
    Barrington King, as Receiver, etc., of Samuel Schyler, Appellant, v. Holland Trust Company, Respondent. Impleaded with Others.
    
      Creditor's bill—fraudulent transfers—purchaser for value —his title not impaired except by actual notice of the fraud of his grantor.
    
    An action in the nature of a creditor’s bill was begun by the receiver of Samuel Schuyler, representing certain judgment creditors of tlie judgment debtor whose debts existed on or before December 8, 1890.
    Among other transfers attacked was one of five steamboats which Schuyler was alleged to have transferred on the last-mentioned date, without consideration, to a corporation known as the Schuyler Steam Tow Boat Company, which was organized about that time, and on December 24, 1890, as alleged, fraudulently gave to the defendant, the Holland Trust Company, a mortgage on these boats, to secure the payment of certain bonds issued by the Schuyler Steam Tow Boat Company, and “that by reason of said mortgage the said defendant, tlio Holland Trust Company, pretended to loan to the Schuyler Steam Tow Boat Company the sum of $65,000, but no sucli sum, as matter of fact, was loaned,”' and that an illegal rate of interest was charged for wnatever money was-loaned.
    It appeared, upon the trial, that this mortgage was given to the Holland Trust Company in trust, to secure the payment of $150,000 worth of bonds, which were to be issued by the Schuyler Steam Tow Boat Company.
    In January, 1891, the Holland Trust Company loaned to the Schuyler Steam Tow Boat Company §55,000, and took as collateral security §100,000 worth of the bonds secured by the mortgage. From this loan the Holland Trust Company received the sum of $15,000, the amount of a loan which it had made to Schuyler before December 8, 1890. The Schuyler Steam Tow Boat Company continued in tmsiness until the 81st day of July, 1891, when a receiver of its property was appointed, and in August, 1891, under the terms of tlie loan, the bonds-held by the Holland Trust Company were sold at auction for §20,000 and were purchased by the Holland Trust Company. At the time of the loan the Holland Trust Company gave up Schuyler’s note and other collateral security which it held, and at that time Schuyler was apparently solvent but afterwards failed.
    
      Held, that as the Holland Trust Company was a purchaser for value, the burden was upon the plaintiff to show that the Holland Trust Company had previous notice of the fraud, if any, of which Schuyler was guilty in making the transfer of his boats to the Schuyler Steam Tow Boat Company;
    That the Holland Trust Company was not bound to inquire into the title of the Schuyler Steam Tow Boat Company upon the doctrine of constructive notice, because a purchaser for value was not chargeable with constructive notice that a conveyance to him was made with intent to defraud creditors — actual notice is required to impair or affect his title.
    
      Appeal by the plaintiff, Barrington King, as receiver, etc., of Samuel Schuyler, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of Albany on the 15th day of January, 1895, upon the decision of the court rendered after a trial at the Albany Special Term dismissing the plaintiff’s complaint upon the merits as to the defendant, the Holland Trust Company.
    
      Lewis E. Carr and C. D. Hudson, for the appellant.
    
      George M. Van Hoesen, for the respondent.
   Merwin, J.:

This action is in the nature of a creditor’s bill, and was commenced on the 29th of March, 1892, by the plaintiff, as representing several judgment creditors of Samuel Schuyler, all the judgments being based upon debts against Schuyler existing on and prior to December 8, 1890. In the complaint divers transfers of property by Schuyler are set out and alleged to have been made in fraud of creditors. Among other things, it is alleged that on and prior to December 8,1890, Schuyler was the owner of five steamboats, known as the Vanderbilt, Syracuse, Carrie, Leonard and Wynants; that on the 8th of December, 1890, Schuyler, with intent to defraud his creditors and without consideration, transferred these boats by bills of sale to the defendant, the Schuyler Steam Tow Boat Company,” a corporation organized under the laws of this State on or about December 8, 1890; that on the 24th of December,, 1890, and as a part of a scheme to defraud the creditors of Schuyler, the defendant, the Schuyler Steam Tow Boat Company, gave to the defendant, the Holland Trust Company, a mortgage on the five boats above named, to secure the payment of certain bonds issued by the tow boat company, and “ that by reason of said mortgage the said defendant, the Holland Trust Company, pretended to loan to the Schuyler Steam Tow Boat Company, the sum of .$65,000, but no such sum as matter of fact was loaned or advanced to the Schuyler Steam Tow Boat Company, and further, that said loan was fraudulent and void by reason of the receipt of a higher rate of interest thereon than that prescribed by law, and that said mortgage was given without consideration, and that the consideration that purported to have passed between said pazfies was inadequate; and that the fraudulent character of said transfer was known to the defendant, the Holland Trast Company, and that the defendant, the Holland Ti'ust Company, participated in said fraudulent transactions.” It also alleged that in August, 1891, Schuyler made a general assignment to the defendant Kirchway, which is alleged to be fraudulent and void as to creditoz’s.

None of the defendants defended except the Holland Trust Company and Kirch way. By the judgment appealed from the general assignment is set aside, and Kirch way does not appeal. As to the Holland Trust Company, the com! decided that it was a mortgagee In good faith, and for a valuable consideration, and that the cause of action alleged against it had not been established.

It appears that for many years prior to December, 1890, there had •existed a corporation known as the Schuyler Steam Tow Boat Line.” Its capital stock was $100,000,. divided into shai’es of $100 each, azid Schuyler was the owner of about 700 of the 1,000 shares, and he was the president of the company. It was engaged in the business of towing boats on the Hudson river and its jzrojzezly consisted mainly of four steamboats and the good will of the business. Schuyler was himself the owner of five other boats, being those refezu-ed to in the complaint, and they had for many yeai’s been :used in the business of - the tow boat line and their earnings credited to Schuyler. Prior to December’, 1890, the tow boat line had become and was then indebted to divers parties other than Schuyler to the amount of about $125,000, which it was unable to meet and pay in the ordinary course of business, and its property was not •sufficient to enable it to boi’row sufficient money to meet and dis•clzai’ge its then pi-essing obligations. It was also indebted in form :-at least to Schuyler to a considerable amount. It is not clear how much in fact this debt was. It was thereupon agreed between the ■officers of the tow boat line and Mr. Schuyler that the latter should transfer to the line the steamboats owned by him, to enable it to borrow thei’eon and on its own propei’ty $150,000 to -be usted in the payment of the indebtedness of the line other than that to Schuyler. In order to cany out this arrangement, there being some difficulty in the way of the tow boat line mortgaging its property and its term of existence being soon to expire, a new corporation, the “ Schuyler Steam Tow Boat Company,” was formed with practically the same stockholders and same directors, the stock in the old being surrendered for stock in the new company, and-all of the property of the old company being transferred to the new. Schuyler transferred to the new company his five boats and subsequently surrendered or canceled the evidences of his debt against the old company. The new company assumed the payment of the debts of the old, and the indebtedness of the steamboats transferred to it by Schuyler, the amount of which does not appear, and subsequently from money borrowed by it of the Holland Trust Company paid $15,000, which Schuyler owed the trust company. No other consideration was paid to Schuyler by the new company for the transfer of the boats. Schuyler was at the time in debt or liable to an amount exceeding $80,000 and the property remaining to him after tlie transfer of the boats and the cancellation of his claims against the tow boat line was insufficient to pay his indebtedness. It is not found that the transfer was made with intent to defraud creditors. He seems to have continued on in business until he made the general assignment to Kirchway on August 4, 1891.

On the 24tli of December, 1890, the tow boat company, with the required consent of its stockholders, executed a mortgage on all the steamboats and the franchises of the company, including the good will of the business, to the Holland Trust Company as mortgagee, in trust to secure the payment of $150,000 of bonds to be issued by the company. The trust was accepted by the trust company and the bonds were issued and offered for sale. Three thousand dollars were sold, and $2,000 additional were turned out to creditors in payment of their debts, and the balance so far as made use of were pledged as collateral to then existing indebtedness of the company or for the loan to the trust company hereinafter specified.

In January, 1891, the trust company loaned to the tow boat company $55,000, taking as collateral security therefor $100,000 of the bonds secured by the mortgage. From this loan the trust company received the sum of $15,000, the amount of a loan made by it to Schuyler prior to December 8, 1890, being the same hereinbefore referred to. The company continued its business in the usual way up to the 31st of July, 1891, when a receiver of its property was appointed. In August, 1891, under the terms of the loan, the bonds held by the trust company were sold at auction for $20,000, the trust company being the purchaser.

It also appears that on May 28,1892, in proceedings in the United States court, six of the boats covered by the mortgage were sold at auction, three of which were of those transferred by Schuyler, and brought $26,000, and the other three brought $23,100. What has become of the other boats does not distinctly appear, or what was their value at the time the company failed.

The tow boat company is a party defendant, but does not defend. Its' receiver is not a party, nor are any of the bondholders made parties, except the trust company.

The claim of the plaintiff is, that the transfer of the five boats from Schuyler to the tow boat company was fraudulent as to Schuyler’s creditors, and that the trust company is not in the position of a purchaser for a valuable consideration without previous notice of the fraud.

Under the allegations of the complaint and the course of the trial, the main, if not the only, question is over the transaction by which the bonds were taken by the trust company as collateral to its loan. The only rights that can be affected here are those of the trust company to the bonds it received. It is hardly claimed that the rights of other bondholders can be affected. So that if the trust company, as to the bonds it received, was entitled to the protection of the mortgage, the judgment should be affirmed. The plaintiff is not in a position here to investigate the rights of other parties, or provide for the marshalling of securities. The rights of the plaintiff in that respect will, we must assume, be fully protected' elsewhere.

It is not disputed that the loan was made by the trust company, and the bonds delivered at the time as collateral. Whether, as between the directors and the stockholders, the directors had a right to make the loan in exactly that form it is not material here to inquire. The plaintiff is not a stockholder or a creditor of the corporation and seeks no rights as such. The corporation had the benefit of the loan, and in the payment of the $15,000 debt of Schuyler which the trust company held, it may, upon the evidence, be assumed that so much was paid to Schuyler toward the consideration of the transfer of the boats by him. to the company. The trust company gave np Schuyler’s note and other collateral which it held, and at that time Schuyler was apparently solvent, at least he was doing business. (Murphy v. Briggs, 89 N. Y. 446.)

It seems to me very clear that the trust company was a purchaser for a valuable consideration. The burden, then, was on the plaintiff to show that the trust company had previous notice of the fraud, if any, of Schuyler in malting the transfer to the tow boat company. (Starin v. Kelly, 88 N. Y. 418; 4 R. S. [8th ed.] 2593, § 5.)

It is to be borne in mind that Schuyler owned seventy per cent of the stock of the tow boat company. So that, although he transferred the boats to the corporation, he still held a beneficial interest. He was also largely an indorser on the outstanding paper of the company. When the trust company took the bonds the towing company was going on with its business in the usual way, and so continued to the following August. The officers of the trust company who negotiated the loan had no knowledge of the insolvency of Schuyler, or of the arrangement under which the boats were transferred. Even if the knowledge of Mr. Van Allen, a trustee of the trust company who lived at Albany, was chargeable to the trust company, it falls short of notice of any intent by Schuyler to defraud his creditors or notice of Schuyler’s insolvency.

But it is said that the trust company did not sufficiently inquire as to the title of the tow boat company, and that it had constructive notice. It has, however, been held that a purchaser, for a valuable consideration, is not chargeable with constructive notice that the conveyance to him was made with intent to defraud creditors; that actual notice is required to impair or affect his title. (Stearns v. Gage, 79 N. Y. 102; Jacobs v. Morrison, 136 id. 101.)

Applying this principle, we are of the opinion that the evidence fails to show notice to the trust company of any fraud in the transfer of the boats by Schuyler.

The plaintiff claims that the court erred to his prejudice in excluding, as evidence generally in the case, the judgment entered in this action upon the default of the other defendants, including the tow boat company and Schuyler. It appears that a judgment by default against all the defendants was entered on the 26th of July, 1892. On the 20th of August, 1892, a stipulation in the action was made between the plaintiff’s attorney and the attorney for the trust company, that this judgment, so far as it relates to, or affects the defendant, the Holland Trust Company, be reopened and the default of said defendant ” excused, with leave to answer on certain terms, “ it being understood and agreed that nothing herein contained shall affect the rights of the plaintiff herein as against any or all of the above-named defendants, except the defendant, the Holland Trust Company, under and by virtue of the judgment.” An order in accordance with the stipulation was duly entered. The point of the plaintiff is that the judgment was competent as against the trust company to showjfrima facie the fraudulent character of the transfer by Schuyler. It is a little difficult to see how this can be, in view of the stipulation and order that the judgment he-reopened “ so far as it relates to or affects the defendant, the Holland Trust Company.” It was found at the request of the plaintiff that such a judgment had been entered. It also appears that before this suit was commenced a receiver of the corporation was appointed. We fail to see in the ruling any error that calls for reversal. In the view we take of the case, we assume that, as between the plaintiff and Schuyler and the tow hoat company, the transfer may be invalid. That does not allow a recovery against the trust company, it being in the position of a purchaser for a valuable consideration, without previous notice of the fraud.

There are no other questions that need be specially considered. We find no good ground for reversal.

All concurred, except Landón, J., not sitting.

Judgment affirmed, with costs.  