Persse & Brooks Paper Works v. Willett — 24 N.Y. Super. Ct. 131

Majority

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The Persse & Brooks Paper Works, plaintiffs and responddents, vs. James C. Willett, defendant and appellant.

Headnote

1. The printed copy, in a volume of laws, of the charter of a private corporation, granted by the legislature of another state, is embraced by section 426 of the Code of Procedure.

2. Formal defects in proceedings to organize a corporation are not available to defeat an action brought by the corporation for a trespass in wrongfully taking property out of their possession.

3. The change by partnership of property into stock of a corporation, formed by the partners for the purpose, received by them in payment for the transfer of such property, is not per se fraudulent as to the creditors of such partnership, although the partners take such stock in their individual names.

4. The mere transfer of partnership property, in exchange for other property which is transferred to the members of the firm individually, neither makes'the transferor se fraudulent, nor is conclusive evidence of any intent to defraud or delay the partnership creditors, unless the substituted property be less valuable than that sold, less accessible to process, or not as readily convertible into money by judicial proceedings. The mere fact that the title to the substituted. property is taken by the members of the firm severally, can only be important in connection with other evidence tending to show a fraudulent intent.

5. Upon the question of good faith of a transfer of their property, by debtors, to a corporation of‘which they were the officers, their acts and declarations, subsequent to the transfer and while in possession, respecting the use and disposal of it, tending to show that they treated it as if still their own, are admissible.

6. After enough testimony has been elicited from a witness, on an examination by either party, to require the submission to a jury of the question of fraudulent intent in an assignment made by such witness, the adverse party has a right to ask whether the act was done with fraudulent intent; and in answer to such question it is admissible for the witness to state both the particular reasons that induced the act, and that he communicated them to his creditors before doing it.

7.. In an action by a corporation against a sheriff for levying on its property under process against the persons who composed the corporation, the defense was that such persons had been, as partners, owners of the property, and that on failing they formed the corporation and transferred the property to it with intent to defraud their creditors.

Held 1. That evidence that, between the timé of the transfer and the time of the levy, the corporation made profits ip the business, and that before and at the time of the failure of the firm there was a panic in the market, was admissible ; but the admission of such evidence did not make an inquiry as to the profits of (lie corporation up to flie time of trial also admissible. ,

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2. That it was not error to allow a witness who had testified that he was in the employment of the firm as superintendent fqr a period extending beyond the time of the transfer, to be asked on cross-examination if he had been superintendent under the corporation also. That after the partners had made a general assignment for the benefit of creditors, and no longer bad control of their partnership books, entries made in such books were not admissible.

8. Upon the question of the solvency of the firm in such a case, it is not competent to ask a hook-keeper if the books show whether they were solvent.

9. Evidence is not admissible that the negotiable paper of the firm was in the hands of street brokers, or of what it was offered to be sold for, or that such offers induced creditors to recall loans made to the film.

10. Evidence of admissions of the firm that their negotiable paper bad been issued by them to be sold or discounted at usurious rates, is only admissible if such declarations were made before the alleged fraudulent transfer.

(Before Bosworth, Ch. J. and Moncrief and White, JJ.)

Heard May 12, 1863;

decided July 11, 1863.

This was an appeal from an order of the special term denying a motion for a new trial, and from a judgment entered on a verdict in favor of the plaintiff for f>13,173.52.

The action was brought against the defendant, the sheriff of the county of New York, to recover damages for the taking and conversion in April, 1858, of chattels alleged to belong to the plaintiffs, a corporation created by the laws of the state of Connecticut.' The taking was justified under several judgments and executions in favor of creditors of the firm of “ Persse & Brooks,” composed of Dudley Persse, Horace Brooks, and Daniel H. Magia The cause was tried before Chief Justice Bosworth and a jury, commencing on the 26th of March, 1862.

The contest on the trial, related to the validity of the creation of the plaintiffs as a corporation whose corporators consisted of the members of the firm of “ Persse & Brooks ” and one of their agents, and of alleged transfers of their property to it, by the firm, which the defendant claimed to be fraudulent as against the creditors of “ Persse & Brooks.” Eor some years prior to August 1, 1857, such firm had been engaged in manufacturing paper, and were owners of extensive mills for that purpose, in the state of Connecticut.

In May, 1857, the .same persons who composed the firm of “ Persse & Brooks,” viz: Dudley Persse, Horace Brooks,

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and Daniel H. Magie, were by act of the legislature of Connecticut, created a corporation under the name. of “ The Persse & Broolcs Paper Works,” to be organized by opening books for subscription to its capital stock, to the amount of $600,000, with power to increase the same, and to commence operations when $300,000 of stock was taken, the shares being $100 each, to be managed by not less than three directors.

On the 1st day of August, 1857, the proposed corporation was organized, the subscriptions to the stock being made at that time as follows: e

Dudley fersse,___________________-_____u_____2195 shares, or $219,600

Horace Brooks,______________________________2195 “ 219,500

Daniel H. Magie, by Ms attorney Horace Brooks,

under a verbal power,„L____________________ 100 “ 10,000

TheopMlus B. Persse, a brother of Dudley Persse, and one of the employees of the firm,_________ 10 “ 1,000

Making.................................. 4500 “ $450,000

At the same time Dudley Persse and Horace Brooks conveyed to the alleged corporation all their mills, machinery and dwelling-houses at Windsor Locks for an assumed consideration of $450,000, in payment of their subscriptions for stock, and it was issued in the several individual names of the partners in the relative proportions and numbers before stated. Dudley Persse, Horace Brooks and T. B. Persse elected the two first and Daniel H. Magie directors of the supposed corporation. Horace Brooks and Dudley Persse elected the first president and the latter treasurer, and T. B. Persse secretary. Magie ■ never paid any thing for the stock which was issued to him. T. B. Persse only subscribed because the parties,contemplated his continuing to superintend the works, and although he gave his note he never paid it, but got it back. Salaries were provided, for Brooks and Persse $5000 per annum each, and Magie $2000.

Pursuant to an agreement then made, the firm of Persse & Brooks, on or about the 1st of September then next, transferred to the supposed corporation the rags, stock and materials to be manufactured, and other personal property on hand, to the

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amount of $126,331.96, at a credit of twelve months', including paper on hand in the city of Hew York. After the 1st of September the mills were run for the corporation, and the firm of Persse & Brooks became merely agents to buy and sell paper for it. On the 22d of September, 1857, the firm of “ Persse & Brooks ” failed, and made an assignment for the benefit of creditors, to George J. Forrest, owing at that time $588,180.02, having partnership assets to the amount of $206,923.87.

The defendant claimed that there was never any legal organization of the alleged corporation. That the scheme or plan of creating and organizing such an apparent legal entity was a fraudulent device got up by Persse & Brooks, in order to convert their property into a form which would hinder and delay their 'creditors, with a view either to avoid the payment of their debts, or compel such creditors to take stock in such corporation therefor, and with the further fraudulent purpose to retain the actual control of the property, under color of being officers and directors, and secure to themselves large salaries notwithstanding their insolvency. That the transfer of the property in Connecticut was for the same purposes, and to place the property conveyed beyond the reach of creditors. That the alleged transfer of $126,331.96 of manufactured paper, materials etc. in Hew York and Connecticut —if any such form or semblance of transfer was made—was made to hinder, delay and defraud their creditors, and being upon credit, necessarily had the effect to delay them. Hence the defendant claimed that the levy made by him upon certain of the paper, &c. in Hew York, under executions against the parties was lawful.

Upon the trial, to prove the charter of the plaintiffs, their counsel offered in evidence a-printed volume of the statutes of Connecticut, containing it, entitled “ Resolutions and Private Acts of the General Assembly of the State of Connecticut,” to which the defendant’s counsel objected, on the ground that the book offered was not a volume of laws, entitling it to be read in evidence under the statutes or laws of this state. The'

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court overruled the objection, and the defendant’s counsel excepted.

In the course of the examination of Thomas Mitchel, a witness for the defendant, who had testified that he had been in the employment of the firm, as superintendent of them mills, from 1855 to the end of October, 1857, the counsel for the defendant offered to prove that Forrest (the assignee of the firm) came to the mills with Horace Brooks, at the time of the failure of the firm, and that Brooks and Forrest stated facts, and gave instructions, that showed that the firm of Perssé & Brooks owned and controlled the works and the property there, and that the superintendents and agents of the. supposed corporation submitted to such instructions, and acquiesced therein ; and also to show what was the actual conversation which T. B,. Persse (a prior witness) had testified to. The plaintiffs’ counsel objected to this as incompetent; the court sustained the objection, and the defendant’s counsel excepted. The defendant’s counsel then further offered to prove, that Forrest and Horace Brooks having gone to the mills on the 23d of September, 1857, Forrest, in the presence of T. B. Persse and the witness, Brooks and the counsel for the parties, (Barnes,) stated to the.superintendents that 'every thing there had been assigned to him; that thereafter the mills would be run in his name, and. on his account; that Brooks assented to the statement; and that the superintendents continued the works under that instruction, until the latter part of October, 1857, and without thát direction being countermanded, to the knowledge of the witness, The plaintiffs’ counsel objected to this, and the court sustained the objection, unless it should be also proved that Persse and Magie knew of and assented thereto; and the defendant’s counsel excepted. The defendant offered to prove conversations had with both Messrs. Persse & Brooks, after the failure of the firm, tending to show their retention of control over the. property, which was excluded, under an exception.

One of the firm, (Mr, Brooks,) after a direct and cross-examination as a witness, being asked by the plaintiffs’ counsel, upon

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a redirect examination, as to the reasons for the incorporation, was further asked: Was there, or not, any motive to defraud creditors ? which was objected to by the defendant’s counsel; but the objection was overruled, and the defendant’s counsel excepted.

The same witness having been permitted to testify that up to July, 1858, the corporation made profits ; upon the examination of another witness, (Dexter,) as to the profits of the business, the court excluded any inquiry whether the corporation made any profits, or not, after the period that Mr. Brooks testified to. To which exclusion the defendant’s counsel excepted.

A witness for the defendant (Galbraith) having been asked: Do you know what Persse & Brooks’ notes were offered for by them in the spring or summer of 1857 ?

A. They never offered any of their notes to me.

Q. Did any one on their behalf P

A. I was offered their notes, but whether it was on their behalf or not I can not tell.

Was further asked, what the offer was ?

This question was objected to by the plaintiffs’ counsel; the court sustained the objection, and the defendant’s counsel excepted.

The same witness having testified that he had, as agent for Mr. Bennett, collected from Persse & Brooks two sums of $5000 and $20,000, respectively, due Mr. Bennett, was asked: How did Mr. Bennett come to make a draft on Persse & Brooks, for his money, at the time he did ? Which question was objected to by the plaintiffs’ counsel; the court sustained the objection, and the defendant’s counsel excepted. The defendant’s counsel then offered to prove that Mr. Bennett was induced to withdraw his funds in the hands of Persse & Brooks in consequence of offers to sell to him Persse & Brooks’ notes, made in March, 1857, which was objected to by the plaintiffs’ counsel; the court sustained the objection, and the defendant’s counsel excepted.

The same witness was subsequently asked : Did you apply

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the payment of the $20,000 received of Persse & Brooks, to the payment of property of Mr. Bennett, at Washington Heights ? This question was objected to by the defendant’s counsel; the court overruled the objection, and the defendant’s counsel excepted. A. I made a cash payment on that property with the $20,000 that I drew from Persse & Brooks, and I drew it for that purpose.

In the course of the trial, the counsel for the defendant also offered to read in evidence the answer of Persse & Brooks, as defendants, in an action against them on sundry promissory notes, dated in June and July, 1857, which answer was sworn to by Horace Brooks, February 13, 1858, setting up that such notes were discounted at usurious rates of interest. The court excluded this evidence, and the defendant’s counsel excepted.

In charging the jury, the court instructed them that “ if the intent and object of the creation of the corporation, and of the transfers of the property to it were to use the corporation as a shield or cover, and place the property so transferred beyond the reach of the creditors of Persse & Brooks, by ordinary legal process, then the title is invalidated by transactions between Persse & Brooks and the corporation, had after its organization.” That “in determining whether this was the intent and object of the creation of the corporation, and of the transfers of the property to it, made on the 1st of August and the 1st of September, 1857, they must place themselves back to that period of time, and view things as they believed from the evidence the parties to the transactions then viewed them, and determine their intent from what they then did, and the manner in which they then acted, and the knowledge they then had, with the aid of such additional light as the subsequent transactions allowed to be proved, shed upon that intent.

“ The transfer of the real property in Connecticut, and the mere fact of taking stock therefor, in the individual names of the partners, do not furnish conclusive evidence of a fraudúlent' intent. If on a conveyance of property of the

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firm, valued at $450,000, the stock received in payment therefor was taken in the individual names of the partners with a view to convert it into individual property to be used and disposed of as such, it would be per se fraudulent and void as to the creditors of the firm of Persse & Brooks.

“ But if the members of that firm honestly believed themselves to be solvent, and did not contemplate a failure or suspension, and had no actual fraudulent intent in organizing the corporation, or in making the transfers of property, or in receiving a transfer of the stock in their individual names, and had no intent or thought of withdrawing the stock from the firm’s assets, then the mere fact that the stock was taken in the individual names of the partners would not make the transfers of the property fraudulent and void as to the creditors of Persse & Brooks.

“ In seeking for and determining the intent of the parties, it is just to conclude that they intended to produce such results as are the natural and necessary consequence of their acts, and if it can be seen that the natural and necessary consequence of the acts of Persse & Brooks in transferring property to the corporation in the view they then had of their condition and resources was to defraud, or hinder, or delay their creditors in collecting their debts, then they should be deemed to have done what they did do with that intent, and the transfers would be void as to their creditors. * * *

“It is' a rule of law that where personal juoperty is sold or mortgaged, unless there be an immediate delivery of the property, followed by an actual and continued change of possession, the transaction shall be presumed to be fraudulent, and that presumption shall be deemed conclusive, unless it be made to appear on the part of the purchaser or mortgagee, that the sale or mortgage was made in good faith, and without any intent to defraud the creditors of the vendor or mortgagor ; if that is made to appear, then the presumption of fraud is removed.

“ It is an equally fixed rule that the property of a corpora

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tion in the possession of its officers is, in judgment of law, in the possession of the corporation itself.

“ To apply these rules to the present case: if the personal property transferred continued in the actual possession of the firm of Persse & Brooks, without any thing in the manner of their dealing with it, or marking the nature and character of their possession to indicate that they ceased to hold and deal with it as owners, or that they held it as the property of others, then their subsequent possession would be conclusive evidence of fraud, unless the plaintiffs made it appear that the purchase by them was made in good faith, and that there was no intent to defraud the creditors of Persse & Brooks.

“ This corporation could have employed any other, of the firms in New York, being paper dealers, to buy rags and material for it, and to sell its manufactured paper; so it might employ Persse & Brooks to do the same things without thereby losing its title to property which it may prove it .honestly acquired.

“If, after the 22d or 23d of September, 1857, Persse or Brooks bought whatever material they did buy as avowed agents of the corporation, and for its use, and if in selling paper they sold it as the plaintiffs’ j)aper, and in its name, and avowedly as its officers, and made the bills' and receipted the payments in its name, such a possession of and dealing, with the paper is not in law a possession by them as individuals)' ór by their firm as a firm, but is the possession of the corporation through its own officers and agents. * ' * . *

“The defendant insists that Persse & Brooks were at thé-'i time insolvent, must have known it, and been1 conscious that Í¡ their failure could not be long delayed; that a corporation was'7 contrived to enable them to prosecute their business irUits name; that the members' of the firm of Persse & Brooks subscribed individually for the stock, when as individuals they had nothing with which they could pay for it; that they took the stock in their individual names, and paid for it with the firm’s- property valued at $450,000 ; that they also soon thereafter transferred other property of the firm valued at $126,000

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on a credit of twelve months, retaining nothing of substance with which to pay their debts : that the members of the firm elected themselves directors and officers of the corporation, Dudley Persse and Horace Brooks bargaining with themselves and acting in the double capacity of members of the firm of Persse & Brooks, and as officers of the corporation, and that nominally as such officers, but in truth on their own account, they continued the business precisely as they had previously done, without any one having any power or legal capacity to interfere with them or the business, or their manner of doing it, until their failure and assignment.

The counsel for the defendant requested the court to charge, among other things, that, 1. The conveyance of the property in Connecticut, in the individual names of the partners, was per se fraudulent and void as to the creditors of Persse & Brooks. 2. That such a conveyance, and taking such stock in the individual name was fraudulent and void as to the creditors of the firm of Persse & Brooks, even though it was done with an expectation and intention ultimately to pay the debts of the firm. 3. That such a transaction necessarily operated to hinder, delay and defraud the creditors of the firm, and was void also upon that ground.

The court refused to charge according to any of such requests, and the defendant's counsel excepted.

The court further instructed such jury, that a transfer of property with intent to delay, creditors, in order to be void, must be with intent to transfer it to prevent its being reached by ordinary legal process, or to postpone the period of time in which payment can be enforced by ordinary legal proceedings.” To which the counsel for the defendant duly excepted.

The court further instructed such jury that it could not put a man out of the regular course of law when one kind of property is substituted for another which can be sold. If valuable, the debt could be collected as well out of the stock as out of the land; if of no value, that is another thing.

“ All I mean to say is, that when a man sells one piece of property, and takes some other property for it, and the prop

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erty which, he takes in exchange is just as open to process as that with which he parted ; that of itself is not a delay within the meaning of the law such as would make the transaction void. It must be something which interferes, and is done for the purpose of interfering with a party’s ordinary remedy by suit to collect his debt. With what intent it was done, is a matter for you to find. I merely state to you the proposition that the stock was as open to seizure as the land.”

To which further instructions of the court, and to each of them separately, the counsel for the defendant duly excepted.

The jury again retired and brought in a" verdict in favor of the plaintiffs and against the defendant for the sum of $13,173.52.

A motion by the defendants for a new trial having been denied, and judgment having been entered against him on the verdict, he now appealed.

L. B. Woodruff, for the defendant, appellant.

I. The proof of the act of incorporation was not competent. Section 426 of the Code has no application to resolutions or private charters. The book offered did not purport to be a volume of the laws of the state of Connecticut. The charter of a corporation is a contract made with the state, rather than a law of the state. Hence the necessity, apart from express statute, of proving a charter, while courts take jqdicial notice of the laws of their own state.

II. The exceptions to the refusal to dismiss' the complaint, and to the refusal to charge as requested, and to the charge given, are well taken. No sufficient organization of a corporation was proved.

III. The conversations of Horace Brooks, one of the parties alleged to have conspired with his copartners to defraud their creditors, had with third persons, prior to the alleged transformation of the firm of Persse & Brooks into a corporation, were not competent evidence in favor of the plaintiff. His declarations■ of the motive and object of such a transformation were not admissible.

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IY. The exceptions to admitting the statement of intent are insisted upon, notwithstanding the decision of the Court of Appeals, in Seymour v. Wilson, ( 14 N. Y. Rep. 567 .) The facts and circumstances attending the transaction are the 'proper evidence of the intent and purpose with which it was made. The witness should not be permitted to decide the very question the jury are to determine.

Y. Proof that the alleged corporation made profits during the first ten months under the management of the alleged conspirators, did not tend to prove their good faith. But if such evidence was proper, then it was competent to show that so soon as the company had exhausted the means of operating the mills which Persse & Brooks furnished them, by transferring to them property to the amount of §126,331.96, at twelve months’ credit, they utterly failed to make any profits, and the stock became .valueless.

YI. The exceptions arising on the rejection of testimonyin the examination of Mickle are well taken.

YII. The statements of Brooks and Persse, while still in the possession of the property, and in its" actual management and control, were also competent. He was acting in the very business, and .endeavoring to realize the results of the fraudulent design; the act of incorporation was a shield, and he was working up the property for Persse & Brooks’ benefit. On the other hand, the conversations between the alleged fraudulent parties conspiring together, as the defendant insists, are not evidence in their own favor. Declarations of an assignor or vendor, while he continues in the actual possession, are admissible, and this notwithstanding he is professing to act as clerk or agent. (Adams v. Davidson, 10 N. Y. Rep. 309 . Willies v. Farley, 3 Car. & Payne, 395. C. & H. Notes, 4th ed. 327. Babb v. Clemson, 10 S. & R. 419. S. C. 12 id. 328 . Clayton v. Anthony, 6 Ran. 485. Wilbur v. Strickland, 1 Rawle, 458 . Martin v. Reeves, 3 Mart. Louis. R. N. S. 22. Crary v. Sprague, 12 Wend. 41 .)

YIII. The objection to the question to the witness Mickle, whether he worked “under the corporation” or not, should be

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sustained. It was a question to be decided on the whole evidence, not on the opinion of the witness as to his legal relations.

IX. The other rulings excepted to were erroneous.

X. The jury should have been instructed in conformity with the requests submitted by the defendant. 1. The conversion of the entire mass of copartnership property into stock of a corporation, and appropriating that stock to the individual members of the firm, destroying its copartnership character, and its immediate and certain liability for copartnership debts, operated necessarily and per se to hinder Creditors ; it created an obstacle to the collection of their demands.

2. There had been no change of possession, and the continued possession and control by the members of the firm of Persse & Brooks, is presumptive evidence of fraud.

3. The circumstance that they had themselves assumed to act in the character of officers of the alleged corporation, does not alter the legal effect of the fact that they were still in actual possession.

XI. Those portions of the charge which were excepted to were erroneous. And the subsequent instructions given to the jury were erroneous, and calculated to mislead.

1. In substance they amounted to this, that if the stock taken by the several members of the firm of Persse & Brooks in the alleged corporation could be levied upon, there was no delay, and could be no intent to delay ; and when to this was added, that “ the creditors could collect as readily by levying on stock as on the property,” it substantially instructed the jury that the plaintiff was entitled to a verdict.

2. So the instruction that there must not only be an intent to interfere with the party’s ordinary remedy by suit, but that the thing done must be some thing which does interfere, was erroneous. A transfer with intent to hinder or delay creditors is void, whether the hindrance be effectual or not.

3. So, also, the transfer of the personal property in New York to a foreign corporation, on a credit of twelve months, did hinder and delay.

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XII. There was nothing in the case to warrant the submission to the jury of the question whether “ although a charter was obtained and a company formed, with intent to place the property of its contrivers beyond the reach of legal process,” the corporation did not nevertheless buy whatever it bought “ in the regular course of business, honestly,” and pay for it, and conduct its business solely for the interest of its stockholders ?

1. The charge submitted this question to. the jury.

2. The organization of the company, and the sale and delivery of the deed of the property were simultaneous acts, as nearly as in the nature of things was possible. The intent of the formation of the company, if found to be to cover up Persse & Brooks’ property, was the intent of the conveyance ; the latter was the immediate execution of the fraudulent intent.

3. A finding of the jury that the company was formed in order to cover up the property of Persse & Brooks, yet that the conveyance, which was immediate, and in a just sense a part of the same transaction, was a purchase in the regular, course of business honestly made, would be set aside as against evidence. It amounts, in good sense and in law, to a contradiction. The same minds' acting in the matter, the simultaneous conveyance was necessarily and inevitably the carrying of the-fraudulent intent into execution. In the absence of any evidence of a change of purpose, a verdict to the contrary should not be sustained, and such a question ought not to have been submitted to the jury. "

XIII. The verdict was not warranted by the evidence.

D. D. Field, for the plaintiffs, respondents,

Reviewed at length the numerous exceptions taken by the defendant, and argued that they were untenable.

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lexicology of the state of New York, every act of the legislature, whether public or private, is a law within the meaning of its statutory provisions, as to the time it takes effect, and the manner of proving it. (1 R. S. 157, §§ 10-13. Id. 184 , § 12. Duncan v. Duboys, 3 John. Cas. 125.)

Every hill which has been passed by the legislature as pro•vided by the constitution and statutes, and been approved and signed by the governor, or which he shall not return with objections within the prescribed period, or which, if returned with objections, shall be agreed to by the requisite number of each house, thereupon becomes a law, within the meaning of section 426 of the Code, whether it affects all the people of the state alike, or merely creates a body politic.

II. The court charged the jury that, “if you shall find the allegations of an intent to hinder, delay, or defraud the creditors of Persse & Brooks to be unproved, then there is no such defect or vice in the proceedings taken to organize the corporation, as creates any answer to the plaintiffs’ action; that “if the plaintiffs’ right to recover in this action depended solely on the question, whether in organizing the company there has been such a compliance with the requirements of the charter, as confers upon the corporation a capacity to acquire and hold property, and to sue and be sued, the plaintiffs would be entitled to your verdict.” The defendant excepted to the portion of charge the last quoted, but not to the part first cited; and requested the court to charge that, “ the stock of the corporation was never subscribed for and taken up, so as to satisfy the conditions of the "charter, and so the corporation never had a legal existence,. entitling it to purchase propertyand also that, “ upon the proofs as to the taking of stock, and compliance with the conditions of the charter, the plaintiffs have no right to maintain this action.” The court refused to charge conform-ably to either of these requests, and the defendant excepted.

By the first section of the act, D. Persse, H. Brooks and D.

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corporate.” By the third section, the first meeting of the corporation was to be called by a person or persons appointed for that purpose by the corporators named in the first section, and upon such notice thereof as they “ shall deem reasonable and proper.” '

The second section declares that “said corporation may organize, go into operation and commence business, whenever, and as soon as three hundred thousand dollars of said stock shall be taken up and subscribed for.”

A meeting was called and held at the place designated, on the 1st of August, 1857; subscriptions to the amount/ of $450,000 were made; officers were elected; and a certificate of the fact of such organization was filed forthwith with the town clerk of the town of Windsor Locks, and with the secretary of state on the 3d of August, 1857.

The words “taken up,” found in the concluding sentence of section two, are not used as synonymous with paid for; for by section seven, the subscriptions might be called in by installments.

A subscription for $300,000 of the stock, the election of officers, and filing of the certificate, would complete an organization which authorized the corporation to commence business. (Schenectady and Saratoga Plank Road Company v. Thatcher, 1 Kern. 102.)

It has since continued to transact business as a corporation in the state of Connecticut; at least the evidence tends to show that it has, and no contrary inference, from the evidence, is admissible.

If the corporators so abused their powers in respect of the notice given of the first meeting, or by reason of any informality in the proceedings of that meeting, or by reason of taking property instead of money in payment of the subscriptions for stock then made, as thereby to make a cause of forfeiture, the matter can not be taken advantage of collaterally or incidentally; or in any other mode than by a direct proceeding against the corporation for that purpose. And such a proceeding must be instituted in the state which created the

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corporation, and in which it is located. (Trustees of Vernon v Hills, 6 Cowen, 23. Slee v. Bloom, 5 John. Ch. 379, 380. Chester Glass Co. v. Dewey, 16 Mass. R. 94 . Willard’s Real Estate, 101, 102.)

Brouwer v. Appleby, ( 1 Sandf. 158 ,) is an authority that the alleged defects could not be raised even against a domestic corporation in a suit against one dealing with it as a corporation. It would seem to be equally clear that a trespasser, sued for wrongfully taking property from its póssession, would not be in a more favorable position. And the defendant must he viewed as appearing in the latter character, in determining the accuracy of the instruction.

Upon the question whether the creation of the corporation was a fraudulent scheme to shield the property of Persse & Brooks from their creditors, all the circumstances proved in relation to the manner of its organization, were allowed to go to the jury, and some of the more prominent of them were specially called to their attention in the charge given.

With reference to the part of the charge above excepted to, ‘ and the requests to charge, see also The Bank of Niagara v. Johnson, ( 8 Wend. 645 ;) The People v. The President of the Manhattan Co., (9 id. 351, 382;) United States Bank v. Stearns, (15 id. 314;) Methodist Episcopal Union Church v. Pickett, (19 N. Y: Rep. 482 ;) Robinson v. The Governors of the London Hospital, (21 Eng. L. and Eg. R. 371.) The exception to this part of the charge is not well taken.

If the views already expressed, in relation to the sufficiency of the proof of the- act of incorporation, and the effect of th‘e acts done to organize the company are correct, it was not error to refuse to dismiss the complaint, when the plaintiffs rested, unless the third, fourth, fifth and sixth requests to charge, or one of them, should have been complied with. Those requests, and the matter of the charge in respect to them, will he considered, in connection with the exceptions to the charge not already considered.

III. The third to the eleventh of the appellant’s points, inclusive, relate to exceptions, admitting or rejecting evidence.

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To determine the accuracy of some of these rulings, it is important to bear in mind the theory of the defense and the evidence that had been given when the questions arose, and as to others, the line of examination which had been previously pursued.

The theory of the defense sought to be established was that the incorporation of the plaintiffs was a scheme devised by Persse & Brooks, to convert their property into a form which would hinder, delay or-defraud their creditors, and with that intent; and by which they would be enabled to control, it as officers and agents of such corporation; and that the transfers made in August and September, were made with that intent, and necessarily had that effect.

(a.) Evidence of the acts of the assignor of property, who continues in actual possession of it after the transfer, respecting his manner of using or- disposing of it, tending to show that he is using and disposing of it as if it were his own, is admissible upon the question of the bonafides of the transfer.

So too are his declarations relating to its control and the disposition of it, while he continues in the actual possession; where such declarations in connection with the use or disposition which they authorize, tend to establish the same result. (Adams v. Davidson, 10 N. Y. Rep. 309 .) Such a rule does not conflict with the statutory provision that “ in suits by dr against an aggregate corporation, the admission of any member thereof, not named on the record as a party to such suit, shall not be received as evidence against such corporation, unless such admission was made concerning- some transaction, in which such member was the authorized agent of such corporation.” (2 R. S. 407, §§ 80, 99.) Hor is it an answer that the person whose declarations are sought to be proved, in the present case, was in possession as an officer of a corporation, and that his possession is its possession, and the case does not therefore fall within the rule. That is objecting to the exclusion of the offered evidence, the very fact in dispute, and is no more an answer than if his assignee were a natural person. When it appears that his possession is that of an officer,

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and bona fide as such, the question is solved, in so far as its relation depends merely upon the fact of continued possession. But whether he uses it and deals in regard to it, as if it were his own, is an entirely different matter.

Booth v. Bunce et al. ( 24 N. Y. Rep. 592 ,) is an authority for the proposition, that it is open to the defendant to establish his defense if he can; and it would seem that the same rules of evidence must be applied, as if the assignee or vendee were a natural person; having at all times a due regard for the proposition that a corporation can génerally act only by the agency of natural persons.

(b.) We think it quite clear, therefore, that it was competent for the defendant to prove that Horace Brooks and Mr. Forrest, the assignee of his firm, immediately after the assignment was executed, went to Windsor Locks, and that Forrest in the -presence of Mr. Barnes, and of H. Brooks and T. B. Persse, gave the directions and made the statement offered to be proved ; and that such instruction was obeyed. Horace Brooks was the president of the plaintiffs; was the principal actor in taking the steps pursued to organize the company, and seems substantially to have been the officer most influential in conducting its operations. The rejected evidence, if it came up to the offer, would show that even after the assignment he subjected it to the control of the assignee, as property transferred by the assignment. Whether such proof as was offered could have been made, or would have been credited if given, are not questions now before the court. We must assume it would have been given but for the ruling excepted to, and may have been fully credited.

(c.) For the same reason evidence of the declarations of H. ; Brooks, offered to be proved by Zebley, should have been admitted, if made while he was in possession of and controlling the property, now claimed to belong to the plaintiffs.

(d.) So too, I think the evidence offered to be given by J. H. Benedict should have been received. The evidence was to show what Mr. Persse said while negotiating for the purchase of stock to be manufactured into paper, at the plaintiffs’ mills.

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Though the offer does. not specify the statements alleged to have been made, yet it should not be now assumed that it was overruled for that cause; especially as it appears that offered evidence, in all respects very specific in respect to the facts proposed to be proved, was excluded. It is hardly necessary to state, by way of precaution, that all declarations which either Persse or Brooks may have made are not admissible merely because they made them, and they relate to the business and property now claimed by the plaintiffs to be its ovin business and property, and made by them while in possession óf the property and conducting the business. To be admissible they must have been relevant to the issue.

(e.) Whether 'Benedict observed any change during the year 1857, in the manner of doing business, or the appearance of the 'store, I do not deem admissible. If he transacted business with Persse & Brooks during that time, and if they then ■ transacted in their own names the business, which the plaintiffs now claim was its business ; or if he saw that the signs on the store, or other indicia of ownership continued unchanged, he could so testify.

(/.) Before the exceptions were taken to H. Brooks’ testifying to the fact that, anterior to the erecting of the corporation, he conversed on the subject of forming it, and what was his reason for forming it, and whether or not there was any motive to defraud creditors, he had stated without objection, that the first design of forming it was talked of between Persse and himself; and he had talked with Mr. Dexter about it; that he had spoken to a great many people on the subject, and in the parlor of the Nassau Bank among the directors. He had also been examined by the defendant (on a cross-examination) as to the meeting to organize the corporation, the call of that meeting and how made as to the transfers of property made on the 1st of August and 1st of September, and to the conduct of Persse & Brooks in regard to the property and the management of the business done to a period subsequent to their failure.

The evidence given did not tend to show any very general

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or circulated notice of holding the first meeting, and this in connection with the fact that Persse 8s Brooks continued the manufacturing business on their own account,, down to the 1st day of September, 1857, furnished the basis for an argument that the fact of the organization was not generally known, nor designed to be; and that their continuance of the business for a month subsequently was calculated,- if not designed, to prevent any-inference being generally drawn that they had ceased to be owners of the mills.

As pertinent to that question, it appeared to- me, at the trial, to be proper, and does still, to admit evidence that the formation of the. company was publicly spoken of by them, and to persons with whom they were dealing.

And as the evidence then given, had there been no other, would have required the submission to the jury whether the plaintiffs had been incorporated as a cover and shield to defraud, hinder or delay the creditors of the firm of Persse 8s Brooks ; and as such evidence had been given by H. Brooks, himself, the question whether this was done, and the property transferred, with a fraudulent intent, was one proper to be put on a cross-examination, (which as to this matter was a cross-examination,) under the decision in Seymour v. Wilson, ( 14 N. Y. Rep. 567 .)

If that general question, under such circumstances, is competent and proper for the consideration of the jury, it is difficult to perceive any objection to his stating what the actual motive or intent was. He is as competent to know and state that as to affirm, generally, that his intent was honest and not fraudulent. If the motives or reasons assigned evince an honest intent, the statement of them is but specifying the reasons for his acts, which the answer to the general question of intent characterizes as being an honest intent. And if he may testify that his intent was honest, or as an equivalent thing, (when showing an honest intent,) may state the particular reasons which induced the act, it would seem to follow that he may also testify that he communicated these reasons to his creditors and others before the act of incorporation was applied for.

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It may be conceded that such matters would not be competent evidence in the first instance, and yet may be upon the question whether the organization was designedly concealed at the time it took place, or whether the act of incorporation was procured and the transfers made with an actual intent to defraud, in answer to evidence by the same witness, of acts on his part tending in any degree to justify an inference of such an intent to conceal and defraud.

(g.) H. Brooks was permitted to testify that, between the 1st of September, 1857, and the 1st of July, 1858, the corporation made profits, and that there was a very great panic in the market, beginning in July or August and lasting several months ; and the defendant objected, and excepted to the decision admitting the evidence.

The first item of evidence, if admissible at all, can only be so because it bears on the question whether Persse & Brooks obtained the charter in contemplation of insolvency, and with a view to their immediate failure. The second item of evidence bears upon the question of the cause of their failure; and whether it resulted from an actually embarrassed condition of which they were conscious, and against the consequences of which they had to provide when they organized the company ; or was induced wholly or in part from causes not then within their contemplation.

(A) But it does not follow that the admission or admissibility of such evidence makes it competent to inquire, whether up to the time of the trial, (March, 1862,) profits had been made. Merchandise of the plaintiffs, or claimed to be such, had been seized in March, 1858, by creditors of Persse & Brooksj amounting in value to some $11,000 to $12,000, on an allegation that the formation of the corporation was a cheat and a fraud, and that the property it claimed to own was liable to be seized on execution issued on judgments in favor of the creditors of Persse & Brooks, and had been sold notwithstanding notice of the plaintiffs claim of ownership. Such acts would necessarily interfere with the successful transaction of the plaintiffs’ business, tend to impair their credit, and

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would leave the jury without any reasonably dertain means of determining what would have been the result of the business if it had not been interfered with.

The evidence offered and rejected neither furnishes any evidence of an original fraudulent intent, nor impairs in any degree, whatever weight the rebutting evidence, as to making profits up to July, 1858, may justly deserve.

The defendants were permitted to inquire whether profits were made within the period of which H, Brooks testified; and the evidence excluded was, whether profits had been made up to the time of the trial. It was not proposed-to inquire with reference to any intermediate point of time, and if that was desired, it should have been so stated, that it might have been considered, whether upon any grounds that might have been suggested, such an inquiry would have been pertinent. But we think that all evidence in respect to the fact of making profits up to July, 1858, or sustaining losses subsequently, should have been excluded. That the corporation made profits does not tend to show that its organization was without fraud; that it suffered losses does not tend to' show that its organization was fraudulent.

(i.) The exception to the ruling that H. Brooks may state any thing which the parties said in negotiating the agreement by parol, and which of itself constituted the contract, is not tenable. Such evidence was, in its nature, clearly competent; and it was a matter resting in the discretion of the court, in its view of what was proper to elicit the whole truth, to permit the inquiry, although the witness had previously been examined to the same matter.

(J.) The question to Mickle : “Were you superintendent of the works under the corporation ?” was clearly competent. This was put on his cross-examination. He had testified on his direct examination, that he was in the employment of Persse & Brooks “ as superintendent of the manufacture of paper, at Windsor Locks, from the spring of 1855 to the end of October, 1857.” This fact, if true, was indeed very material, and tended to show that the manufacture of paper was

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continued by the firm, under the superintendency of a person employed by the firm, to the end of October, 1857. It was clearly competent for the plaintiffs to show, if they could, that from the 1st of September, 1857, he acted as the agent of the corporation.

(&.) The defendant asked H. R. Dixon, who was examined as an expert in the science of book keeping, this question: “ Do the books (of Persse & Brooks) show whether on the 30th of June, 1857, the firm was insolvent ?” The court excluded the question, and the defendant excepted.

It was competent to show the entries in the books in respect to the firm’s assets and liabilities, and it was for the jury to determine, upon the whole evidence, whether the firm was insolvent. The witness was asked to determine the question upon such evidence as the book entries furnished, instead of pointing out the entries and reading them to the jury. This exception is untenable.

(7) The defendant also ■ excepted to the exclusion of evidence of the contents of an entry made in the firm’s, books in October, 1857. At this time the books were under the control of the firm’s assignee and his agents, and the entries were not the acts of Persse & Brooks. Any entries made by Brooks himself, the defendant was permitted to prove. This ruling is free from objection.

(m.) The questions as to what the paper of the.firm, without its knowledge, was offered to be sold for in the spring or summer of 1857; or whether Mr. Bennett was induced to withdraw his funds in their hands, in consequence of an offer to sell him the firm’s paper, made in March, 1857, were properly overruled. The evidence, if given, would not tend to show that the firm contemplated insolvency as probable or possible, or had disposed of its property to the plaintiff fraudulently.

(n.) Hor do I think evidence should have been received of . the application which Mr. Bennett made of the $20,000 which he received from the firm. The fact that he or any other person called for payinetit in whole or in part of money lent on

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interest and payable at call, raises no inference that the debtor was insolvent or embarrassed, or considered himself to be so, and laid no foundation for evidence of the use which the creditor made of the money, on receiving it. •

(o.) I do not see any good objection to proof of the manner in which the transactions between Bennett and the firm were finally closed. If any of the testimony on behalf of the defendant in relation to these transactions can be supposed to furnish any evidence of the fraudulent intent imputed to Persse & Brooks, the whole truth in relation to the true character of these transactions would seem to be pertinent. A short answer to the exceptions is, that in the answer to the question, “ Were any papers exchanged between you and any other person, in reference to that payment ?” and in answer to the further question, “Was the final settlement made between you and Seymour, and Persse & Brooks, and Forrest, or Mr. Eaton representing them ?” nothing was said, of the slightest consequence, or which by any possibility could have had any influence on the verdict.

The whole evidence of the witness, according to my view of ■it, renders the questions admissible, as a reasonable cross-examination.

(p.) The question put to Zebley, whether he knew from Persse & Brooks, that the notes made by them in July or August, 1857, were issued by them to be sold, should not have been overruled, if such knowledge was acquired before the transfers made by them of the property in question. It would bear on the question of their then opinion of their financial condition, but might be entitled to but little weight, if the rates at which a sale was authorized, were such as were paid •for the paper of houses in good credit. If made after the transfers, they would be declarations in no way characterizing their possession of the transferred property, and should not be admitted against the plaintiffs to affect a title they had previously acquired.

(q.) The defendant, without objection, was permitted to examine Messrs.

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credit of Persse & Brooks, but was not allowed to prove “ what their (Persse & Brooks’) paper would sell for in the market or that the notes of the firm were brought into Delevan’s office and offered for sale by street brokers; or whether “ the fact that the paper of a house is in the hands of street brokers frequently for sale, affects the character of that house and he excepted to the decisions excluding such evidence.

I think the evidence is too remote, and does not legitimately tend to show, either that the firm was embarrassed when the corporation was organized, or that they then contemplated a failure. The fact that the paper was in the hands of street brokers, prima facie tends rather to show the wants of the holder than of the makers of it.

Delevan was out of the country from the 17th of May to the 5th of October, 1857, and if the question related to a period later than the 5th of October, the offered evidence would clearly be inadmissible.

It was not proposed to show that the firm knew of the suggested sales or offers to sell, or had any difficulty in procuring on credit, any amount it desired in its operations.

(r.) The declarations of Persse & Brooks, whether oral or in the form of a sworn answer, made February 13, 1858, to the effect that the notes therein mentioned were made by the firm to raise money, and were discounted at usurious rates, I deem inadmissible. The plaintiffs’ title can not be affected by mere declarations made by their vendors subsequent to their purchase, when not made in relation to the transferred property at the time in their possession, or in any way qualifying such possession. Hone other of the exceptions taken to the admission or rejection of evidence, are noticed in the appellant’s points.

IV. It only remains to consider the exceptions to refusals to charge as requested, and to the charge made. The first and second requests to charge have already been disposed of; the third, fourth and fifth requests relate to the legal effect of the transfers made to the corporation, and taking stock in the individual names of the parties.

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I think the charge made, in answer to these requests, was a correct exposition' of the law. The mere fact that partnership property is transferred for other property, and the substituted property transferred to the members of the firm individually, is not per se fraudulent, nor conclusive evidence of an intent to hinder or delay the creditors of the firm in the collection of their debts. If the substituted property is as valuable as That sold, is as accessible to process, and can be as readily converted into money by judicial proceedings, the transaction does not, of itself alone, either in fact hinder or delay, or furnish conclusive evidence of an intent to hinder or delay creditors, or render the transfer per se fraudulent and void.

The fact that title to the substituted property was taken by the members of the firm in severalty, instead of the firm’s name, may be an important circumstance, if there be any other evidence tending to show a fraudulent intent. But if there be no evidence of a fraudulent intent, except such as is furnished by the mere fact of a transfer of a firm’s property, and the division in form, among the partners, of property taken in exchange, the transaction is not per se fraudulent.

If the firm’s remaining assets had been abundantly sufficient to satisfy all its liabilities as they matured, I can not think that a transfer of property of the value of that in question, and taking the stock of a corporation therefor, in which corporation the transferred property was converted into capital, would suggest the idea that there could possibly be in the transaction any evidence of an intent to hinder, delay or defraud. If this be so, then it was correct to refuse to give the instructions sought, and the charge as made was just and proper; because the requests affirm that the naked fact of the transfer and taking the stock in the individual names of the partners was fraudulent. That it was important and material in connection with the other evidence, and entitled to be fully weighed by the jury, in determining the question of an actual fraudulent intent, was pressed upon them by counsel, and it is among the leading facts relied on as evidence of fraud, which the court specially called to their attention. And in

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this connection, it is appropriate to advert to the colloquy between the court and a juror, when the' jury returned into court without having agreed on a verdict. The only remark • which I deem open to criticism, is that “ It must be something which interferes, and is done for the purpose of interfering with a party’s ordinary remedy by suit to collect his debt.” Substituting or for and, and the sentence would he unobjectionable. The next sentence indicatés that the court intended to so express itself. And the concluding sentence corroborates this view. If there be nothing in the nature of the property taken in exchange, which would cause a delay in converting it by judicial proceedings, or in creating a lien upon it thereby, the mere act of the exchange would not furnish evidence of an intent to hinder or delay.

There may be a transfer with intent to hinder or delay, when the transaction itself would not have any such legal effect. And when such an intent is proved, the transfer is void, though the substituted property is as valuable, and as convertible by judicial proceedings, as that given for it. But when such a transfer is shown to have been made with intent to hinder or delay, the intent will be established by other evidence than the naked fact of a mere exchange of property.

"V". The 6th and 7th requests to charge were properly overruled. The 6th assumes that it was a necessary effect of these transfers “to hinder, delay and defraud their creditors.” This fact was one for the jury to determine on the whole evidence. The jury were instructed that Persse & Brooks must be deemed to have “ intended to produce such results as are the natural and necessary consequence of their acts, and if it can be seen that the natural and necessary consequence of the acts of Persse & Brooks in transferring property to the corporation in the. view they then had of their condition and resources, was to defraud, or hinder, or delay their creditors in collecting their debts, then they should be deemed to have done what they did do, with that intent, and the transfers would' be void as to their creditors.” The request was erroneous, because it assumed as an established fact, a question of

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fact which was a matter of controversy, and in regard to which it was the exclusive province of the jury to determine whether it existed or not.

VI. The 7th request was also properly overruled. That-imports that though there was no fraudulent intent in organizing the corporation, yet a transfer to it of property by Persse & Brooks, and such possession of it as the lawful officers of the corporation would necessarily have in the proper performance of their official duties, would be presumptive evidence of a fraudulent intent, though they were in fact officers, and professed to hold and control it in that capacity, and did no act impeaching the truthfulness of their profession, or casting a suspicion upon the transaction beyond such as is justified by the fact of such a possession. I think the charge on this branch of the case presented it accurately and fully to the jury-

VII. Our attention is called to a portion of the charge to which no exception was taken at the trial, and which it is now urged, submitted to the jury a question which the case did not present, and in a manner calculated to mislead. It is not urged, as I understand the argument, that the proposition is not sound as an abstract one. The court stated to the jury the requests to charge presented by either party, and the views of the court in regard to their accuracy, as legal propositions. The court had already informed the jury, that as Persse & Brooks “ acted as well for the corporation in taking the transfers, as for themselves in making them, it follows that if they were actuated with this fraudulent intent, the plaintiffs had notice of it and can not recover in this suit.”

After stating the rule of law, the stating of which is now complained of, the court further said that, if the corporation was formed and the transfers made with the intent alleged, “ then the title is invalidated by transactions between Persse & Brooks and the corporation, had after its organization.”

The full pertinency of this part of the charge can not be so clearly seen as it would be, if the requests to charge were in the case. The words above quoted, are those contained in one

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of the plaintiffs’ requests, and the charge given, was adverse to them. I can not think that the counsel or the jury understood the judge to submit to the jury to find whether the transfers of the property may not have been honestly made, and therefore valid, even though they should find that the charter was obtained and the company organized with the fraudulent intent imputed.

If there were no error, other than that suggested in stating to the jury the legal proposition to which this objection is made, I should be quite clear that the judgment should be affirmed.'

But there are errors, before stated, which entitle the defendant to an order reversing the judgment, and to a new trial, with costs to abide the event.

Ordered accordingly.

Cases cited

Crary v. Sprague 12 Wend. 41 N.Y. Sup. Ct. p. 142
Bank of Niagara v. Johnson 8 Wend. 645 N.Y. Sup. Ct. p. 147