Varnum v. Hart

6 N.Y.S. 346, 2 Silv. Sup. 478, 25 N.Y. St. Rep. 755

• Court: New York Supreme Court
• Decided: June 15, 1889
• Status: Published

Opinion

Barker, P. J.

The receiver, who represents the creditors and stockholders of the corporation, attacks the validity of the several judgments rendered in favor of the bank, Hart, Miller, andElwanger, on the ground that they are void, and a fraud upon the statute enacted for the purpose of securing equality in the distribution of the property and assets of insolvent corporations among its creditors, which declares that whenever any incorporated company shall have refused the payment of any of its notes, or other evidences of debt, in specie or lawful money of the United States, it shall not be lawful for such company, or any of its officers, to assign or transfer any of the property or choses 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 assignment of such company, to an.y 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. Chapter 18, pt. 1, § 4, tit. 4, Bev. St. The object of this statute is to prevent all intentional preferences among the creditors of insolvent corporations, and to secure an equality of distribution among its creditors. Every agreement or arrangement made between the officers or agents of the corporation when insolvent or in contemplation of insolvency, with a view of transferring or assigning directly or indirectly any of its property or assets to any of its creditors, contravenes the policy of the statute, and is utterly void. At the time the actions were commenced by the service of the summons and complaint on Tracy, one of the directors of the corporation, and the general manager of its affairs, he well knew that the company was financially embarrassed and insolvent. For a considerable time prior thereto the bank and Hart were pressing the payment of their demands, and they also knew the company was unable to pay its debts in full. The trial court found that Upton, acting as president of the bank, and Hart had consultations and negotiations with Tracy, which resulted in the arrangement or understanding that actions were to be commenced against the company upon their several notes and demands, and that the papers should be served upon the said Tracy as one of the directors of the company, who should conceal the fact of such service until the time for the corporation to answer in each of said actions had expired; so that judgments might be entered in each of said actions without the knowledge of the other directors of the said company, or any other of its creditors. The further fact is also found that such arrangement was made so that the bank, Hart, and Miller might be enabled to procure a preference over the other creditors of the corporation. The summons and a verified complaint in each of said actions. were served on Tracy, who concealed the fact of the commencement of the actions until after judgments were entered and executions issued and levied on the personal property of the company, which was afterwards sold thereon. The evidence fairly supports these conclusions, and our examination of the evidence convinces us that the arrangement entered into between those parties was to secure a preference in payment over the other creditors of the company. If these judgments are upheld as valid, then the plaintiffs therein have secured a priority in payment for the greater part of their respective debts to the detriment of the other creditors of the corporation. The

arrangement made with Tracy for the commencement of these actions, and his agreement to conceal the fact from the other officers of the company until a lien was placed on the personal property subject to levy and sale on execution, was manifestly made because the company was insolvent, and that they knew the fact, and that their purpose was to secure by means of the levy a preference in payment over the other creditors. If that was not the mind of the parties who conducted the negotiations, no sensible reason can be assigned for their action, which was exceptional as between debtors and creditors who had no ulterior purpose in view. By obtaining the judgments and issuing executions thereon, and the levy upon and sale of the property, a transfer of the same was made to the plaintiffs in those judgments within the sense and meaning of the statute. Brouwer v. Harbeck, 9 N. Y. 589; Kingsley v. Bank, 31 Hun, 329. The intent of the statute was to enjoin the officers of an insolvent company from making a transfer or assignment of any of its assets, and, if this restraint is disregarded, the transfer is void, and the parties to whom the same is transferred, either directly or indirectly, acquire no-title to the property. The statute does not attempt to guide or regulate the action of creditors seeking to collect or secure their debts, nor restrain them from resorting to the customary remedies of the law to enforce the payment of their debts from the corporation, although they may have knowledge of its insolvency. The restraint of the statute is imposed upon the company and its officers, acting separately or collectively, and it is their unlawful conduct that vitiates the transfer or assignment, and makes the same utterly void. Had the pursuing creditors procured their judgments without any agreement or concert of action with Tracy, then they would be entitled to the money which they have realized by the sale of the company’s property under their respective executions. But in view of their arrangement with Tracy, their judgments cannot be used as instruments to secure the payment of their debts, because they conspired with an officer of the company, and induced him to violate a duty which he owed to the other creditors of the company, that they might secure a preference in the payment of their debts. It was the duty of Tracy, having charge of the affairs of the company, and conscious of its insolvency, to do all in his power to carry out the policy of the statute, and to do whatever he might to place all the creditors in a condition of equality. His agreement to remain silent when it was his duty to proclaim the financial condition of the company, and the pursuit of particular creditors, was unlawful, corrupt, and a betrayal of his trust, which the agent and the representative of the bank and the other parties instigated. When the suits were first commenced by service of process on Tracy it was his first duty to notify the other directors, and, if they were unable to satisfy in some manner the impatient and pursuing creditors, so that they wrould delay action, then' to have taken prompt measures to secure a general distribution for the benefit of all the creditors, and we are to presume that they would have done so had they been notified by Tracy that these actions had been commenced. 2 IVIorawetz on Corporations, § 863. We concur with the learned trial judge in his conclusion that Upton acted as Hart’s agent in bringing the action on his note, and they acted in concert in all the steps which were taken for the purpose of decuring a prior lien on the personal property of the company, and that the illegal agreement made between Upton and Tracy to suppress the fact that actions had been commenced invalidates his judgment, and deprives him of all advantage sought to be acquired by the levy and sale under his execution.

The appellants urge as a defense in bar of a recovery that the plaintiff is estopped by the previous adjudication of this court in proceedings instituted by him relative to his receivership, in which it was determined, as they claim, that their respective judgments were valid, and the company’s property rightfully levied upon and sold. The receiver converted the assets which came totas hands into money, and then advertised for the presentation of claims of creditors in the manner required by statute. The appellants respectively presented, as a claim or demand due from the company, the balance due on their judgments after crediting the sum realized on the executions. The facts upon which the claim of estoppel is based are substantially the same in the case of each appellant, and for convenience Hart’s Case on this subject will be examined separately, and our determination thereon will determine the question as to the other appellants. His original claim was for money loaned the company, for which he held its note dated December 1,1876, signed by the said Tracy and others, as sureties, and upon this note the judgment was rendered. That this was a debt for the company to pay is not disputed.. In making proof of his claim Hart presented to the receive]' a copy of the dqcket of his judgment, certified by the county clerk, on the face of which the amount realized on the execution was credited and deducted from the amount of the judgment, to which w'as attached Hart’s affidavit, in which he stated “that there remains due to defendant on said judgment the sum of $2,046.08, with interest thereon from April 19, 1882, no part of which has been paid, ■ and to which there are no offsets, either in law or in equity.” Afterwards the receiver gave notice that on a day named therein he would render to the court “a full and accurate account of all his proceedings,” and requested the appointment of a referee to examine the same, and- report thereon. At the time mentioned he presented a petition, to which he attached an account of the moneys collected and paid out by him, and also a list of the claims, headed, “Claims Presented,”in which Hurt’s name appeared, and his claim was mentioned as a balance due on a judgment, $2,046.08. In the petition reference is made to the list of creditors as “Statement of the claims against the defendant which have been presented to me, and which appear to be valid, legal, and just claims.” In the order of reference the referee was directed to ■examine and report upon the account, and to hear and examine the proofs, vouchers, and documents offered for and against the same. At this time no dividend had been made by the receiver. The referee, in his report, states that he had examined the account, and no objections were made, and no evidence given, in regard to the same by either party, and in his opinion the same should be passed as rendered by the receiver. In the order confirming the report it is adjudged that the account of said receiver be settled, allowed, and confirmed as therein stated; and it was further ordered that the said receiver pay over the balance of the money in his hands pro rata to the several parties who have proved their claims, as mentioned in the report; and it was also further ordered “that such receiver be continued in office for the purpose -of bringing such further action or actions, and take such further steps and proceedings, as he should be advised.” This statement of the proceedings had on the accounting, fully presents the legal proposition for which the appellant Hart contends, that this court did in those proceedings pass upon and affirm the validity of his judgment, and the receiver cannot again litigate that question. As between the receiver and Hart, the real and only question presented was whether the amount claimed to be due Mr. I-Iart was just and equitable as a basis and a guide in making a distribution of the assets among áll the creditors. The validity of the judgment was not in issue, and, whether the same was procured by collusion and in violation of the statute, the claimant, Mr. Hart, was justly entitled to share in the distribution 'on the basis that the sum due him was not less than the amount stated in his claim presented to the receiver. In his petition to the court the receiver simply admitted that the claim presented against the company was just and valid. The question now in issue—that is, the right of the appellant to retain and keep the money realized by him on the sale of the property—was not involved or litigated in those proceedings. When the receiver was appointed the property sold had been levied upon and was in the custody of the sheriff. If no -execution had been issued on the judgment until after the receiver’s appointment, and after he had acquired, possession of the property, no occasion could have arisen for him to inquire as to the validity of the judgment; for, if that had been the case, none of the creditors would have been deprived of their just right to share in ail the assets of the company. We see no force in the point that .Hart received less on the distribution made than be would have done if he had presented a claim for the amount of the original indebtedness, for upon a distribution of the money to be collected from the defendants on the judgment in this action the amount received on the first dividend may be taken into consideration to secure equality among the creditors. The order confirming the referee’s accounts and directing a distribution of the moneys in his hands among the several parties who had proved their claims does not in terms hold or declare the judgment in question to be valid; nor was it necessary for the court to consider and determine whether it was void as contravening the policy of the statute. The single question for the receiver to examine and the court to determine in those proceedings was, did the company owe Hr. Hart the sum of money which he claimed? and in any view which can be taken of the case it did. The receiver did not contend to the contrary, and no issue was joined between him and Hart on any question. The order in terms continues the receiver in office, and reserves to him the right to prosecute any other or further actions, and take such further steps and proceedings, as he shall be advised. This provision of the order left open for further examination every question not actually or necessarily determined by the decretal order. We are unable to discover a state of facts upon which to base an estoppel in pais against the receiver, after giving a careful examination to the argument of the learned counsel on this point.

The relief granted to the plaintiff in this action was the cancellation of each of the judgments in controversy, and setting aside the several executions issued thereon, and the recovery of a joint judgment against all the defendants for the value of the property and interest thereon, together with the costs, which amounted to the sum of $27,721.65. Bach of the appellants contend that, if they áre liable in damages for the seizure and sale of the property of the company, the recovery should be several, and not joint, and limited in .amount to the sum received by each on his several judgment, or at least to the amount of his judgment. The appellants caused execution to be issued on their judgment, with directions to the sheriff to levy upon and sell the personal property of the company. Before the sale took place the appellants entered into a written agreement which, in effect, provided that the proceeds of sale should, as between themselves, be applied pro rata on their respective judgments on the basis of the amount of each, the same as if the executions had all been issued simultaneously to the sheriff. This concert of action between them, together with their previous individual actions, made them joint tort-feasors, as all of the judgments were void. The judgments being set aside for this reason, they were jointly liable for the value of the property •seized and sold. The rule is that all who command, advise, or countenance the commission of a trespass by another, or who approve of it alter it is done, are liable, if done for their benefit, in the same manner as if they had committed the tort with their own hand. The slightest interference with the propn’ty of another, and a claim of dominion over it, renders the wrbng-doer liable for the commission thereof. By their written agreement the appellants combined and agreed together that they would, by the use of void judgments, convert the plaintiff’s property into money for the purpose of distributing the same among themselves. This purpose they carried into effect. There can be no doubt but each is liable for all the damages resulting to the other creditors from the execution of their common and illegal purpose. We think, however, as this is an equitable action, the court may direct the manner of enforcing the judgment, and in the first instance require the plaintiff to issue •executions against the property of each of the defendants for the amount which each received from the avails of the property sold, and, in ease of failure to collect from either of the defendants the sum received by him, with interest, and his just proportion of the costs, then an execution may be issued against all the defendants for the unpaid part of the judgment. We think it ■would be proper for the judgment to contain a provision requiring the receiver of the bank to pay out of any funds in his hands applicable to that purpose the amount received by it on its judgment. Sucha provision in the judgment invites no issue between the defendants, but simply provides the way and manner of collecting a judgment for which all are liable, and the same in legal effect remains a joint judgment. Code, §§ 521, 1204; Derham v. Lee, 87 N. Y. 599.

On the former trial several judgments were rendered against the defendants for the amount of money which they had received upon their respective executions. From that judgment the defendant Miller did not appeal, and that judgment, as against her, stands; and this judgment is also in form and effect against her, from which she does not appeal. Although she has assented to the form of the judgment as rendered on the trial now under review, we see no reason why we may not modify the form of the judgment as to the mode and manner of collecting the same, as it does not increase her liability under the judgment.

Exceptions were taken by the defendants to the reception of evidence offered against them, which they insist should be sustained. We have examined all of them, and have reached the conclusion that none of them were well taken, but will briefly refer to some of the most serious. The plaintiff offered in evidence, as against all of the defendants, the ex parte affidavits of the defendant George Elwanger, and George H. Elwanger, and Francis E. Eew. all of them purporting to have been taken in the action of the people against the company, in which the receiver was appointed, before the commencement of the action. An objection was interposed' by all of the defendants, on the ground that they were immaterial and" incompetent, which was overruled, and an exception taken in behalf of all the defendants. We are -of the opinion that portion of the affidavit of George Elwanger was competent as against him, as containing an admission of facts and circumstances material and pertinent to the issue joined between him and the receiver. We are also of the opinion that this affidavit was not competent as against the other defendants, nor was either of the other affidavits competent as against any of the defendants. There is a technical answer to this exception, as it appears that a portion of the evidence offered was competent as against the defendant George Elwanger. The three affidavits were offered together as evidence against all the defendants. The objection interposed was by all the defendants, and the exception taken was in behalf of all. If the objection, in the form in which it was made, had prevailed, then evidence competent for a particular purpose, as against one of the defendants, would have been excluded; hence the rule that when the evidence offered is competent as against one of the parties an exception by all to the ruling of the court receiving the same is not available. Black v. Foster, 28 Barb. 387; Doyle v. Infirmary, 80 N. Y. 631; Magee v. Badger, 34 N. Y. 247. As this case was tried by the court, the rule should be strictly adhered to, as it is fair for this court to assume that the trial court limited the use of the evidence to legitimate purposes.

An exception was also taken to an item of evidence given by the witness Eew, who was one of the trustees of the company. He had stated, without objection, that after the executions were placed in the hands of the sheriff lie and George H. Elwanger had an interview with Upton at the bank. He was then asked by the plaintiff this question: “What was said?” To this question all of the defendants made an objection, without assigning any ground upon which it was placed. The case states that the evidence was received as against the receiver and Hart, and thereupon the latter took an exception. If Upton could have said or done at that interview anything binding upon any of the defendants, then the objection was not well interposed, and the exception by Hart was unavailing. We are not able to say that Upton could not, as he was then the president of the bank, and agent, and acting for Hart in the collection of his judgment. The plaintiff was not asked to state the nature and character of the answer which he expected the witness would give in response to the question, so we think the court committed no error in allowing the same to be answered. The witness did, in his answer, testify to statements and confessions made by Upton, which were clearly incompetent as against Hart. The defendant Hart had ample opportunity to renew an objection in his own behalf, before the witness gave the objectionable evidence, and, as he failed to do so, or to move to strike out the evidence after it had been received, it is to be presumed that by his silence he was willing that it should remain in the record. The judgment should be modified, as suggested, as to the mode and manner of collecting the judgment; and, as modified, affirmed, with costs of this appeal. All concur.