Johnston v. Ferris — 12 N.Y. St. Rep. 666

Majority

p. 666

Adelaide E. Johnston, Resp’t, v. Francis J. C. Ferris, App’lt.

(New York Court of Common Pleas, General Term,

Filed December 5, 1887.)

Headnote

1. Attachment—What facts sufficient to sustain.

It appeared on a motion to vacate an attachment that prior to January 14, 1887, the defendant was engaged under a firm name in business as an importer, having a special par.ner. That the firm on that date sold out its business, to one Cowlin, who had been up to that time a clerk in its employ. That at the time said firm was indebted to plaintiff in an amount exceeding $19,000 for money loaned. That about said date defendant informed plaintiff that he had sold out the business to Cowlin for $100, which sum was all that he, defendant, had and that Cowlin was amply responsible and had ample means to carry on the business. Hot-withstanding such sale defendant still continued in the business, superintending it as he had done before That on September 36, 1887, Cowlin made a general assignment for the benefit of creditors, having, however, lust previous confessed judgment to defendant for $36,365 for alleged cans of money, and having also assigned to defendant $13,000 of good book accounts, and that Cowlin still pretends to owe defendant $75,000 •out of a total of liabilities of $150,000. The plaintiff also claimed that the indebtedness of the defendant’s firm to her was fixed by an account stated on May 9, 1887. The defendant alleged, among other things, that ■the indebtedness was paid by plaintiff’s receiving Cowlin’s notes without

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indorsement therefor, and that said Cowlin had paid all the indebtedness, of the old firm, amounting to §115,000. Plaintiff alleged that the notes were received under the influence of false representations made by defendant as to Cowlin’s responsibility, and that he had ample means to carry on the business and in reliance on said representations, etc. Held, that there were sufficient facts to sustain the attachment- that the motion was properly denied.

3. Same—When a sale presumed to be fraudulent.

It appeared from a certain affidavit of a party who had dealt with the old firm and the new concern, that Cowlin always claimed to be acting for defendant. Held, that the facts created, under the statute, the presumption that the sale was fraudulent.

3. Contract—When can be disaffirmed for fraud.

The fraud by which plaintiff was induced to agree to take the notes of Cowlin in payment of defendant’s indebtedness, ‘authorized her to dis-affirm that agreement arid revived the original indebtedness of defendant. The payments of Cowlin on account of said notes, were merely payments by defendant on his own indebtedness, and there was nothing to restore as a condition of disaffirmance.

4. Same—When not usurious—Partnership.

By a ceriain agreement between the parties, plaintiff was to receive one-half of defendant’s share of profits as compensation for the loan of the money. Held, that the agreement was not necessarily void for usury; that as between the parties it did not constitute a partnership.

5. Pleading—Allegation of debt being due.

The allegation that an account was stated between the plaintiff and defendant, “ and upon such statement a balance of §19,702.78 was found to be due from the defendant to the plaintiff,” was a sufficient charge that there was a breach of contract and that the debt was due.

Appeal from order denying motion of defendant to vacate attachment.

Franklin Burr, for resp’t; John J. Adams, for app’lt

It appears that the defendant, prior to January 14, 1887, was engaged in business as importer of laces at 272 Church street, having a special partner, Mrs. M. S. O. Jones, and doing business under the firm name of F. J. C. Ferris & Co. The firm was largely indebted, and on that date sold out its business and outstandings to one Cowlin, who had been up to that time a clerk in its employ, and who was a nephew of the special partner. Plaintiff claims that at and prior to the said date the firm was indebted to her in an amount exceeding $19,000 for money loaned; that about that date defendant informed her agent and husband, Alex. Johnston, that he had sold out the business to Cowlin for $100, which sum was all that he, defendant, had in the world, and" that Cowlin was amply responsible and had ample means to carry on the business; that, notwithstanding such sale, defendant still continued in the business, superintending it as he had done before; that on September 26, 1887, Cowlin made a general assignment for the benefit of creditors, having, however, just previously confessed judgment to defendant for $26,265 for alleged loans of

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-money, and having also assigned to defendant $12,000 of good book accounts, and that Oowlin still pretends to owe defendant $75,000 out of a total liability of $150,000.

As to the indebtedness of the defendant’s firm to her, plaintiff claims that it was settled and adjusted on May 9, 1887, and an account stated between them, by which there, was found due to plaintiff $19,702.78, of which no part has been paid except $2,022.40.

Defendant denies any indebtedness to plaintiff, and any stating of account between them. He swears that plaintiff was a general partner in his firm, and that after the sale toOowlin there was a dispute as to what interest she had. and whether her capital had not been wiped out by losses, and that in February, 1887, Oowlin, who had assumed all the indebtedness of the old firm, settled with Alexander Johnston, acting for his wife, the plaintiff, and agreed to pay her $17,197.85, and that plaintiff received the notes of Oowlin on February 5,1887, for $6,000, and on May 9, 1887,. for $10,425. which, with sundry charges against her before and after January 14, 1887, made up the $17,197.85; and that on the receipt of the notes, on May 9, 1887, the plaintiff and her husband gave a written receipt thereof expressed to be in full settlement of all claims and demands from James S. Oowlin, and the limited copartnership of F. J. 0. Ferris & Oo. in liquidation; that Johnston, acting for his wife, the plaintiff, endeavored to get defendant to indorse the said notes of Oowlin, but defendant refused, and defendant denies that he had anything to do with the business after he sold it to Oowlin, on January 14, 1887.

The bookkeeper of Oowlin swears to payments made by Oowlin to plaintiff on the said notes, amounting to $4,500, leaving but $11,925 due, besides interest; and, also, denies the plaintiff’s allegations with respect to defendant’s superintending the business after the sale. The defendant, also,, swears that Oowlin has paid all the indebtedness of the old firm, amounting to about $115,000, and that he, defendant, has taken the lease of a store in this city and intends to goon in business as soon as he can get relieved from this, attachment.

The plaintiff and her husband deny that she was a partner of defendant; that as to the notes received from Oowlin they were given to plaintiff by defendant on account of his indebtedness, but that there was no settlement or agreement made with Oowlin; that defendant when he gave the Oowlin notes in February or March stated that Oowlin was perfectly responsible and had ample means to carry on the business; that when the account was stated in May and the Oowlin notes accepted in payment and the receipt given, defendant represented that Oowlin was perfectly

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solvent and amply responsible, and that the notes were accepted in reliance upon those representations which were false as Cowlin was then insolvent and has left the state since the assignment; and that, as to the allegations of payments on account of the Cowlin notes for all payments . made before the account was stated, defendant received credit.

It is manifest, from the facts disclosed in the affidavits, that the defendant has devised and carried out a scheme, which was calculated to defraud the plaintiff and to benefit himself at the expense of the creditors of Cowlin as well. The sale of the copartnership business to Cowlin, with an agreement by the latter to assume the copartnership debts; the payment of such debts by Cowlin to the ■amount of $115,000; and the failure and assignment of Cowlin after having executed a confession of judgment to defendant by which the latter is enabled to repossess himself of the stock in trade, or its proceeds, freed from the debts of the old concern, as well as from the debts incurred by Cowlin, while he carried on the business, looks like a scheme to defraud the creditors of the latter; while the same facts, coupled with the additional one of the representations made by defendant to plaintiff to induce her to accept Cowlin’s notes without indorsement, for the debt due her from the former copartnership (she being now left without successful resources as against Cowlin, the property he held, being again swept into defendant’s hands) show the plan by which plaintiff, in particular, was to be defrauded.

If there were such a scheme of fraud it would undoubtedly originate, as plaintiff claims it did, with the sale by the copartnership to Cowlin in January, 1887. The consideration of that sale was ostensibly the agreement by the vendee to pay the liabilities of the vendor. The nominal consideration was $100, which defendant then states is all that he possesses in the world. Yet when, a little over eight months after, Colvin, who in the meantime had cleared off those liabilities, is about to fail, we find defendant his creditor for §26,000, money loaned for which he receives a confession of judgment, which he satisfies out of the business carried on by Cowlin. The operation is such as might have been designed by one who being indebted beyond the amount of his assets wishes to put his property out of his hands and subsequently to re-take it, after having induced his creditors to look to the fraudulent vendee for their pay. The plaintiff was induced to look to Cowlin upon the strength of the apparently bona fide sale to him, and the defendant’s assurances of his solvency, and no matter what denials

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defendant may make of fraudulent intention, the plaintiff was nevertheless defrauded by the scheme.

There seems also to be ground for the holding that there was no actual and continued change of possession after the sale, from defendant to Cowlin. An affidavit of one Richmond, who did business with both the old and the new concern, shows that the defendant transacted business at the store the same after the assignment as before; and although defendant avers that Cowlin settled with plaintiff on his own account, it appears that Cowlin always claimed to be acting-for the defendant. The facts create, under the statute, the-presumption that the sale was fraudulent, and the defendant’s proof does not rebut the presumption. But even if there were no facts to raise the statutory presumption, the evidence in the case shows an intent to defraud plaintiff. Cowlin was a party to it, for he was a mere puppet in defendant’s hands. He accepted the transfer of the latter’s property in order to assist him in getting rid of his debts and going into business again with what he could realize from the operation.

Among the objections urged by defendant against the-right to an attachment are sundry defenses to the alleged debt or claim of plaintiff. It is said that she is not a debtor but a partner of F. J. C. Ferris. The written agreement, establishes as between them the relation of debtor and creditor. As to third parties, a question of partnership might arise but not between the parties to that agreement. There was no intention to create a partnership, and that she was not so considered is shown by the notice of dissolution, published by defendant, in which plaintiff is not mentioned.

It is also contended by defendant that if the agreement-in question does not constitute a partnership then it is void for usury. Plaintiff was to receive one-half of defendant’s, share of profits as compensation for the loan of the money, but such profits are not in addition to interest, and they might never exceed the rate of interest. The money she was entitled to draw was to be charged to profits, but if it-exceeded the profits it was undoubtedly chargeable to principal. The agreement did not secure to her anything in excess of six per cent per annum for the loan of her money, and it was not therefore necessarily void for usury. Richardson v. Hughitt, 76 N. Y., 58 .

The fraud by which plaintiff was induced to agree to-take the notes of Cowlin in payment of defendant’s indebtedness authorizes her to disaffirm that agreement and revives the original indebtedness of defendant; and if, as. seems certain, the business carried on in the name of Cowhn was the business of defendant, the payments on ac

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count of Cowlin’s notes made from the business were merely payments by defendant on his own indebtedness, and there is nothing to restore as a condition of affirmance.

As to the contention of defendant that the papers on which the attachment was granted do not show that there was any breach of contract. Code, § 636. I do not see that the statement of plaintiff’s cause of action is open to criticism. It is suggested that there is no charge that the debt was due or of a demand of payment. The allegation is that an account was stated between the plaintiff and defendant, “and upon such statement a balance of $19,702.78 was found to be due from the defendant to the plaintiff.” The order denying the motion to vacate the attachment should be affirmed, with costs.

Larremore, Oh. J., and Van Hoesen, J., concur.