Gowing v. Warner

The action is to recover possession of certain goods or their value, the sale and possession of which, it is alleged, were induced by the fraudulent representations of Gerrish & Co. to the plaintiffs as to the farmer’s financial responsibility. The defendants claim title under a bill of sale whereby the said firm sold to them their stock in trade, including the goods received from the plaintiffs, for $16,144.22, payable as follows: $1,000 in cash; defendants’ promissory note for $3,355.53, payable in three months; the satisfaction or discharge of an indebtedness of the said firm to the defendants amounting to $3,554.87 for goods sold and delivered; and the balance by assuming certain debts and obligations owing by Gerrish & Co. to certain persons named. The uncontroverted proof amply supports the finding of the jury, as is assumed from their verdict that the sale of the goods in suit was induced by the fraudulent representations of said firm as to its pecuniary responsibility, and that when purchasing they had no reasonable ground to believe that they would be able to pay. For the purpose of inducing the plaintiffs to make the sale, Gerrish & Co. stated to one of them (Sawyer) that the financial condition of the said firm was in better condition than the year previous, and that its indebtedness had been reduced, and was not over $8,000; referring Sawyer to the defendant Warner, since deceased, who was then a member of the defendants’ firm, for confirmation of the truth of these representations, he having lately gone through its books, and being familiar with its condition, according to statements then made by the said. firm. Warner, when called upon by Sawyer, stated, in response to a question put by the latter touching Gerrish' & 'Co.’s condition, “that Gerrish & Co. were all right.” After the delivery of the goods, the plaintiffs discovered that the representations so made to them were false, and, upon making such discovery, they brought this action. It appears from' the evidence that at the timé these representations were made the indebtedness of Gerrish & Co. greatly exceeded $8,000, and that they were hopelessly insolvent. The payment of the claim of one of the creditors, the William D. Barnes Commercial Company, amounting to $14,000, for money loaned and advanced long prior to the sale of the goods in controversy, had been secured by the transfer to it of all the firm’s accounts. The firm at the time of such sale was also indebted to three different concerns in sums amounting in the aggregate to $1,825.54, and to the Agawam Manufacturing Company in the sum of $4,000, of which $2,000 had matured at that time. When such goods were purchased, or shortly thereafter, actions were commenced against the firm by creditors for debts contracted a long time prior thereto, to which no defense was interposed, and judgments were entered by default, which were not paid.

The plaintiffs having thus proved fraud in the purchase of the goods in controversy by Gerrish & Co., they were entitled to rest, even as against the defendants, upon whom then devolved the burden of showing affirmatively that they were bona fide purchasers for value. Devoe v. Brandt, 53 N. Y. 462 ; Moyer v. Bloomingdale, 38 App. Div. 227 , 56 N. Y. Supp. 991 . The plaintiffs, however, before resting, had already presented sufficient proof from which it might fairly be inferred that the defendants had knowledge of the fraudulent intent on the part of their transferrors to hinder or defraud their creditors when they transferred to them their entire stock in trade.

The defendants sought to show their good faith in the transaction by the testimony of one of their number (De Forest), regarding the consideration- given for such transfer, to the effect that he had no knowledge of the sale of the goods in question by the plaintiffs to their transferrors, and by the further testimony of their salesman respecting the amounts realized upon the sale of the stock, and from collections of book accounts, and the disposition made of the same, and that the goods so transferred were taken at 25 per cent, below the invoice price thereof. "Where property is transferred as well for a present advance as to secure an antecedent debt, the transferee is protected under the rule applicable to the purchase by a third person for a new and valuable consideration (Hyde v. Bloomingdale, 23 Misc. Rep. 728 , 730, 51 N. Y. Supp. 1025 ), which rule is .that a transfer of property for value will not be vitiated unless the purchaser had notice of the fraudulent intent of the seller to hinder or defraud his creditors (Parker v. Conner, 93 N. Y. 118 ; Bush v. Roberts, 111 N. Y. 278 , 18 N. E. 732 ; Wilson v. Marion, 147 N. Y. 589 , 42 N. E. 190 ). There is thus presented for consideration the questions whether the defendants paid a fair consideration for the stock in trade so transferred to them, and whether, when they accepted such transfer, they had knowledge of the intention of Gerrish & Go. to defraud their creditors.

The evidence respecting the first proposition does not, in my opinion, conclusively show that full value was given for the goods so transferred. There were many circumstances from which inferences to the contrary might be drawn. Thus, it appears from the defendants’ own evidence that such goods were taken at 25 per cent, below the inventory price. True, they did not even realize that price, but the record fails to disclose the time when, and the manner in which, they were sold, and what efforts, if any, the defendants made to obtain the best prices therefor. Under these circumstances, the question whether or not the transfer was for valuable consideration was for the jury. Bagley v. Bowe, 105 N. Y. 171 , 11 N.

“Fraud Is one of the broadest issues known to the law, for it can seldom be proved by direct evidence, but is dependent upon circumstances which, separately considered, may be quite immaterial, but have, combined, great persuasive force. 1 Whart. Ev. § 33. The facts on an issue of commercial fraud are frequently drawn with difficulty from hostile witnesses, whose effort is to conceal as much and reveal as little of the truth as their conscience and skill will permit.”

The latter portion of these remarks is peculiarly applicable to the case at bar, and especially to the testimony given by the attorney for the defendants, who, when called to the stand by the plaintiffs, testified that when he drew the bill of sale the books of account of Gerrish & Co. were in the defendants’ hands.

It would seem from this testimony, as well as from other facts, which need not be detailed, that the defendants, or some of them,, had knowledge of the said fraudulent intention of their transferrors when they transferred their entire stock in trade to them.

While the record fails to disclose any evidence of De Forest’s .participation in the fraud, he is nevertheless bound by the knowledge which his partners may have had of the fraudulent intention of Gerrish & Co. to hinder or defraud their creditors. 2 Bates, Co-Partn. §§ 389-393, and citations. At all events, under the circumstances, it was incumbent upon all the defendants to show that they did not know of the fraudulent motives of their transferrors. This they failed to do. As seen, the nearest approach thereto was the testimony of the defendant De Forest tó the effect that he did not know ■of the purchase of the goods in controversy by the said firm from the plaintiffs, but no testimony, whatever was offered that neither of the defendants had any knowledge, or belief that the transfer to them by Gerrish & Co. was made with intent to hinder or defraud the •creditors of the latter. Apart from this, the testimony of De Forest, by which the defendants endeavored to show that they did not have -such knowledge, being that of an interested party, was not conclusive, and the jury were at liberty to disregard it. Moyer v. Bloomingdale, supra.

The sufficiency of the amended complaint was directly- challenged upon the trial by the defendants, who unsuccessfully sought to exclude testimony tending to show knowledge on their part of the fraud perpetrated by Gerrish & Go. against the plaintiff in the original purchase of the goods in suit, as well as the circumstances under which such goods came into their possession. The defendants excepted to such ruling, and likewise to the denial of the motion to dismiss the complaint made when the plaintiffs rested, and renewed at the close of the case. As already observed, the plaintiffs, upon proving the fraud of Gerrish & Co. in purchasing the goods in question, cast upon the defendants the burden of proving the bona tides of the said transfer, and hence were not called upon to give any testimony upon this head until the latter had offered evidence as to the fairness of the consideration for such transfer. But, as the objection applies to the original purchase as well as to the transfer in question, a consideration of the point so urged is deemed proper.

The amended complaint alleges that the plaintiffs are the owners of the goods in suit, and entitled to the immediaté possession thereof; that the sale and delivery of the goods by the plaintiffs to Gerrish & Co. was made in consequence of the false and fraudulent representations of the latter to the former and their reliance thereon; that “the defendants obtained possession thereof by virtue of an alleged bill of sale given to them by the said Margaret J. Gerrish”; and that prior to the commencement of this action the plaintiffs demanded from the defendants the immediate return of said goods, which they refused, and that the latter wrongfully detain the possession of the same from the plaintiffs. The defendants maintain that the said pleading does not comply wtith the provisions of section 1721 of the Code of Civil Procedure, wdiich provides:

“Where the complaint contains a sufficient statement of the plaintiff’s title, a general allegation that the defendant wrongfully took the chattel is sufficient, without setting forth the facts showing that the taking was wrongful. Where the taking of the chattel is not complained of, but the action is founded upon its wrongful detention, the complaint must set forth the facts showing that the detention was wrongful.”

It is well settled that the taking of goods upon fraudulent representations is a tortious taking. Acker v. Campbell, 23 Wend. 372 ; Cobbey, Repl. § 503. Hence the complaint in an action of this character need riot set forth the facts showing the wrongful detention.

But, assuming that these views are erroneous, the question is whether the above-cited section of the Code applies to a case like this. That section was enacted as a substitute for 2 Rev. St. 528, pt. 3, c. 8, tit. 12, § 36. See Throop’s Annotated Code, note under

“Where the original taking of the goods is not complained of, but the action is founded upon the wrongful detention of such goods, the declaration shall be conformed to the writ, and shall allege, With requisite certainty of time, place and value, that the defendant received the property described in the writ from the plaintiff or from some other person (naming him) to be delivered to the plaintiff when thereunto afterwards requested; and that the defendant, although requested so to do, has not delivered the same to the plaintiff, but refuses so to do, and detains the same property to the damage of the plaintiff.” •

It will be perceived that the language of the first part of the last-cited enactment is almost identical with that of the last sentence of section 1721 of the Code, supra. These provisions, when read together and compared, clearly evince the legislative intention to limit the application of the latter portion of this section of the Code to a case where the defendant came rightfully into the possession of the chattel, but wrongfully detains the same.

These views are supported by the adjudications in actions to recover the possession of chattels claimed to have been obtained fraudulently, which hold that the complaint need not set forth the facts constituting the wrongful detention of the property. Hunter v. Machine Co., 20 Barb. 493 ; Bliss v. Cottle, 32 Barb. 322 ; Chapin v. Bank, 31 Hun, 529 ; Manufacturing Co. v. Taussig, Id. 563 ; Desbecker v. McFarline, 42 App. Div. 455 , 59 N. Y. Supp. 439 . In either aspect, therefore, the complaint states facts sufficient to constitute a cause of action.

Argument is made that the trial justice erred in refusing to instruct the jury that, if they found that any part of the consideration paid by the defendants was paid in good faith, then they were entitled to a verdict, and it is urged that the opinion of the court in Manufacturing Co. v. De Forest, 5 App. Div. 43 , 38 N. Y. Supp. 1038 , is decisive of this question. In that case, however, the bona tides of the transfer to the defendants by Gerrish & Co. (which is the identical transaction inquired into in this action) was not submitted to the jury, and solely for the reason a new trial was ordered. The remarks of Van Brunt, P. J., who delivered the opinion of the court, as to the defendants being bona fide purchasers pro tanto, are based entirely upon the theory that they acted in good faith in the transaction in question, and therefore have no application to the present case, in which, as we have seen, the jury found that the defendants were not bona fide purchasers for value. In this situation the entire transfer of Gerrish & Co.’s stock in trade to the defendants was wholly void, and consequently any portion of the consideration which in fact may have been paid by the defendants cannot stand as security or indemnity for that portion. Baldwin v. Short, 125 N. Y. 553 , 26 N. E. 928 .

The defendants insist that error is predicable of the refusal to charge the jury, at their request, that unless the jury found that they had notice of the fraud perpetrated, or claimed to have been perpetrated, by Gerrish & Co., their verdict must be for the defendants; but, as ih.e trial justice had already instructed the jury to the same

Judgment affirmed, with costs. All concur.