
    The Illinois Watch Co. et al., Resp’ts, v. May L. Payne et al., Impl’d, App’lts.
    
      (Supreme Court, General Term, First Department,
    
    
      Filed October 24, 1890.)
    
    1. Assignment for creditors—Fraud.
    Prior to the execution of an assignment for creditors a large amount of money was withdrawn. It was claimed that this money was used to discharge liabilities incurred in another business by the firm, by way of endorsements made in stock transactions by one of the partners and his father-in-law, hut no such endorsements were described or produced, or explanation of the payments given, and there were no entries thereof in the firm books. Held, that a finding that the assignment was fraudulent was justified.
    2. Fraud—Confession of judgment.
    On the same day the assignment was executed judgments were confessed to the wife of one of the partners and to her relatives. In two of them were included items for alleged loans, which, in fact, had not gone into the possession or to the use of the firm, but had been credited to the person in whose favor the judgment was confessed, and immediately charged to a corporation to whom the loan was actually made. Held, that this did not make it a debt of the firm; that the transactions were, in effect, a transfer of so much of the firm’s property to the wife and her relatives to withdraw it from the creditors, and that the judgments were fraudulent and void and could not be protected to the extent that they included valid claims.
    3. Same.
    A party in whose favor a judgment has been fraudulently confessed is not an innocent purchaser within the provisions of 3 R. S., 6th ed., 145, § 1.
    4. Same.
    The other judgment was supported by the creditor’s account on the books of the firm, did not exceed one-third of the estate, and upon the proofs was not connected wrh the other judgments. Held, that such judgment could not be held fraudulent.
    (Van Brunt, P. J., dissents.)
    
      Appeal- from a j udgment recovered on trial at special term.
    
      L. Lajlin Kellogg, for app'lts; Franklin Bien, for resp’ts.
   Daniels, J.

The plaintiffs are judgment creditors of the defendants, William H. Payne and Frederick D. Steck, who had been engaged in business under the firm name of Payne, Steck & Go. The firm became insolvent, and on the 28th of December, 1887, made a general assignment with no other preference than that in favor of its employees, for the benefit of creditors. On the same day of the execution and delivery of the assignment, and immediately preceding that act, the assignors confessed these judgments, one of which was in favor of each of the appellants. But in the complaint this assignment and these judgments were each assailed as made by the insolvent debtors, to hinder, delay and defraud their creditors. And the final object of the action was to set them aside, and to secure the application of the money which had been obtained by a sale of the firm property under executions issued on these judgments to the payment of the executions issued on the judgments recovered by the plaintiffs, and which are still outstanding and in the hands of the sheriff. Upon the trial of the action the plaintiffs were considered by the court' to be entitled to that relief, and the assignment and the judgments entered by confession were set aside as fraudulent, and the money - in the sheriff’s hands was directed to be applied to the payment of the costs of the litigation and the judgments recovered by the plaintiffs in the order mentioned by the judgment in this action.

The assignment was held to have been fraudulently executed because of the withdrawal of the sum of $46,000 from the firm by the defendant, William H. Payne, during the month of December, 1887, and the appropriation of the amount to his own use. A similar conclusion had been previously reached in the trial of another creditor’s action, and the judgment then recovered was read in this action, as part of the evidence of the defendants. It was, however, objected that the same result should not be adopted in this action, because it had been stated by the same defendant, in the course of his evidence, that the money which had in this manner been withdrawn by him had, in fact, been used to discharge liabilities incurred in another business by the firm. These liabilities are stated to have been endorsements made in stock transactions carried on for the benefit of himself and the father of his wife, who is the defendant May L. Payne. As these transactions are described by him, it is entirely clear that they formed no part of the business of this insolvent firm, and it, therefore, derived no benefit whatever from this use of the money withdrawn, even if that use of it had been proven. But it was not, for no obligation or endorsement was described or produced which would support the conclusion that it was capable of being established as a liability of this firm. They were mentioned and referred to in the most general way, affording no data whatever by which they could be described or traced, neither was any statement given of the person, or persons, to whom the money had been paid. All that this defendant stated himself as ca^ ible of giving was the general statement that the money had been devoted to the payment of these endorsements. His inability to go farther was confesseed by him. There were no entries in the firm books stating this disposition of the money, and no checks or other vouchers to authenticate it.

An abundant opportunity had been afforded the defendant to sustain this general evidence by other proof, but none whatever has been produced. And the court at the trial could very well conclude, as it did, that this evidence was not credible, but that the money withdrawn from the firm remained subject to the defendant’s control, or in an unexplained way had been appropriated to his own use. And this view received confirmation from the confession of these three judgments, under the executions on which all the leviable property of the firm had been seized and sold, leaving only debts and other equitable assets to pass under the assignment of the value of $9,202.08. And the probability that the assignment was fraudulent was increased by the facts that the first of the three judgments was confessed in favor of the wife of this defendant, the second in favor of her mother, and the third in favor of her aunt. This decision was so well sustained by the proof that no appeal was taken from it by the trustee who had been substituted for the assignee, and the only complaint that was made against it proceeds from the counsel of the persons themselves to and for whom these judgments were confessed For this reason, as well as the force and effect which the court at the trial justly gave to the evidence upon this part of the case, so much of the judgment as set aside the assignment should be sustained.

The judgment confessed in favor of the defendant, May L. Payne, was for the sum of $14,572.91, besides interest. And the statement contained in it is that it was for money loaned by her to the firm, and for a note of $1,500, imperfectly and defectively set out, made by the Vesta Mineral Spring Company, and for a valuable consideration endorsed to her by the firm. As this part of the case was presented by the evidence, it clearly appeared that the plaintiff in this judgment personally had no transactions and made no loans of money to the firm. But all that was done in making the loans to the firm was done by her father and her husband. The books, as they were sustained by the evidence of the bookkeeper, contain accounts of moneys received by the firm from this defendant. And if the judgment had been confessed for a smaller amount, not exceeding these loans, it might very well be capable of being sustained. But as is not uncommon in the friendly disposition of the property of insolvent dealers, the intention prevailed of making the judgment as large as possible, without reference to the justice of the demands it was made to include, and which cannot fail to betray the suspicion of a fraudulent design. For that object an item of $4,700 was added, as a loan to the firm,' on the 10th of June, 1887. This was in her account upon the books, but it was proven not to have gone in any form into the possession or use of the firm, or to have been in any form applied to its benefit. It went, on the contrary, to the Yesta Mineral Spring Company. And all that the firm had to do with it was making a formal or nominal credit of it on its books, and then its charge to that company. This direction was given to it by the authority of W. H. Payne, acting in behalf of his wife. And it is not changed by the indisposition of her father to invest, or even loan, money to the company. For what Mr. Payne did with this sum of money was to make such an investment or loan of it; nothing whatever transpired to make it a loan to or debt of the firm, and no liability was created on its part for the money.

In substance, all that did take place with the firm was a credit of this sum in the account with May L. Payne, the simultaneous balancing of the credit by charging the amount to the Mineral Spring Company, and the delivery or loan of the money to that company. It was by this process not made a debt of the firm, and its members must be held to have known that they had no right to appropriate the property of the firm by means of the judgment to its payment. The plain inference from what was done with this sum is, that it was intended to be the medium of transferring so much of tlae firm property to the wife of one of its members, and thereby to withhold and withdraw it from the creditors. And that was the conclusion reached by the court at the trial. It .. was supported by the facts, and avoided this judgment as fraudulent. To be attended with that result the intent to defraud has not been required on the part of the person in whose favor the judgment has been confessed. But the statute has declared in the most general language that every bond, or other evidence of debt, suit commenced, decree or judgment suffered, with intent to hinder, delay or defraud creditors of their lawful suits, etc., as against the persons so hindered, delayed or defrauded, shall be void. 3 R. S., 6th ed., 145, § 1. All that it has required is that the judgment shall be suffered, or permitted, with this intent, and its existence in the mind of the debtor fulfills and satisfies the language of the statute. And it has been so construed and administered by the courts. Starin v. Kelly, 88 N. Y., 418; Loos v. Wilkinson, 110 id., 195; 18 N. Y. State Rep., 110. Against that intent an innocent purchaser for a valuable consideration has alone been protected, and the party in whose favor a judgment has been fraudulently confessed is not such a purchaser. It has been suggested that the court has the power to correct the judgment by deducting this item. But that is not allotted where the judgment itself is fraudulent. The statute has declared it void, when that intent which has been prohibited pervades it, and the court cannot hold it to be otherwise. If a mistake, merely, had been made the mistake might be rectified. Frost v. Koon, 30 N. Y., 428 ; Harrison v. Gibbons, 71 id., 58. But as this amount was not made a part of the judgment by any misunderstanding or inadvertence, it cannot be protected through the application of this principle. But the judgment must be held to be void, as the statute has declared it to be, because of the fraudulent intent which induced this addition to its amount.

The next judgment was in favor of the mother-in-law of the defendant Win. H. Payne. This judgment was confessed for the sum of $7,475, besides interest. And $5,000 of the amount passed, through the same process as did the $4,700 that was made a part of the judgment in favor of May L. Payne. It was not an obligation or debt of the firm, and it was a fraud upon its creditors * to empower the defendant Augusta L. Bamber by its insertion in the judgment to appropriate so much of the firm property as was necessary for its satisfaction to her use; that was the natural effect of adding this to the judgment It was to defraud the creditors of the firm out of so much of its property, and parties are presumed to intend just what their acts must necessarily accomplish.

The third judgment is in favor of Louisa Nellis, the aunt of the defendant May L. Payne. And it is no doubt subject to the suspicion that its confession was produced by the same intention as induced the two others and the general assignment. But to that there is no more than this suspicion. For the books sustained her right as a creditor to the recovery of this amount. And the fact that it was not all found by the witness Ascher in the account of loans made by the firm did not overthrow the other evidence given in her favor. There was sufficient in her own account upon the books, united with the other evidence, to sustain her judgment. And the decision at the trial should not have been against her on the ground that it was tainted by the same fraudulent intent as the two judgments entered before it, neither did its recovery produce any unlawful preference within chap. 503 of the Laws of 1887, forbidding preferences exceeding one-third of the debtor’s estate, after paying the wages and salaries of employes.

This judgment, and the proofs relating to it, are in no respect connected with the other two judgments, or with any other part of the litigation. But it stands separately and alone on its own merits. And to correct the result, so far as this defendant has been affected by it, a reversal and new trial to that extent only will become necessary. Code Civ. Pro., § 1317. And that should be ordered. As to the other two appellants, the judgment should be affirmed. But as to the defendant Louisa Nellis, and so far as it is against her, the judgment should be reversed, and a new trial ordered, with costs to her to abide the result.

Brady, J., concurs.

Van Brunt, P. J.

(dissenting).—I cannot concur m the conclusion arrived at by Mr. Justice Daniels. I think that the judgment appealed from should be affirmed. These confessions and the assignment were a part of the same transaction. The same intent pervaded the whole. They were executed at about the same time and were component parts of one scheme. If there was a fraudulent intent as to any part of this scheme, it vitiated the whole. The assignment was fraudulent, hence the confessions were also fraudulent. It is not enough that the plaintiff in the confession should act in good faith. If the defendant acts from a fraudulent motive the confession is void. This is the provision of the Revised Statutes. Hence even if the debt was actually due to Louisa Nellis, the confession to her being part and parcel of the fraudulent assignment, it is tainted with the same fraud. The judgment appealed from should be affirmed, with costs.

Judgment affirmed as to defendants May L. Payne and Augusta L. Bamber, and reversed as to defendant, Louisa Nellis; new trial ordered, with costs to her to abide event.  