construed as several to each grantee or vendee, in the proportion in which the debts due to them, respectively, bore to- each •other, or where the instrument of transfer was given as a security running to different individuals to secure different claims; and it is upon this class of cases that the learned counsel for the Kings seems to rely to establish his contention. The evidence' does not satisfy us that the defendants King were not aware of the nature of the consideration that entered into the bill of sale, with regard to the claims of Mrs. Martin. Mr. King was sworn, but gives us no information on this subject. The circumstances under which the paper was executed were certainly very suspicious, and it is difficult to believe that the Kings did not know all about it. If they did, they were privy to the fraud, and partakers in the attempt to hinder and delay the creditors of the firm, as the trial court has found, and we do not dissent from this conclusion; but, be this as it may, we have reached the conclusion that the instrument, as a whole, must fall, and we sustain the trial court in declaring it void and setting it aside.

Frank T. Goler was asked, as a witness, when he first heard that it was claimed that Curran had contributed trust funds;, and he stated, under objection, that he heard of it the day of the execution of the bill of sale. In McSorley v. Hughes, 58 Hun, 360 , 12 N. Y. Supp. 179 , affirmed 129 N. Y. 659 , 30 N. E. 65 , the court says, after referring to exceptions that were taken to the admission of testimony upon the trial:

“Under the ancient practice, testimony in equity was taken before an examiner, who took all that was offered, and the chancellor passed upon the case so brought before him. Under that system there could not well be any question as to the proper reception of testimony. The judge was supposed to know what testimony was proper, and what should be disregarded, and the recent practice in taking testimony in equity cases before the court has not so changed the rulé as to make the improper reception of evidence a ground of reversal”; citing Forrest v. Forrest, 25 N. Y. 510 .

The rule, as established in many cases upon the subject, would seem to be that, where errors are committed in equity cases by the trial court, they are not to cause a reversal of the judgment, unless .the court can see that the error complained of has affected the result, in contradistinction to the rule in jury cases, that the court will generally reverse unless it can see that the error complained of could not affect the result. The evidence in this case being abundant to sustain the judgment of the trial court, we should not reverse for the reception of this evidence.

The judgment should be affirmed, with one bill of costs as against all of the appellants. All concur, except FOLLETT and GREEN, JJ., dissenting.

The children of Richard Curran might have followed this trust fund, and recovered it out of the assets -of the firm of Curran & Goler. Undoubtedly, if Goler did not know that the money belonged to these children, but believed that it belonged to Curran, the children could not have maintained an action at law against Curran & Goler to recover the money; but that rule would not have barred them from recovering the funds out of the assets of the firm, if they could be traced into those assets. This presents the question whether one of two partners may, by an assignment of firm assets, pay or secure an equitable claim against the firm assets. It seems to me that this question must be answered in the affirmative. The position that the claim is void because interest was charged' om

GREEN, J., concurs.