Havens v. Exstein — 31 N.Y. St. Rep. 43

Majority

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James S. Havens, as Receiver, etc., App’lt, v. Julia H. Exstein et al., Resp’ts.

(Supreme Court, General Term, Fifth Department,

Filed April 11, 1890.)

Headnote

1. Chattel mortgage—Surplus.

S. being insolvent and indebted to E. & Co., transferred to them a stock of goods for one dollar. In the same instrument was a provision that S. was to act, as agent of E. & Co. in disposing of the goods and such additions as he might make under the name or on account of B. & Co. S. was to render weekly statements to E. & Co., and remit to them all receipts, less expenses. By a supplementary instrument the parties agreed that after E. & Co. were paid, the net profits, if any, should belong to S. The original agreement was filed as a chattel mortgage. S. continued the business in the same manner and place as before and rendered apparently correct weekly statements. Thereafter E. & Co. sold one-half interest to G., and S. continued the business as before. Subsequently the whole stock was transferred to the wife of S. and one O. who continued the business. By these latter transfers E. & Co., and also G., were paid in full and were released from any liability for additions to stock. Although S. was insolvent at the time of the first transfer no ■ creditors were pressing and there was no established claim in favor of the creditors represented by the receiver. Held, that the whole transaction amounted to a mortgage to E. & Co., and that if made in good faith S. had a right to reserve to himself any surplus after payment of E. & Co.’s debt.

2. Same.

If, as claimed, the weekly statements of S. to E. & Co. were false and S. appropriated some of the profits, the plaintiff could not take advantage of this unless it also appeared that E. & Co. had knowledge of such . appropriation.

Appeal by the plaintiff from a judgment entered in Monroe county upon a decision of the special term in September, 1888, dismissing the plaintiff’s "com plaint upon the merits.

Waldo G. Morse, for app’lt; B. Frank Bake, for resp’ts.

The defendant Selling, on the lath day of June, 1885, executed to the other defendants, who composed a partnership, a transfer of his stock of goods. The plaintiff, who is the receiver of the property of the defendant Selling, appointed in proceedings supplementary to execution, brings this action to set aside such transfer as fraudulent.

At the time of the execution of the assignment or transfer of the stock of goods, Selling was indebted to Exstein & Company in the sum of fifteen hundred and seventy-nine dollars and ninety-six cents ($1579.96), for goods sold and delivered to him. The amount of the indebtedness and the good faith of the firm of Exstein & Co. do not seem to be seriously called in question in this action.

The agreement so entered into between the parties recited such indebtedness and then proceeded to transfer, for the further sum of one dollar, such stock of goods. There was also a provision in this contract by which Selling was to act as the agent of the transferees in disposing of these goods, together with such additions thereto as might be made by him, under the name or on account of Exstein & Co. There was also a provision by which Selling was to render weekly statements of accounts to his principals, with remittances to them of all proceeds of such sale, less

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moneys actually paid out in the business for expenses. Exstein & Co. had the power under this agreement, by its terms, to put an end to the ageucy at any time. By a separate instrument, and supplementary to the principal agreement above mentioned, the parties thereto entered into a further agreement, by which, after paying Exstein & Co. in full, the net profits of the business, if any, should belong to Selling.

The original agreement was duly filed in the clerk’s office of the county of Monroe as a chattel mortgage. In pursuance of the two agreements, Selling continued the business at the same place without any apparent change in the ownership or the manner of conducting the business. Additions were made to the stock in trade from time to time, as the same were required, and Selling continued to render apparently proper and correct weekly statements of the business, as provided'by the agreement, down to September 27, 1886, when Exstein & Co. sold one-half interest in the stock and business to one Julius W. Georger for the sum of seven hundred and fifty dollars ($750.00).

Thereafter and until February, 1888, the business was continued by Selling in the interest of Exstein & Company and Georger as theretofore, when the stock remaining undisposed of, including such additions as had been qrarchased, was transferred to the wife of the defendant Selling and one Ottenberg for the sum of three thousand, six hundred and five 29-100 dollars ($3,605.29), and they continued the business subsequently. By this transaction the firm of Exstein & Company, or Exstein & Company and Georger, were paid in full for their indebtedness, including any liability on their part for the additions made to the stock in trade.

It is shown with reasonable conclusiveness that at the time of the transfer by Selling, on the 15th day of June, 1886, the assignor was insolvent, but no other creditors were pressing him and there was no established claim outstanding against him in the hands of the plaintiff or the person whom he represents.

Taking the two agreements together, with the light thrown upon their purpose given by the evidence in the case, it is quite apparent that the whole transaction amounted to a security to Exstein & Company, in the nature of a mortgage, for their debt. If this was done in good faith, the transferor or assignor or mortgagor had the right to reserve to himself any surplus, after paying the debt which it was intended to be secured by the transaction. Leitch v. Hollister, 4 N. Y., 211 ; Dunham v. Whitehead, 21 id., 131; Knapp v. McGowan, 96 id., 75.

It is argued by the learned counsel for the appellant that the fact that Selling was permitted to remain in charge of the store after the transfer, and to avail himself of the profits thereof, as there is some evidence to show that he did, in spite of the agreement the transaction was colorable only and hence fraudulent as to creditors. If, however, there was any appropriation of the profits by Selling during this time and before Exstein & Company were paid in full of their indebtedness, the same was done outside of the contracts and in violation thereof.

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Hence it was incumbent upon the plaintiff to show, in order to avail himself of that contention, that the appropriation of the moneys or the proceeds of the sales, by Selling, was with th,e knowledge or consent of Exstein & Company, or of some member of that firm. Brackett v. Harvey, 91 N. Y., 214 . This evidence, however, is wholly lacking in the casa; hence the argument cannot bring the appeal within the case of Potts v. Hart, 99 N. Y., 168 . If Selling cheated Exstein & Company in the rendition of his weekly statements, the plaintiff is not in any position to avail himself of the rule contended for.

It is further argued by counsel for the appellant, that the chattel mortgage not having been filed within the time prescribed by the statute, the same became inoperative as against the claim represented by the plaintiff. This court is committed to the contrary of that proposition in the case of Steward v. Cole, 43 Hun, 164 ; 4 N. Y. State Rep., 428, the correctness of which we have had no occasion to question by any subsequent decision.

Except for this consideration, the further and only other question in the case, namely, whether or not the nature of the claim represented by the plaintiff as receiver is of such a character as to enable him to maintain this action, would become important. The judgment under which the plaintiff was appointed receiver was not upon a contract, nor upon any matter the value of which might be ascertained by computation. It was for a tort, and the liability to respond upon such a claim, for the amount of the claim, was not ascertained at the time of this transfer of the property by Selling to Exstein & Company; but it is not necessary to enter into a consideration of this branch of the case, because whatever views we might entertain concerning it can hardly strengthen the propositions already mentioned, which lead necessarily to an affirmance of the judgment.

The judgment should be affirmed, with costs.

Dwight, P. J., and Corlett, J., concur.