First National Bank of Bath v. Warner — 28 N.Y. St. Rep. 450

Majority

p. 450

The First National Bank of Bath, App’lt, v. Thomas Warner et al., Resp’ts.

(Supreme Court, General Term, Fifth Department,

Filed December 30, 1889.)

Headnote

Assignment for creditors—Evidence in action to set aside.

In an action against a person to have his assignment for benefit of credi

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tors declared fraudulent and void, it is competent upon the question of intent to prove the nature and character of liis business transactions during a period of several montns before and down to the time of the assignment; the use he made of the avails of his property immediately preceding the assignment, the negotiations he had with his creditors relative to the payment, or securing the payment of the same, the representations which he made, if any, to induce his creditors not to press the collection of their debts, and the statements which he may have made to them during such negotiations as to his solvency, also the amount of his indebtedness and the nature and character of his assets.

The plaintiff is the judgment creditor of the defendant, Thomas Warner, amounting in the aggregate to the sum of $20,000, rendered in several actions, one of which was against the said Warner individually, and in the others the judgment is joint against him and other parties. This action attacks as fraudulent the individual assignment of said Warner, made on the 27th day of May, 1885, to Drake and Searl, as assignees for the benefit of creditors, and to reach the property transferred to them to be applied in payment of the said judgments. At the time of making such assignment, and for some years prior thereto, Warner was a member of the copartnership firm of F. Gr. Cramer & Co., doing a hardware business in the village of Cohoeton, tif which the said Cramer was the other member. He was also a member of the copartnership firm of Warner & Wilcox, doing business as lumbermen, composed of himself and one Albert H. Wilcox. He was also a member of the firm of Turner & Wilcox, engaged in the manufacture and sale of lumber in the city of Elmira, the other members of the firm being Albert H. Wilcox and Alexander Turner. On the same day each of the said firms made an assignment to the said Drake and Searl, for the benefit of their creditors. The validity of those assignments are not directly attacked as fraudulent in this action. For some time prior to the making of the said assignment Warner was insolvent, which he well knew, Ms individual indebtedness and liabilities amounting in the aggregate above the sum of $100,000, and his individual assets were about the sum of $100,000, but not sufficient to pay his liabilities in full All of the copartnership firms were also insolvent Warner had personal charge and management of his individual business, and was also chief manager and financial agent of the several copartnerships of which he was a member. He appeared in the action and made answer, and on the trial, contending that the assignment was valid, and he was examined as a witness in behalf of himself and his co-defendants. The action was tried at the Steuben special term, and the court found as a fact that the assignment was made in good faith and without any intent on the part of the assignor to hinder, cheat, delay or defraud the plaintiff or any of his other creditors. From the judgment the plaintiff appealed All the evidence produced on the trial is contained in the case attached to the judgment roll. Other facts found and set forth in the decision bearing on the questions considered by the court are referred to "in the opinion.

J. F. Parkhurst and M Burnsey Miller, for app’lt; Theodore Bacon, for resp’ts.

Nothing appears on the face of the assignment which indicates that the assignor has applied any of his property to a fraudulent or unlawful purpose, or that the trust created is-not in all respects legal and valid. In terms the assignor has devoted all his property not exempt from sale on execution to the payment of his debts and to the discharge of his legal obligations.

The plaintiff, however, charges that' the transaction was a fraudulent one on the part of the assignor, and that he made the assignment and placed his property in trust with the intent to hinder, delay and defraud a portion of his creditors, and among them the plaintiff; and that by a secret arrangement made with the assignees before or at the time of making the assignment, he should be permitted to possess and enjoy for his own use a portion of the property assigned and continue to manage and carry on the business; and that as a matter of fact a portion of the debts preferred were fraudulent and fictitious. In support of this charge of fraud the plaintiff produces considerable evidence, but the learned trial court upheld the assignment and found specifically that the same was made in good faith and not for any fraudulent purpose. The learned counsel for the appellant, in an earnest and elaborate argument, insists that the findings of fact were against the weight of evidence and the accusation of fraud was well supported, and for that reason, independently of all other questions presented by the case, the judgment should be reversed and a new trial granted.

This court has the power and it is its duty, on an appeal from a judgment entered upon the decision of the court where the trial was without a jury, to examine the evidence presented on the trial and determine whether the conclusions of fact as found by the trial court are sustained by the evidence, and if not to reverse or modify the judgment as the justice and equity of the case require. We have examined the evidence with much attention for the purpose of acquainting ourselves with the general features and circumstances of this somewhat involved and intricate case, but as we have reached the conclusion that the present judgment must be reversed and a new trial granted because competent and material evidence offered by the plaintiff on the question of fraud was erroneously excluded, therefore for that reason it is unnecessary to pass on the question whether the trial court found contrary to the evidence on the issue of fraud. We also deem it improper for us to discuss and declare our views as to whether the charge of fraud was sustained or not on the evidence contained in the record now before us. On another trial the evidence may be materially different and our views as to the force of the evidence as now presented would not aid and might embarrass the court on a retrial.

The assignors’ individual and co-partnership indebtedness and liabilities exceeded the sum of $250,000. He received from the First National Bank of Corning large accomodations for several years before his failure and during the same period the plaintiff loaned to him and the firms of which he was a member large sums of money, and at the time the assignment was made his

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indebtedness to the plaintiff amounted to a large sum, a portion of which was included in the judgments upon which this action was based. The assignee Drake was owner of two-thirds of the stock of the Corning Bank and he was its managing officer, and on the day the assignment was executed the bank transferred to him all its claims and demands against the assignor and the co-partnership firms of which he was a member. In all the assignments Drake was made a preferred creditor and the amount of his claims as set out in the schedules was greater than the value of all the property embraced in the several assignments At the time of making the assignment the assignor was, also, a member of the firm of Turner, Warner & Wilcox, doing business as lumbermen at Elmira in the state of Pennsylvania, and he was an endorser for that firm in a large amount of commercial paper, held by the Corning Bank and for which it held securities, and such indebtedness and the securities were, also, transferred to Drake before the assignment was delivered. On the 26th day of January, 1885, Warner executed and delivered to the Corning Bank a mortgage upon several pieces of land situated in the state of New York as a security for the payment of a sum not exceeding $75,000, as a continuing security for the payment of all his promissory notes, bills of exchange, drafts, checks,acceptances and endorsements of Thomas Warner, and of Turner, Warner & Wilcox, and of Warner & Wilcox, which the said bank then held and owned and which it might thereafter own, and of all renewals thereof and to secure all the indebtedness which the same parties or either of them might owe, according to the character and condition of such indebtedness; and in all other respects the said instrument contained the usual clauses of a real estate mortgage. The same was never recorded. If the assignment is sustained the plaintiff will receive nothing out of the assets upon its indebtedness from the assignor's property because of its insufficiency to pay in full the preferred indebtedness.

At times for the period of two or three months before the making of the assignment a large amount of the assignor’s paper was past due and under protest and was held by various parties, including the plaintiff, in the vicinity where the assignor was doing business, and among those holding such paper was a banking house under the name of the Hallock Bank, of which Wm. H. Hallock was one of the members. In April this firm held some eight or ten thousand dollars of protested paper, and a like amount which had not then matured. Negotiations were had from time to time between the assignor and Mr. Hallock in regard to the payment of such indebtedness, the assignor requesting a renewal of the paper and that the time of payment be extended, which resulted in an arrangement which was consummated on the 15th day of May preceding the assignment, by which the paper was renewed and the time of payment extended beyond the 27th day of May, the date of the assignment.

As beai’ing upon the assignor’s intent to delay and defraud his creditors, the plaintiff offered to prove that during these negotiations Warner promised to give Hallock security for his indebt

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edness ; that in March preceding an action was commenced upon one of the notes held by the Hallock Bank, against the firm of Cramer & Warner, by personal service upon both of those parties and that no answer was interposed, and twenty days having expired the plaintiffs might have entered judgment, and that it was part of the said arrangement made and concluded on the 15th day of May, that judgment should not be entered in that' action, and it was not until after the assignment; and for the purpose of securing an extension of time and delay in entering judgment in that action, Warner stated to Hallock that he owned all his real estate, and that there was no mortgage upon it, and that upon the faith of such statement an extension of time was granted by Hallock.

A further offer was made to prove that during. such negotiations Warner represented that the firm of Cramer & Warner were solvent and able to pay their debts. This was objected to by the defendant as incompetent, and the same was excluded and the plaintiff excepted. The plaintiff also offered to prove by Mr. Allen, the- cashier of the Hallock Bank, that in December, 1884, the bank urged Mr. Warner to pay the paper which it then held against him; that such interviews and conversations were continued at different times until the latter part of the month of April, when Mr Warner told the cashier, when conversing upon the subject of the paper held by the bank, that he was perfectly good and that he would pay the paper, and solicited Mr. Allen to extend the time of payment ana that the same was re-discounted so as to extend the time of payment beyond the day of making the assignment, and that in consenting to such renewal the cashier relied upon the statement of Mr. Warmer, that he was good, and that Mr. Warner knew that such statements were false at the time he made them.

This evidence was objected to by the defendants as incompetent and immaterial, and was excluded, and the plaintiff excepted. This evidence was,-as we think, both competent and material, and if it had been received would have tended to prove that the assignor in making the assignment intended to hinder and delay, and also to cheat and defraud his creditors. The statute declares that every conveyance or assignment made with intent to hinder, delay or defraud creditors is void. 3d B. S. (7th ed.), 2329. If either party to the conveyance had in mind to accomplish that which the statute condemns as fraudulent,. then the transaction cannot stand when assailed by the creditors of the assignor. If the assignor in conveying the title of his property to his assignees was actuated by the fraudulent intent condemned by the statute the assignment cannot be upheld, although the assignees were wholly innocent of any fraudulent purpose on their -part. Starin v. Kelly, 88 N. Y., 418 ; Loos v. Wilkinson, 110 id., 195; 18 N. Y. State Rep., 110.

The assignor is a party defendant in this action, and he, in his answer, denied all allegations of fraud charged in the complaint, and insisted on the trial that the assignment was valid, and was not made with intent on his part to cheat and defraud his cred

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itors, and as against him. it was competent5 to prove, as bearing on the question in issue, the nature and character of his business transactions down to the time he made the assignment and delivered up the possession of the assigned estate to the assignees; the use he made of the avails of his property immediately preceding the assignment; the negotiations he had with his creditors relative to the payment, or securing the payment, of the same; the representations which he made, if any, to induce his creditors not to press the collection of their debts, and the statements which he may have made to them during such negotiations as to his solvency, the amount of his indebtedness, and the nature and character of his assets. For the purpose of testing the motives and integrity of an insolvent debtor in disposing of his property, with a view of securing one creditor in preference to another, it is, as a general rule, permissible to inquire into the details of his business transactions, and the manner in which he has managed his property for such a length of time immediately preceding the assignment as will throw the best light on the question of his intent. The evidence offered and rejected should have been received.

If the negotiations with the Hallock Bank were of the character claimed by the plaintiff, and the assignor made the representations as alleged, they would have tended to prove that Warner then had it in mind to make the assignment, and that it was part of his scheme to prevent the entry of judgments against him, and to postpone the time of payment of his indebtedness to that bank. The ruling of the court condemned as incompetent all evidence of this character, and it cannot now be said by this court that the plaintiff was not able to produce evidence of similar dealings and transactions with his other creditors, whose debts were past due and who resided in the neighborhood of his home office. These negotiations were near the day when the assignment was executed, and as they related to his financial affairs, his statements to and his negotiations with his creditors were in the nature of res gestee declarations on the question of fraud, within the rule as stated in Loos v. Wilkinson, supra. See, also, Rothschild v. Salomon, 20 N. Y. State Rep., 59.

For the purpose of determining the question of fraudulent intent on the part of Warner in making the assignment, the court held that as a matter of law “the allegations of fraud must be supported by such a just preponderance of evidence as makes the proof of fraudulent intent satisfactory.” This conclusion of law was followed by others which declared that the assignment was valid and not fraudulent and void, and that the defendants were entitled to judgment against the plaintiff upon the issues in this action, in accordance with “ the foregoing findings of fact and conclusions of law,” and dismissing the complaint on the merits. We refer to the rule of evidence as stated by the trial judge, by which the questions of fraud were determined, not for the pur-1 pose of discussing its accuracy, but to state that we pass the question without consideration, as there must be a new trial for the error before mentioned.

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Judgment reversed, new trial granted, with costs to abide event.

Dwight and Macomber, JJ., concur.