First National Bank v. Warner

8 N.Y.S. 765, 62 N.Y. Sup. Ct. 120, 28 N.Y. St. Rep. 450, 55 Hun 120, 1889 N.Y. Misc. LEXIS 2336

Opinion

Barker, P. J.

Nothing appears on the face of the assignment which indicates that the assignor has applied his property to a fraudulent or unlawful purpose, or that the trust created is not in all respects legal and valid. In terms he has devoted all his property not exempt from sale on execution to the payment of his debts, and to the discharge of his legal obligations. The plaintiff, however, charges that the transaction was a fraudulent one on the part of the assignor, and that he made the assignment, and placed his property in trust, with the intent to hinder, delay, and defraud a portion of his creditors, and among them the plaintiff; and that by a secret arrangement, made with the assignees before or at the time of making the assignment, he should be permitted to possess and enjoy, for his own use, a portion of the property assigned, and continue to manage and carry on the business; and that, as a matter oí fact, a portion of the debts preferred were fraudulent and fictitious. In support of this charge of fraud, the plaintiff produces considerable evidence; but the learned trial court upheld the assignment, and found specifically that the same was made in good faith, and not for any fraudulent purpose. The learned counsel for the appellant, in an earnest and elaborate argument, insists that the findings of fact were against the weight of the evidence, and the accusation of fraud was well supported, and for that reason, independently of all other questions presented by the case, the j udgment should be reversed, and a new trial granted.

This court has the power, and it is its duty, on an appeal from a judgment entered upon the decision of the court where the trial was without a jury, to examine the evidence presented on the trial, and determine whether the conclusions of fact as found by the trial court are sustained by the evidence, and, if not, to reverse or modify the judgment as the justice and equity of the case may require. We have examined the evidence with much attention, for the purpose of acquainting ourselves with the general features and circumstances of this somewhat involved and intricate case; but, as we have reached the conclusion that the present judgment must be reversed, and a new trial granted, because competent and material evidence offered by the plaintiff on the question of fraud was erroneously excluded, therefore, for that reason, it is unnecessary to pass on the question whether the trial court found contrary to the evidence on the issue of fraud. We also deem it improper for us to discuss and declare our views as to whether the charge of fraud was sustained or not. on the evidence contained in the record now before us. On another trial the evidence may be materially different; and our views as to the force of the evidence as now presented would not aid, and might embarrass, the court on a retrial.

The assignor’s individual and copartnership indebtedness and liabilities exceeded the sum of $250,000. lie received from the First National Bank of Corning large accommodations for several years before his failure, and during the same period the plaintiff loaned to him, and the firm of which he was a member, large sums of money; and at the time the assignment was made his indebtedness to the plaintiff amounted to a large sum, a portion of which was included in the judgments upon which this action was based. The assignee Drake was owner of two-thirds of the stock of the Corning bank, and he was its managing officer; and on the day the assignment was executed the bank transferred to him all its claims and demands against the assignor, and the copartnership firms of which he was a member. In all the assignments, Drake was made a preferred creditor; and the amount of his claims, as set out in the schedules, was greater than the value of all the proqoerty embraced in the several assignments. At the time of making the assignment, the assignor was also a member of the firm of Turner, Warner & Wilcox, doing business as lumbermen at Elmira, in the state of Pennsylvania; and he was an indorser for that firm in a large amount of commercial paper held by the Corning bank, and for which it held securities, and such indebtedness and the securities were also transferred to Drake before the assignment was delivered. On the 26th day of January, 1885, Warner executed and delivered to the Corning bank a mortgage upon several pieces of land, situated in the state of Hew York, as a security for the payment of a sum not exceeding $75,000; as a continuing security for the payment of all promissory notes, bills of exchange, drafts, checks, acceptances, and indorsements of Thomas Warner, and of Turner, Warner & Wilcox, and of Warner & Wilcox, which the said bank then held and owned, and which it might thereafter own, and of all renewals thereof, and to secure all the indebtedness which the same parties, or either of them, might owe, according to the character and condition of such indebtedness; and in all other respects the said instrument con tained the usual clauses of a real-estate mortgage. The same was never recorded. If the assignment is sustained, the plaintiff will receive nothing out of the assets upon its indebtedness from the assignor’s property, because of its insufficiency to pay in full the preferred indebtedness.

At times, for the period of two or three months before the making of the assignment, a large amount, of the assignor’s paper was past due, and under protest, and was held by various parties, including the plaintiff, in the vicinity where the assignor was doing business; and among those holding such paper, was a banking-house doing business under the name of the Halioek Bank, of which William H. Halloclt was one of the members. In April this firm held some eight or ten thousand dollars of protested paper, and a like amount which had not then matured, negotiations were had, from time to time, between the assignor and Mr. Halioek, in regard to the payment of such indebtedness; the assignor requesting a renewal of the paper, and that the time of payment be extended, which resulted in an arrangement, which was consummated on the 15th day of May preceding the assignment, by which the paper was renewed, and the time of payment extended beyond the 27th day of May, the date of the assignment. As bearing upon the assignor’s intent to delay and defraud his creditors, the plaintiff offered to prove that during these negotiations Warner promised to give Halloclt security for his indebtedness; that in March preceding an action was commenced upon one of the notes held by the Halioek Bank against the firm of Cramer & Warner by personal service upon both of those parties, and that no answer was interposed, and, 20 days having expired, the plaintiff might have entered judgment, and that it was part of the said arrangement, made and concluded on the 15th day of May, that judgment should not be entered in that action, and was not, until after the assignment, and, for the purpose of securing an extension of time and delay in entering judgment in that action, Warner stated to Hal-lock that he owned all his real estate, and that there was no mortgage upon it, and that upon the faith of such statement an extension of time was granted by Halioek. A further offer was made to prove that during such negotiations Warner represented that the firm of Cramer & Warner were solvent, and able to pay their debts. This was objected to by the defendants, as incompetent, and the same was excluded; and the plaintiff excepted. The plaintiff also offered to prove by Mr. Allen, the cashier of the Halioek Bank, that in December, 1884, the bank urged Mr. Warner to pay the paper which it then held against him; that such interviews and conversations were continued at different times until the latter part of the month of April, when Mr. Warner told the cashier, when conversing upon the subject of the payment of the paper held by the bank, that he was perfectly good, and that he would pay the paper, and solicited Mr. Allen to extend the time of payment, and that the same was rediscounted so as to extend the time of payment beyond the day of making the assignment, and that in consenting to such renewal the cashier relied upon the statement of Mr. Warner that he was good, and that Mr. Warner knew that such statements were false at the time he made them. This evidence was objected to by the defendants as incompetent and immaterial, and was excluded; and the plaintiff excepted. This evidence was, as we think, both competent and material; and, if it had been received, would have tended to prove that the assignor, in making the assignment, intended to hinder and delay, and also to cheat and defraud, his creditors. The statute declares that every conveyance or assignment made with intent to hinder, delay, or defraud creditors is void. 3 Rev. St. (7th Ed.) 2329. If either party to the conveyance had in mind to accomplish that which the statute condemns as fraudulent, then the transaction cannot stand when assailed by the creditors of the assignor. If the assignor, in conveying the title of his property to his assignees, was actuated by the fraudulent intent condemned by the statute, the assignment cannot be upheld although the assign ces were wholly innocent of any fraudulent purpose on their part. Starin v. Kelly, 88 N. Y. 418; Loos v. Wilkinson, 110 N. Y. 195, 18 N. E. Rep. 99.

The assignor is a party defendant in this action, and he, in his answer, denied all allegations of fraud charged in the complaint, and insisted on the trial that the assignment was valid, and was not made with intent on his part to cheat and defraud his creditors, and, as against him, it was competent to prove, as bearing on the question in issue, the nature and character of his business transactions down to the time he made the assignment, and delivered up the possession of the assigned estate to the assignees; the use he made of the avails of his property immediately preceding the assignment; the negotiations he had with his creditors relative to the payment, or securing the payment, of the same; the representations which he made, if any, to induce his creditors not to press the collection of their debts; and the statements which he may have made to them during such negotiations as to his solvency, the amount of his indebtedness, and the nature and character of his assets. Eor the purpose of testing the motives and integrity of an insolvent debtor in disposing of his property with the view of securing one creditor in preference to another, it is, as a general rule, permissible to inquire into the details of his business transactions, and the manner in which he has managed his property, for such a length of time immediately preceding the assignment as will throw the most light on the question of his intent. The evidence offered and rejected should have been received. If the negotiations with the Hallock Bank were of the character claimed by the plaintiff, and the assignor made the representations as alleged, they would have tended to prove that Warner then had it in mind to make the assignment, and that it was part of his scheme to prevent the entry of judgments against him, and to postpone the time of payment of his indebtedness to that bank. The ruling of the court condemned as incompetent all evidence of this character; and it cannot now be said by this court that the plaintiff was not able to produce evidence of similar dealings and transactions with his other'creditors, whose debts were past due, and who resided in the neighborhood of his home office. These negotiations were near the day when the assignment was executed, and as they related to his financial affairs, his statements to, and his negotiations with, his creditors, were in the nature of res gestee declarations on the question of fraud, within the rule as stated in Loos v. Wilkinson, supra. See, also, Rothshield v. Salomon, 5 N. Y. Supp. 865.

Eor the purpose of determining the question of fraudulent intent on the part of Warner in making the assignment, the trial court held that, as a matter of law, “ the allegations of fraud must be supported by such a just preponderance of evidence as makes the proof of fraudulent intent satisfactory. ” This concl usion of law was followed by others, which declared that the assignment was valid, and not fraudulent and void, and that the defendants were entitled to judgment against the plaintiff upon the issues in this action in accordance with “the foregoing findings of fact and conclusions of law;” and dismissing the complaint on the merits. We refer to the rule of evidence as stated by the trial judge, by which the questions of fraud were determined, not for the purpose of discussing its accuracy, but to state that we pass the question without consideration, as there must be a new trial for the error before mentioned. Judgment reversed. Hew trial granted, witli costs to abide event. All concur.