German Bank v. Meyer — 28 N.Y. St. Rep. 278

Majority

p. 278

The German Bank, App’lt, v. Joseph O. Meyer, Resp’t.

(Supreme Court, General Term, Fifth Department,

Filed December 30, 1889.)

Headnote

Attachment—Property covered by warehouse receipt assigned as

SECURITY REMAINS PROPERTY OP THE DEBTOR.

Defendant, a customer of plaintiff, was indebted to it upon notes for which it held as security warehouse receipts upon malt of defendant in his own warehouse. Plaintiff never took actual possession of the malt. By plaintiff’s permission defendant had from time to time sold some of it, accounting to plaintiff for all or part of the proceeds ; but during the last year of the indebtedness plaintiff refused to allow any sale unless it received all the proceeds. Defendant became insolvent, when it appeared that he had, in some manner not disclosed, disposed of the malt. Held, that, within the meaning, of the Code, the malt was defendant’s property and that an attachment granted upon the ground that he had assigned, etc., property with intent to defraud plaintiff, Code Civ. Pro., § 636, sub. 2, would be sustained.

Appeal from the order of the Brie county special term, vacating a warrant of attachment issued against the property of the defendant.

The defendant was a maltster and had been a customer of plaintiff for years. In November, 1888, he was indebted to the plaintiff in $30,000 upon notes and so continued to be until May, 1889. It had been customary for plaintiff to take from him every three months a warehouse receipt covering malt owned by him and in store in his own warehouse, as security for the indebtedness.

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In November, 1888, such a receipt was executed and delivered. Upon the renewal of one of the notes in February, 1889, plaintiff asked for a new warehouse receipt, which was refused. Thereupon plaintiff’s cashier went to the warehouse and computed, as well as he could, by inspection the amount of malt and found it to be as much as the old receipt called for. Plaintiff never took possession of the malt. Plaintiff had from time to time allowed defendant to sell malt covered by these receipts; defendant reported such sales and paid plaintiff all or such part of the proceeds as it demanded. When the notes became due, May 28,1889, plaintiff was insolvent and he had sold the malt or disposed of it in some manner which he refused to disclose. An attachment taken out under the last clause of subd. 2, § 636, Code Civ. I’ro., was vacated on defendant’s motion at special term and upon the ground that the malt belonged to the plaintiff under the receipt and was no longer the property of defendant; and hence he could not be said to have assigned Ms property with intent, etc.

John L Homer, for app’lt; Tracy C. Becker, for resp’t

The warrant of attachment in this case was issued at the instance of the plaintiff upon the alleged ground that the defendant had assigned, disposed of or secreted property with the intent to defraud the plaintiff, within the meaning of the last clause of subdivision 2, § 636 of the Code of Civ. Pro.

The motion made at special term in behalf of the defendant was upon affirmative affidavits, as well as upon a claim that the affidavits upon which the writ was granted were insufficient to sustain the original order. The learned judge at special term in his opinion says that he disregards the moving affidavits, and bases his decision solely upon the ground of the insufficiency of the affidavit upon which the order was granted and the affidavit read in support thereof on the motion. The special term was of the opinion further, that the question raised was identical with the one decided at special term in the case of the German Bank, etc. v. Dash, 60 How. Pr, 124 . That decision proceeded upon the proof that the property which the defendant was accused of disposing of contrary to the statute1 belonged wholly to the plaintiff in that action, in which the defendant had no interest. It was there held that the transfer, by the defendant, of property other than his own and which he had a right to sell and account for the proceeds thereof, under an agreement with the plaintiff in that action, was not fraudulent as against creditors.

The case, however, seems not to have taken into the account fully the true relationship existing between a party who had pledged property for the payment of a debt and the person who had an absolute and unincumbered title thereto. The decision already referred to is not consistent with the case of the Farmers & Mechanics’ Bank of Buffalo v. Lang, 87 N. Y., 209 . In that case the warehouse receipts, with the exception of names and dates thereon, were, in substance, the same as the one in the case at bar. There, as here, the owner who turned out the warehouse receipts as security for advances already made, or thereafter to be made,

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agreed in writing that the property had been paid for; that the same, was, at the time of entering into the agreement, free from all liens, charges and incumbrances, and that he does “ hereby transfer title to said bank.” In the absence of the intervening rights of creditors, and whde the question exists between the original parties to the transaction, the fact that the property pledged was not actually put into the possession or custody of the person to-whom the warehouse receipts were delivered, is unimportant The true inquiry is, what was the real transaction ? and not, what were its formal parts?

As the court in the last named case say: “ It was not intended that the property pledged should actually and in bulk be transferred to the possession of the pledgee, but that result was to be reached by setting aside specific property to be represented by what are termed in the case 1 warehouse receipts.’ * * * They m no manner transfer the possession of the property, or represented such actual transfer There was, therefore, never any valid pledge of the borrower, or any actual warehouse receipt. What was so called simply operated, in each instance, to transfer the title of the property described as between Weffner and the bank, and such transfer being collateral to the payment of a debt could operate only as a mortgage. The recital in the defendant’s agreement indicated an intention to pledge property to the bank, while the actual arrangement was valid only as a mortgage.” See also Smith v. Beattie, 31 N. Y., 542 ; Leitch v. Hollister, 4 id., 211; Ely v. Carnley, 19 id., 496. We cannot concur, therefore, in the conclusion of the opinion, of the learned justice that the defendant had no such title to the property as that a fraudulent transfer thereof would enable a creditor to ask for a writ of attachment against his property.

The order, however, which was entered, has no such limitation of its scope as is indicated in the opinion. It is general in its terms, granting the motion, and it appears to have been made upon the moving, as well as upon the original and opposing affidavits. The affidavit made by the defendant himself upon this motion, while denying, in a general way, all intent to defraud the plaintiff, does not contain that relation of facts touching the transfer of this large amount of 'barley malt covered by the warehouse receipts as the court should be led to expect upon such a motion. He fails to show to whom he sold the barley malt, for what prices, and to what places it was shipped. There appears in his affidavit to be a studied concealment of the true facts surrounding that transaction, save the positive assertion that he had a right to sell the same by the special direction of the officer of the bank. He is corroborated in this last allegation by the affidavit of the attorney of record, who had an interview with the same officer in the presence of the defendant, when it is alleged the admission was made that the defendant had a right to sell the barley malt.

This may be conceded to be true without impairing the sufficiency of the warrant of attachment, because the question is not whether the defendant sold the property or disposed of it, but whether he so disposed of it with the intent to defraud creditors,

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and among them the plaintiff. This is the foundation of the claim against the defendant that, being permitted to hold in his possession this property, and tacitly having the right to sell it, provided he applied the proceeds in payment of the indebtedness for which it was mortgaged, he secretly and fraudulently sold it or disposed of it, and thereby cheated his creditors. This, in our judgment, brings the defendant within the operation of subd. 2r § 636 of the Code of Civil Procedure.

For these reasons we think the order appealed from should be-reversed, with ten dollars costs and disbursements.

Barker, P. J., and Dwight, J., concur.