
    Orrin P. Robinson and Alfred M. Gamman, Respondents, v. Mina L. Hawley, Defendant; Lucretia Ritchmyer and Others, Appellants.
    
      Judgment creditor — suit to adjudge chattel mortgages to he void as against the judgment— evidence of fraud—confession of judgment, technical error in the statement— agreement not to enter the judgment — objection not first available on appeal — burden of excusing laches.
    A creditor who has levied upon personal property of his debtor under a valid judgment may bring an action in equity in aid of his execution to procure an adjudication that chattel mortgages executed by the debtor covering such property are fraudulent and void as against his judgment.
    The fact that the statement upon which the judgment was confessed represented that .the promissory notes of the debtor, which constituted the basis of the judgment, were owned by the judgment creditor, whereas such notes were-then held by a bank which had discounted them under an agreement with the judgment creditor that they should be charged back to the latter’s account if unpaid at maturity, does not impair the validity of the judgment, .except, perhaps, as against a bona fide creditor or lienor.
    Evidence that the judgment creditor agreed with the judgment debtor to delay-recording the judgment does not render it void, where it appears that the udgment debtor would not execute the Confession of judgment unless such agreement were made, and there is no evidence that the judgment creditor had any fraudulent intent to obtain additional security at the expense of other creditors; in any event, the invalidity, if there he any, is not available to creditors of the judgment debtor whose claims arose prior to the execution of the confession of judgment.
    The execution by the judgment debtor of chattel mortgages, at a time when she was assuring the judgment creditor that if he would delay entering the judgment for a few hours longer she would pay his claim, is a fraud upon the judgment creditor, and the lien of the judgment will not be postponed to that of the chattel mortgages, particularly where it does not appear that the mortgagees were bona fide creditors of the debtor.
    Where evidence, tending to show that the chattel mortgages were void because there had been no change of possession of the mortgaged chattels, is received without objection upon the trial, the claim that it was inadmissible under the pleadings is not available upon appeal.
    The burden of showing that the delay of the mortgagees in taking possession of the mortgaged chattels was hot unreasonable, is upon the mortgagees.
    Appeal by the defendants, Lncretia Ritchmyer and others, from ••a judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of Steuben on the 29th day of March, 1899, upon the decision of the court rendered after a trial at the Steuben Special Term, with notice of an intention to bring Lip for review'upon such appeal an order, bearing date the 1st day of June, 1897, and entered in said clerk’s office, denying their motion to vacate an injunction previously granted in the action.
    . The defendant William Richardson appealed from the ■ above judgment only.
    Prior to the 10th day of March, 1897, the defendant Mina L. Hawley was engaged in carrying on a small mercantile business at the village of Cameron, Steuben county, and while thus engaged had purchased goods, wares and merchandise of the plaintiffs, who, under the firm name of Robinson & Caminan, were conducting business as dry goods merchants at the city of Corning. In part payment of the goods thus purchased Mrs. Hawley had given to the plaintiffs three promissory notes signed by her and payable to their ■order. One of these notes, bearing date the 11th day of December, 1896, was for the sum of $296; another, dated January 7, 1897, was for $226 ; the third, dated February twelfth, was for $198, and all were payable in three months after their respective dates.
    On the day first above mentioned Mrs. Hawley made and executed a confession of judgment to the plaintiffs for the sum of $903.26, which sum represented the amount of the above-mentioned notes and a balance due upon account for goods, wares and merchandise theretofore purchased of the plaintiffs. At the time of the execution of this confession Mrs. Hawley, through her husband and agent, requested the plaintiffs not to file and enter the same, and in order to induce them, to keep the judgment from the records and give her an extension.of time in which to satisfy the amount thereof, she agreed to pay to the plaintiffs $100 each month until the entire sum was paid and that in the meantime she would do nothing to impair the plaintiffs’ security. She further agreed that if at any time before the plaintiffs’ judgment was paid any of her other creditors should bring suit against her she would notify the plaintiffs, in which event they were to be at liberty to enter and collect their judgment in the usual way. Relying upon this assurance, the plaintiffs agreed to withhold their judgment from record as long as Mrs. Hawley made her payments and gave no preference to her other creditors, and in pursuance of such agreement the confession was placed in the safe ■of the plaintiffs’ attorney.
    Thereafter, and' on the 6th day of May, 1897, without the knowledge or consent of the plaintiffs, Mrs. H.awley executed and delivered four chattel mortgages upon her stock of goods to secure eight of her creditors, for an indebtedness amounting in the aggregate to about $1,800. Two of the creditors thus secured were her father and mother, and the amount which she claimed to owe them was $1,000. Immediately upon learning of the execution of these mortgages the plaintiffs filed their confession, entered judgment and issued execution to the sheriff of Steuben county, Avho thereupon levied the same upon the goods, wares and merchandise covered by the chattel mortgages. Thereafter, and on the 14th day of May, 1897, this action Avas brought in aid of such execution and. to have the chattel mortgages declared fraudulent and void as against the plaintiffs’ judgment. Issue was joined therein and the case was tried by the court Avithout a jury; judgment was subsequently rendered in favor of the plaintiffs, and from that judgment this appeal is brought.
    Such further facts as are material will be stated in the opinion which follows.
    
      
      F. A. Robbins, for the appellants.
    
      De Merville Page, for the respondents.
   Adams, J.:

If it be true, as is alleged, that the defendants, or any of them,, are seeking to gain possession of the personal property levied upon under the plaintiffs’ execution in virtue of certain chattel mortgages-which, as against such execution, are fraudulent and void, there can be no question as to the right of the plaintiffs to invoke the aid of a. court of equity to establish the priority of the lien acquired by them under their execution, provided the judgment upon which such-execution was issued is a valid one. (Bates v. Plonsky, 28 Hun, 112; People ex rel. Cauffman v. Van Buren, 136 N. Y. 252; Crippen v. Hudson, 13 id. 161, 166.)

We do not understand that this proposition is seriously controverted, but it is claimed that, for various reasons, which will be hereafter considered, the facts of this case do not entitle the plaintiffs, to the relief sought. "

One of the reasons thus assigned is the defective character of the; statement which furnishes the basis.for the confession of judgment, the contention being that the statement- fails to comply with the requirements of the statute in that- it does not fully and concisely set forth the facts out of which the debt arose, and, furthermore,, that such facts as are stated are false. It is possible that within some recent decisions the statement, in question is not as full and. explicit as it'ought to be (Code Civ. Proc. § 1274; Wood v. Mitchell, 117 N. Y. 439; Bradley v. Glass, 20 App. Div. 200; Blackmer v. Greene, Id. 532; affd., 154 N. Y. 749), but it certainly is sufficiently so to render it valid as between the parties thereto (Miller v. Earl, 24 N. Y. 110; Harrison v. Gibbons, 71 id. 58), and it consequently furnishes ample authority for the plaintiffs to-impeach a fraudulent transfer by the judgment debtor. (Neusbaum v. Keim, 24 N. Y. 325.)

The allegation of falsity rests in the main upon these facts; the-notes specifically mentioned in the statement, when received by the-plaintiffs, were indorsed by them and deposited in bank under an arrangement by which they were to receive credit therefor and be-allowed to check against them, but in the event that they were not paid at maturity they were to be charged back to the plaintiffs, without protest. This, it is insisted, was equivalent to a sale of the notes to the bank, and, inasmuch as they were all held by the bank at the date of confession, it is further insisted that it could not be truthfully asserted, as it was in the statement, that they were owned by the plaintiffs. Strictly speaking, this may be true, for unquestionably for the time being the notes were, in a certain sense, owned and held by the bank; but the transfer was conditional, and if the notes were not paid when due the plaintiffs were liable upon them and would he required to pay them. In short-, as was stated by one of the plaintiffs upon his direct examination, “ They (the notes) are supposed to belong to us until they are paid.” It is not disputed that these notes were valid, existing obligations upon the part of the defendant Hawley; neither is there any question as to the contingent liabi ¡ity of the plaintiffs thereon, and in view of the circumstances under which they were transferred to the bank we do not see how, within the principle of the authorities last cited, the validity of the confession can be impeached either by the judgment debtor or by any person other than a tona fide creditor or lienor.

In this connection it will be pertinent to consider the allegation of active and affirmative fraud which is set up in the defendant’s answer;, for, Avhile not denying that Mrs. Hawley was honestly indebted to the plaintiffs, or that the notes given by her correctly represented the amount of such indebtedness at the time they were given, it is, nevertheless,, insisted that the scheme by which such indebtedness was secured to the plaintiffs was fraudulent and void in that the confession of judgment was to be kept secret and its entry deferred to the end that Mrs. Hawley might continue her business and purchase additional goods upon credit from other dealers, the effect of which would be to enhance the value of the plaintiffs’ security during the period intervening its execution and enforcement. This contention would undoubtedly possess much force if there was anything in the record to support it save the bare fact that the plaintiffs did, at the urgent solicitation of their debtor, agree not to make their judgment a matter of record and thereby impair her credit; but there is not a scintilla of proof to indicate that this agreement was entered into with a fraudulent intent upon the part-of the plaintiffs to obtain any additional security at the expense of Mrs. Hawley’s other creditors. On the contrary, it appears that the day before the confession was given the plaintiffs learned that Mrs. Hawley had suffered judgment to be taken against her by an Elmira grocer, and, being naturally desirous to protect themselves, the plaintiffs sent a member of their firm to see her and if possible obtain some security for their debt. After a conference with her and her husband it was proposed that she should confess judgment for the amount owing by her. This proposal was not favorably considered by her at first, and it was only- acceded to upon the plaintiffs agreeing to hold the confession simply as security, provided the defendant would make certain specific payments thereon and do nothing iff the meantime to impair such security, all of which she promised to do.

. It is true that one effect of this agreement was to give the plaintiffs a preference and advantage over other creditors, but we are unable to perceive wherein that renders it fraudulent, for the law does not condemn a preference to a Iona fide creditor by a debtor in failing circumstances, even though the agreement by which such preference may be created is concealed from the general creditors. Thus an agreement entered into between the vendor and vendee that in case of the insolvency of the latter he will protect the former by a preference to the amount of his just claim, has been held not to be a fraud in law upon other creditors which would avoid a preferential assignment made in pursuance thereof. (Nat. Park Bank v. Whitmore, 104 N. Y. 297; Smith v. Munroe, 1 App. Div. 77; Pierce Steam Heating Co. v. Ransom, 16 id. 258; Smith v. Craft, 123 U. S. 441; London v. Martin, 79 Hun, 229; Drury v. Wilson, 4 App. Div. 232.)

Suppose that, instead of executing a confession of judgment on the tenth day of March, Mrs. Hawley had then entered into a secret agreement with the plaintiffs that she would pay them $100 per month until their entire debt was paid, and that in the event of her failure to make such payments, or in case suit was brought against her by another creditor, she would confess judgment to the plaintiffs for the amount remaining unpaid upon their debt;; could it be successfully contended that such an agreement would avoid a confession made in pursuance thereof ? And if not, why should tire one entered into between the parties, which does not differ in principle from the one suggested by way of illustration %

It is quite possible that if a dealer who was actually insolvent should purchase goods upon credit without disclosing the fact that he had theretofore agreed to prefer another creditor in a certain contingency, he would not, in the event of executing such agreement, obtain title to the goods thus purchased, either for his own benefit or that of his preferred creditor. (Hyman v. Kapp, 9 N. Y. St. Repr. 69.) But in the present case there is no evidence that the claims of the defendants, or either of them, arose out of any transaction with Mrs. Hawley subsequent to the time the plaintiffs’ judgment was confessed, and, consequently, we do not see how they are in a position to assert that the plaintiffs’ judgment is, under the circumstances disclosed by the record, invalid.

The next and only remaining proposition upon the part of the appellants which we deem it necessary to consider is that the plaintiffs have failed to establish the fact that the defendants’ chattel mortgages are fraudulent. To meet this contention it is asserted that there is nothing in the case to repel the presumption which the law creates that the defendants’ mortgages were fraudulent by reason of the fact that they were not accompanied by an immediate delivery and followed by an actual and continued change of possession of the mortgaged property, as required by the statute (2 R. S. [9th ed.] 1886, § 5; Wallace v. Nodine, 57 Hun, 239), and such is undoubtedly the factfor it appears that the morning after these mortgages were filed the mortgagor’s husband was in charge of the store, making sales and conducting the business precisely as he had theretofore done, and that there had been nothing done in or about the store to indicate, that there had been any change of proprietorship or possession. Indeed, it appears that at this time at least two of the mortgages had not been delivered and that the mortgagees therein named were not even aware that their claims had been thus secured. But it is argued that there are two answers to this assertion, one of which is that the mortgagees were entitled to a reasonable time in which to take possession of the mortgaged property, and the other is that the complaint contains no allegation that the defendants’ mortgages wez-e fraudulent by reason of any statutozy infirmity.

It may be assuzned, for the purposes of this review, that the learned counsel is correct izi both of the propositions thus advanced; but their force is materially impaired by the fact that no evidence was given to show that the failure upon the part of the defendants to take.immediate possession of the mortgaged property was not, under the circumstances of the case, unreasonable, and by the further fact that no objection was made to the evidence given by the plaintiffs of such failure. Had the defendants been called to the witness stand it is quite possible that they might have furnished some evidence that the delay in the change of possession was not unreasonable ; but this they failed to do, and as the burden of explanation was upon them, they must suffer the consequences of such failure. So, too, as regards the second proposition. Had an objection been taken to the admission of any evidence not pertinent to the issues raised bydhe pleadings, it would doubtless have been sustained; but inasmuch as such evidence was received upon the trial without objection it is now too late for the defendants to claim as a ground of reversal that the recovery was for a cause of action not set forth in the complaint. (Vann v. Rouse, 94 N. Y. 401; Wells v. World’s Dispensary M. Assn., 120 id. 630.)

However, we think that there was sufficient in the case to warrant the trial court in finding that the defendants’ mortgages were fraudulent in fact as against the plaintiffs’ judgment. .So far as the mortgagor herself is concerned there can, of course, be no question but that she executed the mortgages to the defendants in violation of her solemn agreement with the plaintiffs, and with the .obvious intent to deprive the latter of the benefit of the security which she had theretofore given them. For it appears.without'contradiction that at the very time her attorney was engaged in drawing up such mortgages Mrs. Hawley was assuring the plaintiffs that if they would defer entering their judgment for a few hours longer she would send .for her father and have him pay the same. This certainly was a gross fraud and one which_ should not be permitted to deprive the plaintiffs of the benefit which but for such fraud they would have obtained; neither should it operate to postpone their judgment so as to make it subordinate to the defendants’ chattel mortgages. (Clark v. Taylor, 37 Hun, 312; Claflin Co. v. Arnheim, 87 id. 236.)

■ Moreover, this case.is by no.means free from suspicious circumstances so far as the mortgagees are concerned. In the first place, there is an utter absence of proof that any of- the mortgagees were bona fide creditors of the mortgagor. One of them was her father; another was her mother, anc} these two she attempted to prefer in an amount considerably larger than the sum owing by her to the plaintiffs, although she had previously .assured the latter that she owed but little aside from their claim. Again, at least two of the mortgagees, as has been stated, knew nothing of the mortgages given for their benefit until after they had heen placed on file; and there are circumstances in the case which ■create a very strong presumption that the same is true of the other mortgagees, with the exception of the mortgagor’s parents. Among such circumstances may be mentioned the fact that the mortgages were executed at Corning, in the night time and secretly ; that all of the mortgagees were non-residents of that city, and that none of them, aside from the relatives, was seen there at the time the mortgages were executed; and, furthermore, that they absented themselves from the trial and studiously refrained from giving any evidence as to their relations with Mrs. Hawley.

There are still other circumstances in. the case which bear with more or less weight upon this question, but we think those to which inference has just been made are sufficient, as has already been suggested, to sustain the conclusion of the learned trial court that all of the defendants’ mortgages are fraudulent in fact and consequently void as against the plaintiffs’ judgment, execution and levy.

We have examined the various exceptions to the admission and rejection of evidence, to which our attention has been directed, without discovering that they present any prejudicial error, and in our opinion the judgment appealed from should, consequently, be affirmed.

All concurred, Spring, J., not voting.

-Judgment affirmed, with costs.  