Salt v. Ensign

The plaintiffs charge that the defendant converted to his own use forty-eight bicycles belonging to them. The alleged defense is that the defendant, as sheriff of Niagara county, levied upon and sold the bicycles by virtue of executions issued upon judgments recovered against the Banker & Campbell Company, Limited; and that the alleged title of the plaintiffs was derived from such judgment debtor in fraud of its creditors, etc.

The Banker & Campbell Company, Limited, was incorporated March 1, 1890, under chapter 611, Laws of 1875, and its object was the purchase and sale of bicycles, tricycles, etc., and their appurtenances and the manufacture thereof.

Its place of business was the city of New York. In July, 1891, the company .had become indebted to one Henry Durke, who resided at Niagara Falls in the county of Niagara, in the sum of '$27,000, and in the further sum of $3,450. He in that month commenced an action to recover the $27,000, and recovered judgment therefor about the 12th day of August, 1891, and shortly thereafter execution issued upon the judgment was levied upon the stock and property of the company in the city of New York. While that •action was pending, and about the first of August, pursuant to an understanding of Durke with the company to the effect that he ■should dispose of some of its bicycles and it would turn over the proceeds to apply upon the $3,450 debt before mentioned, he procured the plaintiffs to take and they did order from the company .forty-eight bicycles, and their obligation to pay for them was turned

The wheels were sent to the plaintiffs and received by them at Niagara Falls, where the levy of the executions before mentioned was made upon them. They were afterwards sold by virtue of those executions by the defendant. This constitutes the alleged conversion for which the plaintiffs recovered.

The questions presented are: (1) Was the sale of the wheels made with intent on the part of the company to defraud its creditors ? (2) Was it made in contravention of the statute which provides that: “ Whenever any incorporated company shall have refused the payment of any of its notes or other evidences of debt * * * it shall not be lawful for such company, or any of its officers, to assign or transfer any of the property or dioses in action of such company to any officer or stockholder of such company, directly or indirectly, for the payment of any debt; and it shall not be lawful to make any transfer or assignment in contemplation of the insolvency of such company to any person or persons whatever; and every such transfer and assignment to such officer, stockholder or other person, or in trust for them or their benefit, shall be utterly void.” (1 R. S. 603, § 4.)

At the time of this transaction of the plaintiffs through Durke with the Banker & Campbell Company, Limited, the company had been in existence less than a year and a half; its liabilities amounted to $90,000 and its assets to less than $40,000.

The executions pursuant to which the defendant sold the property were issued upon five judgments, four of them in favor of the John Wilkenson Company upon debts contracted by the Banker & Campbell Company, Limited, in June, 1891, and the other in favor of T. Henry Sweeting in September, 1891, upon debts contracted in April, May and July, 1891. In the action in which the latter j'udgment was recovered an attachment was issued and levied upon the property in question in August, 1891.

The question whether the sale of the property to the plaintiffs was f2’audulent against the C2-editoi-s of the company was upon the evidence one of fact faii’ly submitted to the j'ury, and their, conclu

While a creditor of an insolvent corporation having no other relation to it may have his remedy by action and final process to ■collect his debt, the corporation cannot, in view or in contemplation ■of its insolvency, by voluntary transfer of its property, lawfully .give preference to any of its creditors. (Robinson v. Bank of Attica, 21 N. Y. 406 ; Varnum v. Hart, 119 id. 101; Throop v. H. L. Co., 125 id. 530; Kingsley v. Bank, 31 Hun, 329 ; Nat. B. Bank v. W. M. Co., 59 id. 470 ; Keiley v. M. & T. Bank, 39 N. Y. St. Repr. 438 .) The mere fact, however, that a corporation is insolvent does not necessarily render ineffectual the payment out of its money or the transfer of property in the usual course of business. (Dutcher v. Importers', etc., Bank, 59 N. Y. 5 ; Paulding v. Chrome Steel Co., 94 id. 334.)

In the former of those two cases an insolvent bank, of which the plaintiff afterwards became assignee in bankruptcy, paid the check ■of its depositor when the latter was ignorant of its financial condition. And in the Paulchimg case the corporation gave with the ■assent of the stockholders a chattel mortgage to secure the payment ■of moneys borrowed, but without filing written consent as required by statute applicable to corporations of that character. Five years later a new mortgage was given and the consent filed. The corporation was then insolvent. It was held that the transfer by the mortgage was not made in contravention of the statute.

In the present case the question whether the sale of the bicycles was made by the company in contemplation of insolvency was submitted to the jury with instructions that if they found the fact in the affirmative the defendant was entitled to a verdict. Although this was a question of fact the finding of the jury upon it was .■against the weight of the evidence.

The company was hopelessly insolvent in the sense that it had not within itself the strength to long survive its then financial con

The bicycles in question were sold to the plaintiffs pursuant to an understanding between the company and Durke, by which he was permitted to find a purchaser and have the benefit of the sale by way of application of the amount of the price upon his debt against the company. He had the debt of $3,450, besides that which was the subject of the pending action. Tie did make the arrangement with the plaintiffs that they purchase the wheels. Thereupon they sent the order for them, the bicycles came, and.they gave their notes for the amount to Durke. While this was a sale by the company to the plaintiffs, it was made through Durke and for his benefit, and when it was made the plaintiffs understood that he was to take their paper, or in some manner give them such time as was desirable for payment. It may be assumed upon the evidence that he still holds their paper pursuant to his arrangement with them.

In view of these facts and for the purposes of the question under consideration it is difficult to distinguish the transaction in its legal 'effect from a sale made directly from the company to Durke. He procured the sale and purchase to be made, and they were made that he as a creditor of the company should have the benefit of the sale. The whole amount of the purchase price is in the notes of the plaintiffs yet held by him. And, in view of the relation of Durke to the transaction, the making and delivery of the notes • to him did not constitute a payment by them of the purchase money in the sense requisite to render them purchasers in good faith. (Jewett v. Palmer, 7 Johns. Ch. 65 ; Macauley v. Smith, 132 N. Y. 524 .)

The conclusion is that the verdict was so decidedly against the weight of the evidence as to require the direction of a new trial.

The judgment and order appealed from should be reversed and a new trial granted, costs to abide the event.

Dwight, P. J., Lewis and Haight, JJ., concurred.

Judgment and order appealed from reversed and new trial granted, costs to abide the event.