Schelling v. Bischoff — 61 N.Y. Super. Ct. 68

Majority

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ANDREW W. SCHELLING, Appellant v. CORD BISCHOFF, et al., Respondents.

Headnote

Bill of sale, action to set the same aside on the ground of fraud.

There were no material misrepresentations made by defendants to induce the plaintiff to execute the bill of sale in this case. Plaintiff intended to give defendants security for their demands against him, and it was executed in the form of a bill of sale, when a chattel mortgage might have been more appropriate for the purpose intended. After the defendants received the bill of sale, they asserted their rights under it, sooner than the plaintiff expected, and plaintiff’s store and stock in trade, etc., were sold to satisfy defendants’ claims. This action was to set aside the bill of sale on the ground of fraud.

Meld, that the bill of sale was not procured by fraudulent representations as to material facts, and should not be set aside, and, therefore, the complaint was properly dismissed. Although' the bill of sale was absolute on its face, it was clearly intended as security for the debt by way of mortgage and not as a satisfaction thereof, and if this action had been to declare it as a mere security for the sum due and for an accounting of the proceeds of sale, it Would have been maintained ; but this action is founded on fraud to avoid the instrument altogether and for damages, as if no writing whatever had been executed or intended to be executed. The plaintiff is not entitled on the evidence in the case to the broad relief claimed.

Before Freedman and McAdam, JJ.

Decided May 2, 1892.

Appeal by the plaintiff from a judgment entered upon dismissal of his complaint by direction of the judge presiding at the equity term after a trial thereat.

James Forrest, for appellant, on the question considered, argued:—

I. Intent or intention is an emotion or operation of

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the mind, and can usually he shSwn only by acts or declarations (“ as in this case the defendants represented to the plaintiff that they only wanted security, and that his business would not he disturbed ”); and, as acts speak louder than words, if a party does an act which defrauds another, his declaring that he did not by the act intend to defraud is weighed down by the evidence of his own act. Babcock v. Eckler, 24 N. Y., 632 : Newman v. Cordell, 43 Barb., 456 . Fraud does not consist in mere intention, but in intention acted out, or made effectual by hurtful acts; in conduct that operates prejudicially upon the rights of others, and which was so intended. It is sometimes said to consist of “ any kind of artifice employed by one person to deceive another.” Billings v. Billings, 31 Hun, 65 -69. The act of the defendants in obtaining the plaintiff’s property by false and fraudulent representations, valued by him at $3,000, to pay their debt of $700, was fraudulent in itself and shows an inference of fraudulent intent. An act innocent in the intention may be so injurious in the consequences that the law declares it to he a fraud and forbids it. Kisterbock’s Appeal, 51 Pa. St., 485 ; Lawson v. Funk, 108 Ill., 507 . The court has gone so far as to hold that where there was no finding of a fraudulent intent, but, on the contrary, the finding that the whole transaction to be fair and honest, and, therefore, the transaction should stand. The court say, however, that the referee has found facts from which the inference of fraud is inevitable, and, although he has characterized the transactions as. honest and fair, that does not make them innocent, nor change their essential character in the eye of the law. Coleman v. Burr, 93 N. Y., 31 . The defendants in that case, as in this case, must he deemed to have intended the natural and inevitable consequences of their acts, and that was to cheat and defraud the plaintiff out of his property. Cunningham v. Freeborn, 11 Wend., 241 ; Edgell v. Hart, 9

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N. Y., 213 ; Ford v. Williams, 24 Ib., 359; Babcock v. Eckler, 24 Ib., 623, 632. Equity endeavors to deal with the substance of affairs ; to look beyond the observance of mere forms ; to regulate its judgment according to the real purposes which controlled parties in the various matters brought before it for relief or correction. The Supreme Court of Illinois say: u Equity will penetrate beyond the covering of form, and look at the substance of a transaction, and treat it as it really and in essence is, however it may seem.” Wadhams v. Gay, 73 Ill., 415 , 435; Gay v. Parpart, 106 U. S., 699 ; Fowler’s Appeal, 87 Pa. St., 454 ; Wright v. Oroville M. Co., 40 Cal., 20 ; Livermore v. McNair, 34 N. J. Eq., 482 ; Buck v. Voreis, 89 Ind., 117 . In Buck v. Voreis, Judge Elliott said : “ Forms are of little moment ; for where fraud appears courts will drive through all matters of form and expose and punish the corrupt act.” Rules of pleading in equity are not so strict in matters of form as at law. Warner v. Blakeman, 4 Keyes, 507.

II. If the defendants represented as true that which they know to be false, and make the representations in such a way, or under such circumstances, as to induce the plaintiff in this case (ór a reasonable man) to believe it is true, and the person to whom the representation has been made, believing it to be true, acts upon the faith of it, and by so acting sustains damage, there is fraud to support an action, and also ground for the rescission of the transaction in equity. There is a fraudulent intent if a man, either with the view of benefiting himself or misleading another into a course of action which may be injurious to him, makes a representation which he knows to be false. Taylor v. Ashworth, 11 M. & W., 413; Evans v. Edmonds, 13 C. B., 786 ; Thorn v. Bigland, 8 Exch., 725. A court of equity will always interfere to grant relief when settlements, contracts, agreements and even judgments have been ob

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tained by means of fraud, misrepresentations and deceit. State of Michigan v. P. Bank, 33 N. Y., 25 ; Dobson v. Pearce, 12 Ib., 156 ; People v. Eddy, 57 Barb., 594 , 603; Baker v. Spencer, 47 N. Y., 562 ; Brown v. Post, 1 Hun, 303 ; Ross v. Ross, 6 Ib., 83 ; Hardt v. Schulting, 85 N. Y., 625 ; I. & T. Bank v. Everett, 21 N. Y. St. R., 98 , 102. Actionable fraud consisting in a false representation imports, ex vi termini, an intent to deceive. It may be committed by stating what is known to be false. It may be committed by professing knowledge of the truth of a statement which is untrue. But in either case falsehood uttered with intent to deceive are the essential ingredients. Chester v. Comstock, 40 N. Y., 575 .

Uriah W. Tompkins, for respondents, on the questions considered, argued:—

I. Was any fraud shown ? Our answer, as well as the answer of the court in dismissing the complaint is, No. What are the facts? On January 3, 1890, the plaintiff says that he owed the defendants $750; did not know that it was $853.90. The defendants wanted security for the payment of the amount owed. Plaintiff says: “ I was told the paper (the hill of sale) was security for the amount I owed to the defendants.” He signed it at the office of the defendants; signed it in the morning and left it with Mr. Alexander. It will be seen from the above statement that the consideration for the hill of sale to the defendants was a substantial indebtedness of the plaintiff to them, and they had a right to secure payment of that indebtedness by all lawful means. That was accomplished by the plaintiff giving the bill of sale he now seeks to set aside. Fraud must be proved, it must not be left for inference or conjecture. Stowe v. Stacy, 9 N. Y. Supp., 2 ; Ladew v. Hudson R. B. S. & Mfg. Co., 15 Ib., 901. Careful scrutiny of the testimony will not disclose any fraudu

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lent representations on the part of the defendants for the purpose of securing plaintiff’s indebtedness to them.

II. The testimony óf plaintiff as to alleged fraudulent statements has reference only to securing the judgment. The judgment having been canceled before the commencement of this action, and no property having beeii taken under the execution issued thereon, no damages could be recovered nor equitable relief granted in this action on the ground of fraudulent obtaining of the judgment, even assuming that its procurement was fraudulent.

III. If the contention of the plaintiff be that there was a fraudulent use of the bill of sale, then the answer is that there is no allegation in the complaint equivalent to an affirmance that at the time defendants obtained the bill of sale they intended to defraud the plaintiff.

The evidence shows that there was no material misrepresentations made to induce the plaintiff to execute the bill of sale. He intended to give the defendants, who were creditors of his, security for their demand against him, and it was put in the form of a bill of sale, when a chattel mortgage might have been more appropriate for the purpose intended. After the defendants received the bill of sale, they asserted their rights under it, sooner than the plaintiff expected, and as a consequence his store, stock in trade, etc., were sold to satisfy their claim. The action is to set aside the bill of sale, and a confession of judgment thereafter obtained on the ground of fraud. The defendants removed their judgment from the records by satisfaction piece duly filed, and the acts done by them are justified solely under the bill of sale.- Nothing was taken under the judgment, and as it was canceled of record, before the commencement of this action, the plaintiff required no equitable relief to be discharged

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from. it. The bill of sale not having been procured by fraudulent representations as to material facts, the complaint was properly dismissed, not so much for the absence of allegations of fraudulent intent, as from the want of evidence of fraud in procuring the execution of the instrument. Though absolute on its face, the bill of sale was clearly intended, not as a satisfaction of the debt, but by way of mortgage only, and if the action had been to declare it a mere security for the sum due, and for an accounting of the proceeds of sale it would have been maintainable. Equity, it is true, will, in a proper case, penetrate beyond the covering of form, and look at the substance of the transaction, and treat it as it really and in essence is, and was intended to be and as it should have been declared in the papers, for, a a writing, like the phonograph, should record the true expressions and intentions of the parties as they made and proclaimed them. Where it does not, reformation is the remedy. There may be trouble in furnishing satisfactory proof of fraud or mutual mistake—none with the remedy if the required proof is sufficient. The difficulty here is, that if the bill of sale had been a chattel mortgage, the defendants might have done the same acts under it as were performed under the bill of sale, that is taking possession and selling the property to the highest bidder. The mortgagee would have been liable, however, to a suit in equity calling them to account for the proceeds of sale. Jones on Chatt. Mort's, § 353. The present suit is not for reformation and account, but is founded on fraud to avoid the instrument altogether, and for damages as if no writing whatever had been executed or intended to be executed. The plaintiff is not entitled to that broad relief on the evidence. As the instrument executed, and that intended to have been given, concerned personal property, and would in either event have produced the same result, the variance of form is in the present instance of no practical impor

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tance. It follows that the judgment appealed from must be affirmed, with costs.

Freedman, J., concurred.