Windmuller v. Lovejoy — 32 N.Y. St. Rep. 862

Majority

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Louis Windmuller et al., Resp’ts, v. Henry W. Lovejoy, individually, etc., et al., App’lts.

(Supreme Court, General Term, First Department

Filed June 6, 1890.)

Headnote

.1. Fraudulent conveyance — Transfer to wife.

While a transfer to a wife for which the husband paid, prior to the accruing of indebtedness of the husband, will not of itself exhibit an intention to defraud creditors, yet when it appears that the husband was pursuing a scheme of transfers so that he utterly stripped himself of all his property except some stock of small value, such transfer will be held to be a part of the scheme and void as in fraud of creditors.

3. Same-Sale of interest in firm.

Where a member of a firm, having become an endorser, transfers his interest in the firm to his partners, ostensibly for an indebtedness to the firm and a purchase of stock of little value, and thereafter continues to exercise all the rights of a partner and to draw money therefrom the same as before, such facts authorize the presumption that the transfer was only intended as a cover to protect his interest against creditors.

.3. Same.

Judgment was recovered against L. by one B.,. who claimed that it was for a loan secured by a transfer of stock. It appeared that L. had solicited him to buy the stock and offered to guarantee him against loss thereon, and that the stock was transferred to his name. Held, that the idea of a loan was evidently an after thought; that the judgment was upon an indebtedness which did not exist and was part of the scheme to defraud.

■4. Same — Sale to bona fide purchaser.

A transfer of stock to one who paid full value therefor, and who did not participate in the guilty intent, will not be disturbed.

Appeal from judgment entered after trial at special term.

B, Estes,' for app’lt Lovejoy , F. Seymour, for app’lts Ferguson & Uregan; A. F. B. Chase, for app’lt Bruce, A. Blumenstiel, for resp’t.

This action was brought by the plaintiffs as judgment creditors of the defendant, Henry W. Lovejoy, to reach certain property claimed to be the property of the judgment

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debtor and fraudulently transferred for the purpose of defrauding his creditors.

The transfers sought to be impeached were: First, a transfer by Henry W. Lovejoy of his seven twenty-fourths interest in the firm of Lovejoy, Son & Co. made on February 6, 1888, to the defendants, Ferguson & Cregan; second, a transfer made in July, 1888, by said Lovejoy to defendant Wood of one twenty-fourth interest in the same firm; third, a judgment and execution against said Lovejoy in favor of the defendant Bruce and the sales thereunder; fourth, to reach a portion of a mortgage made by the defendant Susan C. Lovejoy, the wife of the judgment debtor; fifth, to reach, certain real estate in Harrison, Hudson Co., New Jersey, which was conveyed to said Susan C. Lovejoy, and to have the property declared to be the property of the judgment debtor and applicable to the payment of the plaintiff’s judgment; and sixth, to reach the judgment debtor’s interest in his father’s estate, and to-have the same applied on the plaintiffs’ judgment.

The plaintiffs’ several claims upon which this action is founded originated in a sale of rubber to the Universal Eubber Co. early in February, 1888, for which notes were given endorsed by Henry W. Lovejoy, dated in February and March, the first note maturing in July, 1888, and upon which judgments have been obtained and executions returned unsatisfied.

The grounds upon which these transfers are sought to be set-aside are that they were made by Lovejoy with intent to hinder, delay and defraud his creditors.

It might very well be true that some of these transactions taken, by themselves might have been upheld under the principles laid down by the adjudicated cases.

For example, the transfer of the Hoboken property by the executors of Henry Lovejoy, deceased, to the defendant, Susan C. Lovejoy, for which the interest of her husband in his father’s estate was charged $13,900, the purchase price of the property. Such transfer having taken place prior to the time when Henry W. Lovejoy became indebted upon his endorsements for the rubber company, and the conveyance having been recorded promptly, standing alone would have exhibited no intention upon the part of Lovejoy to transfer this property to his wife in fraud of creditors. But when we find that he is pursuing a system of transfers so that he utterly strips himself of all his property except his stock in the rubber company, it may very well be held that this transfer was part and parcel of. the scheme which he entered into at that time to secure his wife at the expense of his creditors.

The transfer by Henry W. Lovejoy of his seven-twenty-fourths interest in the firm of Lovejoy, Son & Co., made on the 6th of February, 1888, seems clearly to have been part and parcel of a plan which he had formed long before for the purpose of placing beyond the reach of his creditors whatever property he might have possessed.

It is found by the court below, as the ground upon which the charge of fraud is to be sustained, that this transfer was substantially without consideration. It appears that it was made for the

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consideration of an indebtedness due from Lovejoy to his firm of $14,000 or $15,000 and 338 shares of Universal Rubber Company’s stock, held by Ferguson. It further appears that after this transfer of all his interest in the firm, Henry W. Lovejoy occupied the same position toward the firm as he had previously done, namely, he transacted all its financial business; no change was made; he drew .from the firm as previously, exercising all the rights of a partner after having parted with the whole of his interest. It would seem, under these circumstances, that the transfer was intended only to be a cover, there being no change in the relations of these parties to this business, and although it may not be entirely clear what knowledge Ferguson had of the condition of the Rubber Company, yet still it is reasonably sure that he knew that the company was being pressed for money and had good reason to suppose that unless new capital was brought into the ■concern it could not continue its business, and it was undoubtedly because of this fact and because Love]oy was so mixed up with the concerns of the rubber company that it was determined that his interest in the firm of Lovejoy, Son & Co. should be transferred to his other partners in order that it might be protected from hig creditors.

It is sought to account for his presence as a member of the firm by the fact that he was entitled to one of the 3-24th interest which his father’s estate owned. But this he only held as executor, and in no way gave him the rights of a partner.

We further find that as far back as July, 1887, to secure the indebtedness of the Rubber Co. to the friends of Lovejoy, viz., Mrs. Lovejoy, Ferguson and Lovejoy, Son & Co., the property of the company was agreed to be mortgaged to the amount of over $23,000, which mortgage was actually executed in October, 1887.

It further appears that Ferguson was aware of the existence of "this mortgage, because as a stockholder he assented to its execution, and this mortgage was not recorded. And although some attempts to excuse the failure to record are made, yet the significant fact exists that it was not recorded until the impending failure of the Rubber Company, a fact exceedingly significant in view ■of the critical condition in which the company seems to have been placed during this period. It seems to be clear that Ferguson must have known of the embarrassed condition of the Rubber Company, and that in the disposition of this stock for the interest of Lovejoy he had good reason to believe that he was selling what w&s not of very great value for that which had for years been a continuous source of income. And this mortgage given under the'circumstances disclosed, kept from the record as it was, given virtually to secure indebtedness to stockholders, of which they made gifts to Mrs. Lovejoy, indicated a plan upon the part of these people as far as possible to secure whatever property there was of either Lovejoy or the Rubber Company for the benefit of persons who could not legally acquire a preference in the property of the Rubber Company over its other creditors. This is another circumstance which characterizes the whole of these transactions.

Then we have the procuring of the judgment by the defendant

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Bruce. ■ It is sought to sustain this upon the ground that the ■stock of the Rubber Company was transferred to him as collateral for loans made to Lovejoy. Now. the evidence is conclusive that there was no such loan. On the contrary, it was a purchase of the .stock by Bruce at the suggestion of Lovejoy, and this idea of a .loan came into existence when the Rubber Company got into difficulties and the stock was proven valueless. Mr. Lovejoy testified that he solicited Bruce to buy this stock, and that he offered to guarantee him against loss, and the stock was transferred to Bruce’s name: evidence characterizing the transaction beyond question. If Bruce was loaning money tc Lovejoy and taking this stock as collateral for that loan, why should Lovejoy guarantee him against loss? His indebtedness to Bruce upon the loan was certainly a better security than his guarantee. The giving of a guarantee is ■only consistent with the idea of a purchase. Mr. Lovejoy might very well guarantee Bruce against loss in case he bought the stock, But such a transaction would be absolutely senseless in the case of ■•a loan. And, furthermore, if Bruce did not think himself the owner of that stock and intend to exercise the rights of an owner, why did he have it transferred to his own name t The pledge of the stock was .just as good while it stood in the name of Lovejoy, and unless Bruce supposed himselr to be the owner, intending to exercise the rights of an owner, and not simply those of a pledgee, it does not seem probable that he would have had it transferred to Bis own name. We think the evidence conclusively shows that this idea of a loan was an afterthought, and that the judgment obtained by Bruce against Lovejoy was upon an indebtedness which did not exist.

Ac. to the transfer of the one-twenty-fourth interest in the firm of Lovejoy. Son & Co., it may be that Henry W- Lovejoy and his partners in the share which they took in that transfer did it for the purpose of placing it beyond the reach of the creditors of Lovejoy. But there is no evidence whatever that the defendant Wood participated in that fraudulent intent. He was applied to for money; he asked for security, and it was stated that Lovejoy had an interest in the firm which he would sell the price named was $2,000, and Wood said he would buy it, if he could get the money. Representations were made by Ferguson & Cregan to Wood as to the value of this interest.

In fact they guaranteed to Wood a profit of ten per cent, and it was under these circumstances that Wood took the transfer of this share, paid $500 in cash and gave his note for $1,500. What Lovejoy did with che money or with the note was none of Wood’s business nor was he at all interested therein. There was nothing tó show, as far as the evidence discloses, any design upon the part of Wood to cheat, defraud or delay the creditors of Lovejoy. In fact he seems to have been actuated in this transaction with the desire, to furnish Lovejoy the means of satisfying some of these demands. Simply because it is stated that Lovejoy paid his attorney with the money and securities received from Wood ■does not in any way affect Wood’s title. There was no such m-

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adequacy of consideration as impeached the transaction as' far as he was concerned.

It was undoubtedly a bona fide purchase on his part though the sale may have been made upon the part of Lovejoy and his partners for the purpose of putting that interest out of the reach of Lovejoy’s creditors. But Wood not being a participant in this-scheme, having paid his money and taken the transfer, simply because he did not attempt to intrude himself into business with which he had nothing to do, cannot be deprived of a purchase made by him in good faith.

We think therefore upon the whole case that the evidence discloses an evident intent upon the part of all these parties, except Wood, to put the property of Henry W. Lovejoy beyond the reach of his creditors, and that all these transactions, commencing with the gift to his wife, were in pursuance of a common scheme for the purpose of attaining a common end, and that therefore-these transfers, this judgment and this mortgage, were fraudulent, as against the creditors of Henry W Lovejoy and that the transfer to Wood would have been fraudulent if there had been anything to show that Wood had participated in any such design.

We think therefore that with the exception of that part of -the judgment which impeaches Wood’s title to the one twenty-fourth interest in the firm of Lovejoy, Son & Co., it should be affirmed, and as to that part of the judgment it should be reversed and a new trial ordered, with costs to the appellant Wood to abide the event.

Brady and Daniels, JJ., concur.