
    New York County National Bank, Respondent, v. The American Surety Company of New York, Substituted as Defendant in Place of Thomas J. Dunn, as Sheriff of the County of New York, Appellant.
    
      Transfer by an insolvent debtor to secure a creditor—surrender of an unsecured unmatured note for one secured by a chattel mortgage — the good faith of the creditor is not impaired by his knowledge of the debtor’s intent to delay his creditors — general verdict, not impeached by the failure of the jury to agree on a special finding— effect of a voluntary furnishing Of security by the debtor.
    
    In an action against the indemnitors of a sheriff to ■ recover damages for the conversion of goods seized by the sheriff under warrants of attachment issued against the property of-the firm of J. Healy & Co., it appeared that on May 18, 1898, the firm of Healy & Co. was indebted to the plaintiff, a national bank, upon an unsecured promissory note which was not then due; that on this day one of the members of that firm called at the bank and informed the vice-president that his firm was in financial difficulty and unable to pay its debts, and wanted to protect the bank on the unsecured note; that he then gave the bank a demand note and chattel mortgage to secure the same, and requested a surrender of the unsecured note which was delivered to him.
    The chattel mortgage was immediately filed, and the bank, at the suggestion of the firm and in order to protect itself, took possession of the property on the same day, and commenced proceedings to foreclose the mortgage. The bank officials were informed that the firm had executed, and contemplated executing, other chattel mortgages on the same property to secure other creditors. The value of the property covered by the mortgage was greatly in excess of the amount of the unsecured note, but it did not appear that the bank officials were informed or knew of this fact.
    The day following the sheriff levied upon the property by virtue of warrants of attachment issued in actions brought by the general creditors of the firm.
    Upon the trial the court directed the jury, in addition to rendering a general verdict, to make three special findings on the following questions, to wit: “ (1) Did the firm of Healy & Co. deliver the chattel mortgage in question for the purpose of hindering, delaying and defrauding their creditors? (2) Did the plaintiff bank receive the chattel mortgage knowing that it was made and delivered for the purpose of hindering, delaying and defrauding the creditors? (3) Did the plaintiff bank receive the chattel mortgage with the intent of aiding or assisting in hindering, delaying and defrauding the creditors of Healy & Co.?”
    The jury rendered a general verdict in favor of the plaintiff, and answered the first question in the affirmative and the third in the negative, but were unable to agree on the second. The court accepted the verdict and relieved the jury from answering the second question and judgment was entered in favor of the plaintiff.
    
      
      Meld, that the surrender of the unsecured note constituted a valuable consideration within the meaning of section 29 of the Personal Property Law, which provides “ Bona tide purchasers.— This article does not affect or impair the title of a purchaser or incumbrancer for a valuable consideration, unless it appear that such purchaser or incumbrancer had previous notice of the fraudulent -intent of his immediate vendor, or of the fraud rendering void the title of such vendor;”
    That it was discretionary with tiie court to withdraw the- second question from the consideration of the jury; ■ .
    That the general verdict established the good faith of the plaintiff, and that, the evidence was sufficient to support such a finding.
    That it was not error for the court to refuse to charge as matter of law that the fraudulent purpose of Healy & Co. was imputable to the plaintiff on account of its having accepted the security voluntarily given, and that such question was properly submitted to the jury..
    
      Semble, that knowledge on the plaintiff’s part of the fraudulent intent of Healy & Co., where it took the property for the sole purpose of securing an honest debt, did not invalidate the transaction.
    
      Semble, that the fact that the jury announced their inability to agree upon the second question did not require the court to set aside the general verdict, on the ground that the jury had rendered such verdict without passing upon the question whether the plaintiff was aware of the fraudulent intent of Healy & Co., especially as the defendant made no request to have the jury instructed that the plaintiff was not entitled to recover if it received the chattel mortgage with knowledge of the fraudulent intent of the -mortgagors in executing and delivering the same.
    Appeal by the defendant, The. American Surety Company of New York, substituted as defendant in place of Thomas J. Dunn, as sheriff of the county of New York, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 4th day of March, 1901, upon the verdict of a jury, and also from an order entered in said clerk’s office on the Yth day of March, 190-1, denying the defendant’s motion for a new trial made upon the minutes.
    
      Stillman F. Kneeland, for the appellant.
    
      John M. Bowers, for the respondent.
   Laughlin, J.:

This is an action to recover damages for the seizure and conversion of goods by- the sheriff under warrants of attachment issued against the property of the firm of J. Healy & Co. The surety company having indemnified .the sheriff, became substituted as defendant and took the appeal.

During the period of eight years prior to the 18th day of May, .1898, J. Healy & Co. had transacted a general banking business with the respondent bank which had received their deposits, paid their checks and from time to time discounted, their paper. On the last-named day this firm was indebted to the respondent in the amount of $5,000 on two notes, each for $2,500. One of the notes was secured by an indorsement and subsequently paid. The other was to grow due in June following and it was not secured by indorsement or otherwise. One of the firm on this day called at the bank and had an interview with its vice-president. He said to the vice-president, in substance, that his firm, which was in financial difficulties and unable to pay its debts, wanted to protect the bank on this unsecured note. He tendered a demand note and chattel mortgage to secure the same and requested a surrender of the time note. The vice-president, in behalf of the respondent, accepted the demand note and chattel mortgage, delivered up the note which had not matured and caused the chattel mortgage to be filed immediately. The chattel mortgage covered the debtor’s entire stock of goods, furniture and fixtures and delivery horses and wagons, together worth at least $9,000, and subsequently inventoried under the marshal’s supervision at $13,023.81, but the vice-president of the respondent was not informed at the time and he did not know its value. He testified that both on the suggestion of the debtors and to protect his bank he authorized the foreclosure of the mortgage immediately upon its being recorded, and placed a marshal in charge of the property that day and proceeded to take an inventory. The bank officials were also informed that the debtors had executed and contemplated executing other chattel mortgages on the same property to secure other creditors.

On the day following, the sheriff levied on the property by virtue of these warrants of attachment issued in actions brought by general creditors against the firm. After the recovery of judgments by the attaching creditors the sheriff sold the property under his levies and realized thereon more than the claim of the respondent to secure which the chattel mortgage was given.

The plaintiff claimed the right to possession of the property by virtue of its chattel mortgage. The defendant maintained that there was no consideration for the chattel mortgage, and that it was given by J. Healy. & Co. with intent to hinder, delay and defraud their, creditors and accepted by the respondent-as their agent-for the purpose of aiding and assisting- them in so doing.

The evidence tended to show an intent on the part of the failing debtors to hinder, delay and defraud their unsecured creditors, and the finding of the jury to that effect was justified.

We have stated the evidence as given by the bank officials and agents, relating to the transaction between the debtors and the respondent which resulted in the surrender by the latter of the time note and acceptance of the demand note and chattel mortgage and the proceedings thereunder, and the knowledge and information possessed by the .respondent as to the financial embarrassment of the. debtors, and. their motive in thus giving a preference to the bank. The debtor who- negotiated the transaction with the bank testified, in substance, that he informed the- vice-president of the. bank of their purpose to force a settlement with their other -creditors for considerably léss than their indebtedness, but this was flatly contradicted by the testimony of the vice-president.

The evidence required the submission of the case to the jury, and, therefore, the exceptions to the refusal of the court to dismiss the complaint were not well taken.

The court .directed the jury, in addition to rendering a general verdict, to make three special findings on the following questions, to wit: (-1) Did the firm of Healy & Co. deliver the'chattel mortgage in question for the purpose of hindering, delaying and defrauding their creditors? (2) Did the plaintiff bank receive-the chattel mortgage knowing that it was made and delivered for the purpose of hindering, delaying and defrauding the creditors ? (3) Did the plaintiff bank receive, the chattel mortgage with the intent of aiding or assisting in hindering, delaying and defrauding the creditors of Healy &.Co. ?” The .jury rendered a general verdict in favor of plaintiff and answered the first question in the affirmative and the third in-the negative, but were unablé to agree on the second. The court accepted.the verdict and relieved the jury from answering the second question, to which ruling appellant’s counsel excepted. This exception presents no error. It was discretionary with the court whether to require the jury to render a special verdict on any question in addition to the general verdict, and it ■ was equally discretionary with the court to withdraw one or all such special questions from their consideration.

On account of the fraudulent intent of the debtors as found by the first special finding of the. jury, the chattel mortgage would become void by virtue of section 24 of the Personal Property Law (Laws of 1897, chap. 417) were it not for section 29 of said law which provides as follows : “ Bona fide purchasers.— This articlé does not affect or impair the title of a purchaser or incumbrancer for a valuable consideration, unless it appear that such purchaser or incumbrancer had previous notice of the fraudulent intent of his immediate vendor, or of the fraud rendering void the title of such vendor.”

The jury having found, both by the general verdict and specially, that the respondent, did not participate in the fraudulent scheme, purpose or intent of J. Healy & Co., it follows that the sole purpose and object of the bank was to secure payment of the note held by it.

There is no question of unlawful preference here. The property was merely transferred as security and no general assignment was contemplated or executed. Even if- the question were presented it probably would not avail the appellant in this action as it represents creditors who, themselves, have obtained a preference. (Maass v. Falk, 146 N. Y. 34; Abegg v. Bishop, 142 id. 286; Central National Bank v. Seligman, 138 id. 435.)

This case is to be distinguished from those where parties having prior equities are asserting them as by seeking to recover their own property or securities fraudulently appropriated or diverted, or are defending themselves against liability on their own obligations likewise appropriated or diverted, for here the attaching creditors had no prior equities. (Archer v. O'Brien, 7 Hun, 146, 149.) The $2,500 time note held by the respondent constituted a valid subsisting obligation. It was surrendered and extinguished, and a new note with security to insure the payment of an honest indebtedness was given and accepted. This constituted a valuable consideration within the intent and meaning of the statute quoted. (Youngs v. Lee, 12 N. Y. 551; Phœnix Ins. Co. v. Church, 81 id. 218; Archer v. O'Brien, supra; Treusch v. Ottenburg, 54 Fed. Rep. 868; Mayer v. Heidelbach, 123 N. Y. 342; Matter of Utica Nat. Brew ing Co., 154 id. 268; Commercial Bank v. Sherwood, 162 id. 310, 318.)

Thus the first provision of the statute last cited relating to consideration is satisfied, and it only remains to be seen whether the verdict establishes the fact that the respondent did hot have previous notice of the fraudulent intent of J. Healy & Co. within the fair intendment of the statute, and if so whether such finding is supported by the evidence.

By section 26 of the Personal Property Law the question of the existence of a fraudulent intent arising under the 2d article of that statute is expressly declared to be a question of fact and not of law. The express knowledge which the respondent concededly had that its debtors were embarrassed and unable to pay their debts and desired to secure the bank, did not necessarily. charge the respondent with knowledge of the fraudulent intent of the debtors, for those facts in and of themselves did not constitute fraud. (Commercial Bank v. Bolton, 20 App. Div. 70; affd., sub nom. Commercial Bank v. Sherwood, 162 N. Y. 310, 318.) In Maass v. Falk (supra) unsecured time notes were surrendered and secured demand notes substituted therefor, but this was not considered a suspicious circumstance and there was a finding of freedom from fraud on the part of both debtor and creditor. A failing debtor has a right, to protect certain of his creditors' in preference to others, and even though the debtor is actuated by an intent to hinder, delay and defraud other creditors, one creditor has the right to accept the payment of his claim in full, or security or a confession of judgment therefor, so long as this is done without knowledge on his part of the fraudulent intent of his debtor or participation therein. (Manning v. Beck, 129 N. Y. 1; Galle v. Tode, 148 id. 270; Starin v. Kelly, 88 id. 421.)

As against the claims of a party having no .prior equity a creditor is not necessarily put upon his inquiry concerning the motive of the debtor in giving him security. (Archer v. O'Brien, supra) All that took place between the failing debtors and the bank, according to the testimony presented by the- respondent, was consistent with good faith on the part of both parties. The good faith of the bank is, as has been seen, clearly established by the general verdict.

There could be no question but that the verdict is right were it not for the fact that the jury announced their inability to agree upon the second question and were relieved from answering it. It is urged that the jury have, therefore, rendered a general verdict against appellant without having passed upon the question as to whether the respondent was aware of the fraudulent intent upon the part of its debtors. This may be so, but the presumption from the general verdict is that if this were necessarily involved it has been passed upon favorably to the respondent. Where the creditor does not participate in the fraudulent intent of his debtor, as has been specially found by the jury in the case at bar, but takes the property for the sole purpose of satisfying or securing an honest debt, it has been held that his knowledge of the fraudulent intent of the debtor is immaterial. (Dudley v. Danforth, 61 N. Y. 626; Knower v. C. N. Bank, 124 id. 552, 560; Banfield v. Whipple, 96 Mass. [14 Allen] 13; Carr v. Briggs, 156 id. 78; State to use of Salomon v. Mason, 112 Mo. 374; Sexton v. Anderson, 95 id. 373; Hasie v. Connor, 53 Kans. 713.) No request- was made on the part of a-ppellant to have the jury instructed that respondent was not entitled to recover if it received the chattel mortgage with knowledge of the fraudulent intent of the mortgagors in executing and delivering the same, which would have squarely presented the question. If we were prepared to disagree with the authorities last cited we would scarcely be justified, in this condition of the record, in setting aside a verdict which is fairly sustained by the evidence upon the theory of prejudice resulting to the appellant in this regard. The jury may not have fully comprehended the meaning of the second request, and since the matter might have been rectified upon the trial the respondent should not suffer.

The views already expressed show that, there was no error in the refusal of the court to charge as matter of law that the fraudulent purpose of the debtors was imputable to the respondent on account of its having accepted the security voluntarily given. That was fairly a question for the jury.

The judgment and order should be affirmed, with costs.

Patterson, Ingraham and Hatch, JJ., concurred.

Jndgment and order, affirmed, with costs.  