
    Henry Adams, Resp’t. v. Henry A. Bowerman et al., App’lts.
    
      (Court of Appeals,
    
    
      Filed March 20, 1888.)
    
    Sale—Validity of purchase of goods by insolvent firm—Evidence of good faith—Competency of.
    The firm of T. & H. bought goods, agreeing to pay for them in ten days but never paid. Said firm borrowed money of plaintiff giving said goods as security for the payment of the loan. At the time of the purchase and making the loan T. & H, were insolvent, but claimed that they were then ignorant of the fact. Upon the question of the validity of said sale as between said firm and the vendor, Held, that the account books of the firm of T. & H. were competent, and material evidence to show the condition of affairs of T. & H . and their knowledge of the condition. As between them and the vendors, the sale if. obtained by fraud, was invalid, and unless the plaintiff turned out to be a holder of the goods upon a present consideration in good faith for value, such a transaction would be invalid as against him.
    Appeal by defendants from a judgment of the general term of the superior court of the city of New York, affirming a judgment against the defendants, entered on the report of a referee.
    The action was commenced against the sheriff of the city and county of New York, but the proceedings were after-wards amended so as to substitute his indemnitors as defendants.
    The complaint states a sale and delivery by the Bay State Sugar Refining Company of 127 barrels of syrup to the firm of Taussig & Hammerschlag on the 8th of August, 1.883; that on the 15th of August it was pledged to the plaintiff by that firm as security for the payment of a loan of money then made to them; that on the 21st of August the defendant (the sheriff), unlawfully took it from Ms possession. It was afterwards amended, but not so as to affect any question on this appeal.
    The answer shows that on the 90th of August the Bay State Company commenced an action against the firm of Taussig & Hammerschlag, one B., as their assignee, and one Seaver, to replevy the syrup ; that the sale by the Bay State Company to T. & H., was void because induced by their fraud and “with the preconceived design to cheat and defraud” the vendors.
    The issues in the action were referred for trial, and the referee found as facts, that the Bay State Company, on the 10th of August, 1883, sold to said firm of Taussig & Hammerschlag 198 barrels of syrup, of which the 197 barrels, mentioned in the complaint were part, for the price of $1,678.39 payable in cash in ten days thereafter, and without being paid therefor the seller delivered the said syrup to said purchasers, and pursuant to such delivery, said 3 28 barrels of syrup were received by and came into the possession of said purchasers in the city of New York, on the 13th day of .August 1883, but they never paid said price so. agreed for in whole or in part; that at the time of the negotiation for the sale and delivery of the said syrup, T. & H. were in fact insolvent, but not aware thereof, and that the purchase was not made by said firm with a preconceived intention not to pay for said syrup, or with a preconceived design to cheat and defraud the Bay State Sugar Refinery Company of Boston, and that the purchase was not fraudulent; that, on the 13th of August, T. & H. delivered 127 barrels of the syrup to one Seaver on storage for them and took his receipt as warehouseman therefor, and on the 15th of August they did the same with 130 other barrels of syrup, both deliverable to their order. These two receipts were afterwards given up and one receipt taken from Seaver, dated “ August 13th and 15th, 1883,” for both lots described separately, but together making 257 barrels, “ deliverable to the order of H. Adams.” This was done with intent and expectation on their part to borrow money of the plaintiff on the security of the syrup, and on the same day and within an hour after such receipt was taken, he did agree to lend them $3,000, and within a short time sent to them his check for that sum, which was paid. The plaintiff had before loaned one member of the firm $662.94, and with the assent of the firm the syrup was to stand in the plaintiff’s hands as security for the payment of both sums. The receipt was actually placed in the hands of one Robertson for Adams, on the 16th of August, and came to his own hands on the 17th of August; that the plaintiff obtained and received said warehouse receipt, from Taussig & Hammerschlag, in pledge for his said loan of money in good faith and in the usual course of trade, without notice of any fraud or wrong on the part of said firm in purchasing or getting possession of the 127 barrels of said syrup, here in question, from said Bay State Sugar Refinery Company of Boston, or of any claim or right of said company to said syrup, and without knowledge or notice of any fact or facts that should have put him upon inquiry as to any such wrong, fraud, claim or right, and in faith of the title in him represented by said receipts, and of the ability of said firm to vest in him such title, and the right to the possession and control of said syrup as pledgee thereof. By the sale of the other lot of syrup, the 130 barrels, Adams has been paid a portion of his claim on the $3,000 loan, leaving due thereon $1,176.45. On the twenty-first day of August, the 127 barrels were taken from the plaintiff by the sheriff, under the replevin proceedings, and he refused to return them, although notified of the plaintiff’s claims; that its value, exclusive of interest, was $1,602.74, and for that saw, with interest, he awarded judgment in favor of the plaintiff, and against the defendants.
    
      Mr. Ellis, forapp’lts; Mr. Eotchkiss, for resp’t.
   Danforth, J.

—The evidence was not all one way, but upon the principal questions in the case was of such a character as to require from the referee a finding: 1st, as to the intent of T. & H. in obtaining the goods in question, whether the purchase was fraudulent or bona fide, and 2d, whether if a fraudulent purpose existed, Adams had knowlecd* of it, or whether he was a pledgee for value and in good faith. He did pass upon these questions, and with the approval of the general term, in favor of the plaintiff, we see no ground upon which we should interfere Both the title-of the original purchasers and the title and good, faith of the plaintiff must be deemed established.

There are, however, exceptions to evidence. While one F., a former bookkeeper of T. & H., was on the stand, he was examined at great length by the defendants as to the account books of that firm and the entries therein. They consisted of the sales books, cash books, journal, ledger, bill book, receiving book, and they were all and separately offered by the defendants in evidence. They were objected to by the plaintiff’s counsel “as incompetent and immaterial as against the plaintiff and upon the further ground that there is no evidence of the facts covered by the entries/’’ The case states that the referee excluded the offered evidence upon the ground that the books were “heresay testimony, ’ ’ and the defendant excepted We think they were admissible to show the condition of the affairs of T. & H., and their knowledge of that condition As between them and the vendors the sale, if obtained by fraud, was invalid, and bearing upon that question the evidence was clearly competant and material. Unless the plaintiff turned out to-be a holder of the goods upon a present consideration in good faith and for value, such a transaction would be invalid also as against him. The facts found by the referee show that such was the plaintiff’s position as to the $3,000, and no more. The other debt of $662.94 was contracted without reference to the security afforded by the goods in. question, and for that the plaintiff cannot be considered a bona fide transferee or pledgee within the rule, so as to enable him to hold the syrup against the original vendor, who was defrauded. That debt might have been paid from the proceeds of the other lot of syrup, but it was not. A different application was made. This appears from the complaint in this action and from the testimony of the plaintiff and the finding of the referee. On the 27th of August, 1883, the plaintiff applied upon the $3,000 loan, the proceeds of the other parcel, or 130 barrels of syrup, amounting to $1,914.81, leaving due only at the date of the referee’s report $1,176.45. This sum with interest the plain - tiff can now recover, although the purchase by T & EL was in fact fraudulent. The testimony offered and rejected might, if received, have led the referee to that conclusion, It would, however, affect only the amount of the precedent debt, and a just conclusion may be reached without a new trial, if the' plaintiff remits so much of the recovery as exceeds the balance of the $3,000 loan. If that is done tho rejection of the evidence will have worked no harm to the defendants, and the error in excluding it will not require a reversal of the judgment. I have examined the other questions presented by the appellant, and find none which disclose error in the trial, but for the error above discussed the judgment should be reversed and a new trial granted, with costs to abide the event, unless within twenty days from the entry of this decision the plaintiff stipulates that the recovery for damages be reduced to the sum of $1,176.45, with interest thereon from December 16, 1884 (that being the date of the referee’s report), in which case the judgment appealed from is modified accordingly, and as modified, affirmed, without costs to either party in this court.

All concur.  