National Park Bank v. Whitmore — 5 N.Y. St. Rep. 716

Majority

p. 716

The National Park Bank of New York, Resp’t, v. James D. Whitmore, et al., Appl’t.^[1]

(Court of Appeals

Filed February 1, 1887.)

Headnote

1. Appeal — Attachment — When the determination op the general TEEM AS TO, WILL BE SUSTAINED.

Upon an appeal to the court of appeals from a decision of the general term reversing an order made at special term, vacating an attachment, the court will not look at the opinion pronounced below for the grounds upon which the decision proceeded, but, if in the record there appears any ground upon which the general term could in the exercise of its jurisdiction reverse the order of the special term and thus sustain the attachment, its order must be affirmed, although the opinion is not agreed in by the court of appeals.

2. PREFERENCE — AGREEMENT FOR FUTURE, IS NOT A FRAUD ON CREDITORS.

An agreement with a creditor for a future preference in case of insolvency is not a legal fraud upon creditors.

8. Attachment — Pacts warranting the award of.

A few days previous to making a general assignment the assignors reported themselves entirely solvent and able to pay their debts in full and made a statement of their affairs showing a large surplus of assets over liabilities. Soon after they claimed to be unable to pay their debts in full, and that they were insolvent and proposed to their creditors a compromise of 60 cents on the dollar, payable in 9, 12 and 15 months without security. Evidence tended to show that they had been engaged in a prosperous business and they gave no satisfactory explanation of their sudden alleged insolvency They threatened that unless their offer of compromise was accepted they would make an assignment preferring a certain creditor and that the others would get little or nothing. Efforts were also made with the co-operation of the assignee after the assignment to coerce a compromise and an offer made toa creditorto “ fix it up ” afterwards in case of his consent. Aforeign assignee was elected and a secret promise for a future preference made. Upon an appeal to the court of appeals, Held, that though the proof of fraudulent intent alleged might not be cogent, yet it was sufficient to give the court below jurisdiction to award an attachment and that this_ court was bound by its decision and had no jurisdiction to interfere therewith.

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Appeal from an order of tbe supreme court, general term, first department, reversing an order of tbe special term which vacated witb costs the attachment granted in this action.

On December 31st, 1885, an attachment was granted in favor of the National Park Bank of New York, and against these defendants on the ground that they were about to make an assignment in fraud of their creditors. On that day the attachment was levied. Thereafter, and on January 2nd, 1886, the defendants made an assignment. Subsequently the defendants moved to vacate the attachment and filed affidavits in support of their motion and the plaintiff in opposition thereto. This motion was heard and granted by the special term, and on appeal to the general term reversed. From this latter determination this appeal was taken.

Edward W. Sheldon, for appl’ts; Charles W. Wetmore, for resp’t.

This attachment was granted on the 31st day of December, 1885, on the ground that the defendants were about to assign their property with intent to defraud the plaintiff and their other creditors. On the second day of January thereafter the defendants executed to William Whiting, of Holyoke, Mass., a general assignment for the benefit of their creditors, in which they preferred him for upward of $23,000. Upon motion, made by the defendants at special term, the attachment was vacated, as appears by'the opinion there pronounced, upon the ground that the affidavits upon which the attachment was based did not sufficiently establish the fraudulent intent alleged. From the decision of the special term the plaintiff appealed to the general term, and there the order of the special term was reversed, as appears by the opinion pronounced, on the ground that the defendants had agreed with Whiting at the time of the sale of certain goods to them, that in case of their insolvency or of of an assignment becoming necessary, he should be protected by a preference to the amount of the goods so sold to them and unpaid for. It was held that such an agreement was, in law, a fraud upon other creditors, and rendered an assignment giving a preference in pursuance thereof fraudulent and. void. From the order of the general term the defendants have brought this appeal.

We have frequently held that we cannot look at the opinion pronounced below, in a case like this, for the grounds upon which the discision proceeded, and hence if we find in this record any ground upon which the general term could, in the exercise of its jurisdiction, have reversed the order of the special term, and thus sustained the attachment, its order must be affirmed, although we do not agree with its opinion.

We do not think that the promise of the defendants to make a preferential assignment in favor' of Whiting was, in law, a

p. 718

fraud upon other creditors, or that it was so far conclusive evidence of fraud as to avoid the assignment made in pursuance thereof.

The property which the defendants obtained by their agreement with Whiting added to their visible assets, and - all their assets remained liable to the legal remedies of their creditors until the assignment was made. By adding $23,000 to their assets by goods thus obtained of Whiting, and then preferring him for the same amount in their assignment, no harm was done to or fraud committed upon their other creditors.

It is said, however, that this sale, under a secret promise of a future preference, gave the defendants a delusive appearance of property and solvency, and thus enabled them to obtain credit which they otherwise could not have obtained, and that thus the agreement necessarily operated as a fraud upon other creditors. But it cannot be maintained that an agreement is fraudulent which simply adds to a debtor’s assets, gives him the appearance of solvency which he does not in fact possess, enables him to obtain credit and continue his business, and thus postpones impending failure. A debtor may obtain credit by a promise to pay in the future, either in cash or in property, or by promising to give his check or an indorsed note, or a confession of judgment. Neither such a promise nor its performance is a legal fraud upon any one ; and why may he not promise to give security upon the property purchased, or other property? Such a promise, honest, in fact, has never been held to be a fraud, or to work a fraud upon creditors. Security honestly given in pursuance of such a promise relates- back to the date of the promise, and, except as to intervening rights, is just as good and effectual as if given at the date of the promise; and it has generally been so held even in bankruptcy proceedings, Bump Bankruptcy, (10th ed.), 821; Forbes v. Howe, 102 Mass. 426 ; Bank of Leavenworth v. Hunt, 11 Wall, 391 ; Burdick v. Jackson, 7 Hun, 488 ; Ex parte Ames, 1 Low. 561 ; Ex parte Fisher, L. R., 7 Ch. App. 636; Ex parte Kilner, L. R., 13 Ch. Div. 245; Mercer v. Peterson, L. R., 2 Exch. 304; s. c., L. R., 3 Exch. 104.

But here the agreement was to make the preferential assignment in case it became necessary to protect the creditor; and it is further claimed that such a conditional agreement is a fraud upon other creditors. A failing debtor may make an assignment preferring one or more creditors, because he is under a legal, equitable or moral obligation to do so, or he may do it from mere caprice or fancy, and the law will uphold such an assignment honestly made. If he may make such an assignment without any antecedent promise, why may he not make it after and in pursuance of such a promise ? How can an act other-' wise legal be invalidated because made in pursuance of a valid

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or invalid agreement honestly made ? In Smith v. Craft, 11 Biss. 340 , Judge Gresham held that such a conditional agreement for a future performance was a fraud upon creditors. But in the same case, in 17 Fed. Rep., 705 , upon a rehearing, Judge Woods held that the same agreement was not fraudulent and in a very satisfactory opinion showed that such an agreement as we have here, for a future preference in case of insolvency, is not a legal fraud upon creditors. See, also, Walker v. Adair, 1 Bond, 158 ; Anderson v. Lachs, 59 Miss. 111 ; Spaulding v. Strang, 37 N. Y., 135 , 38 N. Y., 1 ; Haydock v. Coope, 53 N. Y., 68 .

This agreement did not create any lien, legal or equitable, upon the property of the defendants. It was not an agreement for a future lien upon the specific property, which is sometimes held to' create an equitable lien which may be enforced in equity. It was not an agreement for any lien at all. It was simply an agreement, in case of an assignment by the defendants, to prefer Whiting. The agreement did not bind defendants’ property, nor incumber it, but left it subject to all the remedies of their creditors, and it neither hindered nor delayed those creditors. They could have made the same assignment without a previous agreement, and it is impossible to perceive how the agreement worked any .legal harm to any one. ' It is not important to determine whether this was an agreement of which a court of equity would enforce .specific performance; but we do not believe it was, and think it must stand, both in law and equity, like an agreement to pay at a future day.

But we think there were sufficient facts set forth in the affidavits to give the court jurisdiction to determine whether or not the defendants, in threatening to make and in making the assignment, were actuated by a fraudulent intent. A few days before the assignment was made, the defendants reported that they were entirely solvent, and could pay all their debts in full, and they made a statement of their affairs showing a large surplus of assets over liabilities. Soon after these representations, they claimed that they could not pay their debts in full, and that they were insolvent, and proposed to their creditors a compromise of 50 cents on the dollar, payable in 9, 12, and 15 months, without security. The evidence tended to show that they had been engaged in a prosperous business, yielding them large profits, and they gave no satisfactory or intelligible explanation of their sudden alleged insolvency. They threatened that, unless their offer of compromise was accepted, they would make an assignment preferring Whiting, and that then the rest of their creditors would get little or nothing. The efforts of the defendants, with the co-operation of their assignee after the assignment, apparently to coerce a compromise at 25 cents on

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the dollar, tbeir offer “ to fix it up ” with a creditor afterwards if be would assent to a compromise, tbeir selection of a foreign assignee, tbe relations between him and them, and tbe secret promise of a future preference, are also pertinent facts. Tbe court at general term looking at no one fact, but at all tbe facts before and after tbe assignment, could, we think, find that tbe assignment was threatened and made, not solely for tbe honest purpose of devoting their assets to tbe payment of their just debts, but, while not actually insolvent, to coerce a favorable compromise from tbeir creditors, and thus secure a benefit to themselves. Tbe proof of tbe fraudulent intent alleged may not have been very cogent, but it was sufficient to give the court below jurisdiction to award tbe attachment, and hence we are bound by its decision, and have no jurisdiction to interfere therewith.

Tbe appeal should therefore bei dismissed, with costs.

All concur.