
    Archibald Sheffield and Others, Respondents, v. John T. Mitchell and Henry H. Cooper, and Mitchell & Cooper Company, Appellants.
    
      False representation —. proceeds of a sale.indueecl by false representations, when recoverable from the vendee’s transferee.
    
    The vendor of property sold in reliance upon false representations, made by a firm to its broker who negotiated the sale for it, with intent that they be communicated to the vendor, is, in the event of the vendees having parted with the possession of the property, entitled to follow its proceeds, upon their being specifically identified as such, into the hands, of a corporation, to which the firm has transferred its business without consideration, and with intent to defraud its creditors, and may recover such proceeds from the corporation.
    Appeal by the defendants, John T. Mitchell and Henry H. Cooper, and Mitchell & Cooper Company, from a judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of Hew York on the 23d day of February, 1898, upon the decision of the court rendered after a trial at the Hew York Special Term.
    The defendants John T. Mitchell and Henry H. Cooper composed the firm of Mitchell & Cooper. The Mitchell & Cooper Company was a domestic corporation.
    
      T. M. Tyng, for the appellants.
    
      Henry B. Ttoombly, for the respondents.
   Ingraham, J, :

The action was to set aside a sale of certain teas made by the defendant Mitchell & Cooper, and to follow the proceeds of such teas in the hands of the government of the United States, or in the hands of the defendant Mitchell & Ooojier Company, to whom Mitchell & Cooper had transferred this property. The eonit below found that the sale of the teas by the plaintiffs to the defendants Mitchell & Cooper, was made by the plaintiffs in reliance upon the statement that the defendant Mitchell was worth $40,000, which statement was false; that said false representations gave the plaintiffs a right to rescind said sale, and that on or about the 12th day of March, 1897, they did rescind it, and demanded of the defendants the return of the teas, or the proceeds thereof, from the sale to the United States government, which demand was refused ; that the proceeds of the sale of the teas were collected from the United States government, aggregating in amount $2,465.13, and were turned over to the corporation of Mitchell & Cooper Company, to whom such teas, or the jiroceeds thereof, had been assigned or transferred; that the transfer of the said teas, or the proceeds thereof, by the defendants Mitchell & Cooper to the defendant the Mitchell & Cooper Company, was without consideration and was made with the intent to hinder, delay and defraud the creditors of said Mitchell & Cooper, including these plaintiffs. Judgment was directed against the defendants for the money in their hands, the proceeds of the teas,- with interest and costs.

The action was thus brought to rescind a sale of personal propperty induced by fraud, and the evidence was sufficient to sustain a finding that such sale was fraudulent. The plaintiffs, tea merchants in New York, were asked by one Ernest A. Nathan, a tea broker in New York, to sell certain teas to Mitchell & Cooper. Nathan had acted as broker for Mitchell & Cooper from some time in August, 1896. In August or September, 1896, Nathan inquired of Cooper, a member of the firm of Mitchell & Cooper, in reference to the credit of the firm. .Nathan had made purchases for Mitchell & Cooper on credit from the firm of Osborn & Lindsley, and told Cooper that' they (Osborn & Lindsley) wished to know something about his financial condition, and that inasmuch as Hamilton & Cholwell (the firm of tea brokers of which Nathan was a member) were to act as his (Cooper’s) brokers, it was essential we should know something as to his finances so as to be enabled to purchase goods for him as he might desire them from time to time. This was customary.” Here was a direct statement from the brokers that they were acting fcr Mitchell & Cooper as brokers, and that in the transaction of their business for them it was necessary that they should have knowledge as to the financial condition of their firm. The object of this could only be to obtain information to communicate to parties having dealings with Mitchell & Cooper. In reply to this question for information for that purpose, Cooper told Nathan that his partner, Mr. Mitchell, “ was rated in the mercantile agency at $10,000, but was worth over $40,000, and was prepared to back him all lie was worth. * * * He told me his partner, Mr. Mitchell, was engaged in the grocery business, a very prosperous man, also the owner of real estate. * * * He told me he"had met a partner just prior to that who had lots of money, and desired Hamilton &, Cholwell to act as his brokers. * * * Mr. Cooper had made that statement to me from time to time; he had made that statement to me within five days of the making of this purchase, at least repeatedly, that Mitchell was worth over $40,000. The last time that I saw Mr. Cooper, that Mr. Cooper spoke to me on this subject, was about four or five days before the sale in this suit wras talked about.” Nathan testified that this last statement made by Cooper to him was made after the government contract with Mitchell & Cooper had been made and when the sale of the teas for the government contract was in contemplation; that Cooper told him “ it might be possible he (Cooper) would require a little time in the purchase of these goods for the government contract; that he could get the money from Mr. Mitchell, but he did not want to bother him; * * * that the firm had been doing very well indeed and had made money for the year; * * * and Mr. Mitchell was worth $10,000'in the agency, and was actually worth over forty. These were the representations he made to me after I was informed that the government had purchased teas from Mitchell & Cooper, and Mitchell & Cooper were looking for teas to fill that contract.

There was thus direct evidence tending to show that Cooper made these representations to his broker, whom he had employed to obtain the teas necessary to fill this contract with the government, at the time he employed Nathan to obtain such teas for him, and when he was requesting that such teas should be obtained upon credit, upon the ground that he would require some little time to get the money from the government and did not wish to bother his partner to make the necessary advances, again repeating the statement as to the amount that his partner was worth. There could have been but one object in making these representations, and that was that such representations were to be communicated to the persons from whom the teas were to be purchased to induce such persons to sell the teas upon credit. Nathan then applied to the plaintiffs to sell the teas to Mitchell & Cooper. Nathan told the plaintiffs that “ our customers, Mitchell & Cooper, were in the market for a certain kind of tea to fill a government contract, and I thought perhaps they might be desirous of purchasing some of his tea. * * * He said he thought it was too much of a bill to sell to Mitchell & Cooper, inasmuch as, prior to that, he had sold them very small bills.” Nathan told the plaintiffs that Cooper had informed him that his partner was rated at $10,000 and was worth over $40,000; that his (Cooper’s) partner was in the retail grocery business uptown and was doing a very prosperous grocery business. Just prior to this conversation Mr. Churchill, one of the plaintiffs, said: “ I don’t know about Mitchell & Cooper,” and, in answer to that, Nathan repeated the statement which had been made by Cooper to him, and thereupon Churchill told Cooper that he would give him fifteen days to pay for the goods, but if they required thirty days, he (Churchill) would require thirty-day notes, to which Cooper replied that it was satisfactory. The sale was made and the teas were delivered to Mitchell & Cooper, and the evidence is that that sale was made relying entirely upon the statement of Nathan as to Mitchell’s responsibility. The evidence was uncontradicted that these representations were absolutely false. Mitchell swore that he was indebted to his wife for upwards of $5,000; that on the first day of September all the property he had was his grocery business; that that business might possibly be worth about $5,000, and that he owed other sums of money, and so far as appears the firm of Mitchell & Cooper had no capital invested in their business. It appeared that on March tenth a judgment was entered against Mitchell for over $5,000, which was unpaid, and that other judgments were obtained against Mitchell and the firm of Mitchell & Cooper which were also unpaid. Thus it was established that at the time these representations were made by Cooper to Nathan for the purpose of obtaining credit for the firm of Mitchell & Cooper, and which Nathan, acting as the broker of Mitchell & Cooper repeated to the plaintiffs, upon which the defendants obtained these goods upon credit, they were absolutely false. Mitchell individually, instead of being worth $10,000, or $40,000, was insolvent, and the court was justified in finding that these statements were made with intent to deceive and defraud the plaintiffs, and did actually deceive them and induce them to make this sale on credit. The testimony was thus sufficient to sustain the allegations of the complaint that the sale was induced by fraud, and the plaintiffs were entitled to rescind the sale and recover back the teas, and in the event of the purchasers having parted with the possession of the teas to the government, the plaintiffs were entitled to follow the proceeds of the teas upon their being specifically identified as such. (American Sugar Refining Company v. Fancher, 145 N. Y. 554.)

After these teas had been sold to the government, the firm of Mitchell & Cooper transferred their business to the corporation, the Mitchell & Cooper Company. That transfer the court has found was without consideration and was made to hinder, delay and defraud the creditors and these plaintiffs, and that finding was amply sustained by the evidence. It was also proved that that corporation subsequently-received from the government the price that the government paid for these teas, and thus the proceeds of the plaintiff's’ property were directly traced to the defendant corporation, and the plaintiffs were clearly upon this proof entitled to judgment against the corporation for the amount which it had received as the proceeds of the plaintiffs’ property. The fraud in this case was clearly proved. The defendants .Mitchell & Cooper obtained these teas from the plaintiffs upon the false and fraudulent representation of a fact as to the property of Mitchell, one of the purchasers, made with the intent to obtain the goods upon credit. The proceeds of these teas were directly traced to the defendant corporation to whom the teas had been assigned by the fraudulent purchasers, without considera-. tion, and for the purpose of putting such proceeds where they could not be recovered by the plaintiffs, and the plaintiffs were entitled to a judgment against the person who had received the proceeds of the teas without consideration, and such a judgment to recover such proceeds having been entered by the court below, it should be affirmed.

Yan Brunt, P. J., Patterson, O’Brien and McLaughlin, JJ., concurred.

Judgment affirmed, with costs.  