Cutter v. Hume — 43 N.Y. St. Rep. 242

Majority

p. 242

John D. Cutter et al., App’lts, v. Alexander W. Hume et al., Resp’ts.

(Supreme Court, General Term, First Department,

Filed December 31, 1891.)

Headnote

1. Assignment fob cbeditobs—Independent tbansfebs of fbopebtt.

In 1878 a mortgage made by a firm without consideration was assigned' to the wives of the firm, and in 1883 a deed of the property was given to- them,but the rents were collected by the firm, which, in 1888, gave a deed of other property to the wives in consideration of such rents. In 1889 the survivor of the firm made an assignment. Held, as all the transactions were a considerable time prior to the assignment and independent, they could have no bearing on the question of-fraud in the assignment.

2. Same—Cancellation of indebtedness.

The partners agreed to cancel an indebtedness of $12,000 owing to the-firm by the son of one of them, as a just compensation in addition to his salary. Held, that if it was a reasonable compensation for the young man’s-services it was no fraud for the survivor to make such cancellation.

3. Same—Schedule.

Where a creditor has double security, the mere omission of the fact of additional security in the schedule does not necessarily tend to indicate-fraud, but there must be evidence to show that the omission was fraudulent to justify a vacation of the assignment on that account.

Appeal from judgment of special term dismissing plaintiffs' complaint

A. Thain, for app’lts; Payson Merrill, for resp’t, Speer; J. L-.. Bishop, for resp’t, Hume.

This action was brought by the plaintiff" for two inconsistént kinds of relief, one of which was demanded because of fraud in the assignment and the other because of fraud upon the assignment

It is clear that these two kinds of relief could not possibly be

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granted in the same action; certain defects in allegation being apparent' at the commencement of the trial it appears that the parties stipulated in open court that the complaint should be considered sufficient in its allegations as containing a cause of action to set aside the assignment as fraudulent and void against creditors. And it is this cause of action which the learned court- below tried, refusing to pass upon any of the questions which might be involved in the subject of fraud upon the assignment; it may be basing his decision upon an erroneous ground, but in any event reaching a correct conclusion.. It would be anomalous indeed were a party permitted in the same action to enforce rights conferred by an assignment, and also. claim the right to vacate it upon the ground of fraud.

The defendant Alexander W. Hume, as the surviving member of the firm of A. W. & T. Hume, on the 20th of May, 1889, made a general assignment with preferences. This assignment it is sought to set aside because of' certain alleged frauds of the members of said firm in respect to certain property owned by them and certain credits due to them.

Considerable proof was introduced in respect to the property Ho. 229 Fifth avenue and Ho. 499 Fifth avenue, which were at one time owned by the members of said firm. The premises Ho. 229 Fifth avenue were in April, 1878, mortgaged .without consideration and said mortgage assigned to the wives of the members • of said firm, and in 1883 the members of said firm conveyed said premises to the son of one of the members, who in turn conveyed to the said wives.

These conveyances were duly recorded, but subsequent to that time the firm continued to collect the rents of these premises and pay the expenses thereof and use the proceeds in their business as they had theretofore done.

In 1884 Ho. 499 Fifth avenue was purchased, and in 1888 a deed was executed to the wives of the respective members of the firm, the consideration being the indebtedness of the firm to the wives of the members thereof for the rents collected from Ho. 229 Fifth avenue. This deed was never put upon record, by agreement between the parties, it being the intention of the members of the firm to dispose of the property, and use the proceeds to discharge their obligations. In February, 1889, in consequence of making some change in the mortgages of Ho. 499 Fifth avenue, the deed made in 1888 was destroyed, and a new deed executed, which was not recorded until shortly prior to the time of the making of the assignment above mentioned.

It is claimed upon the part of the appellants that it was evidently the intention o f the parties to keep the deed off the record in order to obtain credit on account of their ownership of the property, and that when their creditors should become pressing to put it on record, and thus give their wives a preference.

It is to be observed that all these transactions were a considerable time prior to the making of the assignment. They do not ■seem to have had any connection whatever with the assignment, •but to have been independent transactions. And whatever may

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be their legal effect, they being independent can have no bearing-upon the question of fraud in the assignment itself. Even though, they were frauds upon the assignment, they do not by any means-establish fraud in the assignment.

Our attention is also called to the transaction in reference to the indebtedness alleged to be due from Thomas J. Hume, the son of the defendant Alex. W. Hume, a short time prior to the making, of the assignment.

It appears that he was charged with an indebtedness of $12,000' upon the books of the concern, and that he had been in their employ for many years, being credited with a salary of twenty dollars to twenty-five dollars per week upon the books. According-to the testimony of Alex. W. Hume, he and his brother, who had died a short time prior to the making of the assignment, had. talked over the matter of this indebtedness of the son to the firm,, and had concluded to cancel the debt as a just compensation in. addition to the salary. It is urged that no attempt was made to-make this cancellation during the lifetime of Thomas Hume, who died on the 20th of April. But that two days afterwards this-charge was cancelled by charging the same against the interest of A. W. Hume in the copartnership, and by crediting Thomas-Hume with that amount

The defense offered evidence to prove that the reasonable com•pensation of a person employed to perform the duties of Thomas- J. Hume would be $64 a week, and such an amount if it had been paid to him would- have amounted to the total sum with which he was charged upon the books of the firm. It is alleged in answer to this testimony that the books show that his agreed compensation was twenty to twenty-five dollars a week. But the-difficulty, it seems to us, with the position of the appellant is that, the transaction in reference to this $12,000 is assumed to be a-fraud without any proof of that fact. If it was a reasonable compensation for the services which this young man had rendered to-the firm, then it was no fraud upon the part of the surviving member of the firm to give it to him; and if it is claimed that, it was an unreasonable compensation, then the burden of proof was upon the appellants to establish that fact, which they have not. done.

It further appears that although Thomas J. Hume was credited with twenty to twenty-five dollars per week on the books of the-concern, it was not considered by the members - of the firm as the limit of the salary which he was to receive, because it appears that he asked for an advance, and instead of deciding upon the amount of the advance he was told that he might draw certain moneys which he asked for from time to time; and that A. W. and his-brother had intended to have adjusted it before his death.

We then come to the question of alleged fraud in respect to-the mortgage to Mr. Feeter for $7,500.

It is claimed that the schedule contained Mr. Feeter’s name as-an individual creditor of A. W. Hume to the extent of $7,500 for’ money loaned, and although the law required that the schedule-should state the amount of the debt, the circumstances under which.

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it arose, and the security given therefor, it failed to disclose that the $7,500 covered as well $5,000 of a debt which Feeter claimed as trustee and for which he was already secured upon another piece of property; and that the $7,500 was not for money loaned but for the $5,000 trust fund which he advanced and for $2,500 counsel fees due to him by the firm.

There is no pretence but what the total amount of this money was due to Mr. Feeter either as trustee or individually, and that as to $5,000 he held two securities, and that in the schedule the fact of the additional security is omitted, but such omission did not prove any fraudulent intent. The mere omission of the fact of additional security does not necessarily indicate a fraud, and the evidence must tend to show that the omission was fraudulent in order to justify a vacation of the assignment on that account.

It may be true that, in order to get credit, false representations in regard to their financial condition and their ownership of property were made by the members of the firm. But none of these things had any relation to the assignment, or in any way imputed fraud in its execution.

It is also true that the preferences contained in the assignment seem to be in excess of the amount allowed by statute, but that does not invalidate the assignment. It only invalidates so much of the preferences as are in excess of that permitted by law.

Upon an examination of the whole case, therefore, there seems to be no reason whatever for disturbing the judgment of the court below.

Whether or not frauds were committed upon the assignment is not a question which it is necessary to discuss, because no such question was disposed of in the court below neither could it be in an action in which the assignment itself is attacked.

The judgment should be affirmed, with costs.

Barrett and Andrews, JJ., concur.