
    Commercial Bank and Menzo Van Voorhis, Appellants, v. Catherine Bolton, Appellant, and Frederick A. Sherwood, Respondent, Impleaded with Others.
    
      Debtor and creditor — a bona fid e'creditor “secured" to the- exclusion of other®—a single instrument of transfer “ securing” two creditors, one fraudulent, the, other not, sustained as to the latter — delay in the furnishing of the consideration of the-transfer.
    
    A debtor has a right to transfer his property to one creditor to the exclusion of his other creditors; provided the transfer is made in good faith and upon a reasonably adequate consideration in the amount of "the debt.thus paid; but:"the adequacy of the consideration is not material and will hot.protect the transfer-where the intent of the transfer is to hinder, delay and defraud the-'-debtor’s creditors.
    A transfer by a debtor to his wife will be closely scrutinized, and the fact that she , subsequently employed her husband as. her agent in the business formerly transacted by him, is competent upon the question of fraud, ■ ■
    A creditor wbO'Confessediy held a valid claim against his debtor, knowing that his debtor was- in embarrassed circumstances, and that his means of paying the debt rested largely in the plant and’property which he owned, with a view to obtaining satisfaction of his debt, acting according to usual business impulses in such cases, treated with his debtor and) finally reached a conclusion that he - would take one-half, the plant and property, offered in liquidation of the indebtedness t.o him, of his debtor, who assigned the other half to his wife, asserting,' that she was a just creditor to the extent of its value.
    
      
      Held, that such transfer to the creditor was valid as against other creditors of the common debtor, although the latter was not in fact indebted to his wife, and that the transfer was void, as against his creditors, to the extent of the half transferred to her.
    
      Semble, that it was not necessary that the creditor should believe that his debtor was indebted to his wife provided that the creditor’s purpose was to obtain satisfaction of his own claim.
    The fact that the creditor did not at the time of the transfer, pursuant to the agreement made with his debtor, surrender to him all the evidences of his debt, consisting of notes, some of which had been discounted, and against all of which the creditor had agreed to protect the debtor, is not material, where it appears that the creditor carried out his agreement within a reasonable time.
    Appeal by the plaintiffs, Commercial Bank and Menzo Yan Yoorhis, from so much of a judgment.of the Supreme Court, entered in the office of the clerk of the county of Monroe on the 14th day of August, 1896, upon the decision of the court rendered after a trial at the Monroe Special Term, as dismisses their complaint on the merits as to Frederick A. Sherwood; also an appeal by'the defendant Catherine Bolton from the whole of said judgment.
    The trial court found as a conclusion of law that the complaint should be dismissed as against-the defendant Frederick A- Sherwood, with costs. Second, that the bill of sale executed and delivered by Thomas Bolton to the defendants Sherwood and Catherine Bolton, and the agreement executed and delivered by the same parties, both instruments hearing date on the 2d day of August, 1893, “ are and each of the said instruments is fraudulent and void so far as the same purport to sell and convey to the defendant Catherine Bolton the undivided one-half of the property therein mentioned and described as against the plaintiffs in this action; and that the said undivided half of said property so transferred to the defendant Catherine Bolton was and is applicable to the payment of the plaintiffs’ said judgments.” '
    
      Hubbell & McGuire and John Van Voorhis, for the plaintiffs.
    
      Heman W. Morris, for Catherine Bolton.
    
      William F. Goggswell, for Frederick A.. Sherwood.
   Hardin, P. J. :

Prior to August 2, 1893, Thomas Bolton had been carrying on a boot and shoe business and a manufacturing establishment of such articles; located at 93 Andrews street, in the city of Rochester. About that time he became ' embarrassed in his. business affairs and insolvent, and .on that day he executed the bill of sale and agreement mentioned in the complaint'.and referred to in the -findings of fact, made by the trial court, whereby, he sold the plant and the fixtures and assets in connection with the business to the defendants Catherine Bolton and Frederick A. Sherwood,. who immediately took'possession linder the same and carried -on the business until the 15th day of August, 1893, when a sale was made to the defendant Belin, and the defendant Sherwood ceased to have any. connection from that time with the business. Subsequently the' plaintiffs recovered several judgments against Thomas Bolton upon démands which they held against him prior to the 2d of August, 1893, and' caused executions to be issued thereon and the same were returned unsatisfied, and thereupon this action was commenced and complaint filed,.in the nature of a creditor’s bill, to strike down the bill of sale and the agreement made on the 2d of August, 1893.

- Mrs, Bolton and Sherwood served answers ill which they allege the bona Jides of the purchase by them, and that they acquired under the bill of sale and the. agreement the properties menT tioned therein for a valuhle consideration. The issues were brought to trial at a Special Term and findings were made and a recovery had in favor of the plaintiffs against Catherine Bolton, Frederick A. Sherwood and Thomas Bolton. An appeal w^as taken tó the. late fifth department, and that appeal was heard and decided, resulting in. an affirmance of the judgment as against Thomas Bolton, and a reversal of the judgment,, so far as it was rendered, as against Catherine Bolton and Frederick A. Sherwood. An interesting and instructive opinion was delivered by Bradley, J"., -which is found reported in'87 Hun, 547. • That- opinion refers somewhat in detail to the facts as they were presented by the appeal book then before the court; and the opinion, indicates that the reversal was placed upon the ground that certain documentary evidence was improperly received as against Mrs. Bolton and Sherwood, and as that' evidence was’competent against .Thomas Bolton, the judgment ■ as to him was affirmed", although reversed as to the other two defendants. That court held, however, viz.: “ A debtor ha.s a right to transfer his property to any bf- his creditors, and they may accept it in payment of their debts to the exclusion of other creditors, provided the transfer is made in good faith and has a reasonably adequate consideration. Where a debtor makes, a transfer of his property with intent to hinder, delay and defraud his creditors, and the transferee accepts the transfer to consummate such a purpose,-the adequacy of the consideration is immaterial and will not protect the transaction.”

In the view we take of the case on the present appeal there is no occasion to differ from the rules of law laid down in that opinion.

A second trial was had, resulting in the judgment from which the present appeals are taken. "Upon that trial a' very large volume of evidence was given, relating to the main issues of fact raised by the pleadings. .We have studiously and cautiously looked into the evidence relating to the findings of fact stated in the decision of the trial court, and have, after much deliberation thereon,- reached the conclusion that the findings are supported by evidence and should be sustained. We are aware that there is a great conflict in the evidence, and that there was opportunity furnished by it for the court to draw deductions and inferences therefrom in respect to the intents and motives of Thomas Bolton on the occasion of the sale, and that there was a contrariety of evidence in respect to the intent and purpose of Sherwood at the time he purchased an undivided half of the property. Many facts and circumstances are disclosed in the evidence which warrant the conclusion reached by the trial judge. However, upon many of the issues springing out of the transaction inferences and deductions were possible which would have been more favorable to the position ingeniously and strenuously put forwai'd by the plaintiffs.

; Before accepting the conclusions of fact stated by the learned trial judge we have carefully considered the opinion delivered by him in connection with the findings of fact announced, and we have hot discovered that he has stated any erroneous rule of law therein. We have become satisfied that the evidence warrants the conclusion that the purchase, so far as it relates to Mrs. Bolton, was fraudulent-, and ought not to be permitted to stand. In determining the latter question we have brought to mind the circumstance that the judgment, as formerly entered, declared the transaction fraudulent and void, so far as it related to Mrs. Bolton’s intent in the premises, and that the evidence given upon this trial, so far. as it related to Thomas Bolton’s intent in making the sale, was sufficient towarrant a finding that his purpose was fraudulent as against the plaintiffs, •his judgment creditors, at least to the extent qf the sale,.so far as it was made to his wife, Mrs. Bolton. On the other hand, we are satisfied that the facts and circumstances, and large volume of evidence produced at the trial, warranted the conclusion that the purchase, so far as Sherwood was concerned, was without-, any fraudulent intent on his part. ■ • . • • ■ •

It was stated in the opinion of Bradley, J. ($7 Hun, 552),: viz. : “ While Sherwood was not pressing Bolton, he evidently had' become somewhat, anxious about bis own matter, and his leading object in becoming the purchaser was to get payment of Bolton’s liabilities to him.” It was further stated in that opinion : “ Whether or not thesalé was made with intent to defraud the other creditors, and whether the act of purchase was infected with a like imputation,' were questions of fact,'within the province nf the-trial justice to determine* and .liis conclusion in that respect was permitted and supported by-the evidence, and the inferences: legitimately derivable from. it. This may have been founded somewhat upon the fact as found! that the debts Which Bolton owed the purchasers were much less in amount than the value of the property.” ■'

. • Upon the second trial clear ánd eonqpeteht evidence was given in respect to the intents of Thomas Bolton, Catherine Bolton and Sherwood, and we are of the-opinion that the intents and purposes, as stated in -the findings of fact now before us, are in harmony with , the weight of .the evidence. Inasmuch as the evidence warranted the finding that the purchase made by Sherwood was for the purpose of obtaining payment of his .debts and claims against Bolton without any intent upon his part to perpetrate a fraud upon the other creditors of Boltonpand that the consideration which he was to: pay was adequate, it must be said that liis purchase was for a valuable consideration. (Murphy v. Briggs, 89 N. Y, 446, which is quoted with approval in 87 Hun, 557.)

In Stanley v. National Union Bank (41 Hun, 640; S. C. affd, 115 N. Y. 135) it was said in respect to a debtor’s disposition of liis property, that he had the right to. dispose of it in payment of his debts as he saw fit, “ provided he did so in good faith. He could lawfully have transferred to Babbitt directly any of the property included in the mortgage in satisfaction of his debt, or make any other arrangement which should render its appropriation upon the debt certain and secure.”

It has been insisted by the learned counsel, for the plaintiffs that the fact that the husband of Catherine was employed as her agent in conducting the business subsequent to the sale to Sherwood is a circumstance adverse and bears largely upon the question of intent. We think the circumstance was competent and was entitled to be. considered by the trial court in connection with the other evidence.

In Stanley v. National Union Bank (supra) it was said : “ That, such circumstance is competént evidence to show the intent of the. parties upon a question or fraud has been adjudged in many cases but it has also been frequently decided that it afforded no conclusive-evidence of a fraudulent intent. (Abbey v. Deyo44 N. Y. 344 Buckley v. Wells, 33 id. 518.)”

The learned counsel for Menzo Van Voorhis has called our attention to several badges of fraud, among them the following : Firsty that there was a transfer by Bolton of all his property; and, second,. that Mrs. Bolton withheld a deed from record, and the hasty character of the inventory taken and the -circumstance that Mrs. Bolton was one of the purchasers, and the claim that the debt to the wife-was fictitious in a large part. We must assume that the trial judge-gave proper attention to those features of the case, as we have attempted to do in deliberating upon the conclusion which he reached in respect to the fraudulent intent of Bolton, and the assertion that-his wife was cognizant of his fraudulent intent, and we have applied the rule laid down in Manchester v. Tibbitts (121 N. Y. 222), which is to the effect that transactions between husband and wife in respect to properties under circumstances somewhat similar to those developed in this case are to be rigidly scrutinized. It may be observed, however, that several of the circumstances mentioned and considerations suggested do not relate to the position occupied by Sherwood at the time of the purchase made by him. Further comment upon the facts and circumstances relating to the purchase of a portion of the property by Mrs. Bolton does not seem to be requisite. The conclusion reached by the trial judge in respect to her, upon the facts stated in his findings and in his ■Opinion, and the conclusions stated in his opinion, must be regarded us a sufficient warrant for the conclusion we have reached.upon the-evidence in respect to the judgment so far as it relates to Mrs. Bolton,-and we are of the opinion that as to her . the decision made by ■the trial judge should be sustained.

We come now to the question made in respect to the dismissal of the complaint as against Sherwood. ■ As we have already stated, the' •object and purpose of his purchase were to secure payment of an indebtedness which he- held against Thomas Bolton, and it was competent for him . to accept payment, or secure payment by the purchase of property at a fair valuation, or, in the language as stated in the opinion of Bradlev, J., which we think is correct,, viz.: A ■debtor has the lawful right to transfer property to airy and less than' -all his' creditors in payment of his debts owing to them, and they to accept it in payment to the exclusion of other of his creditors, provided it is done in good faith for such purpose and has a reasonably ■adequate consideration in the.amount of the debts for the payment •of which the transfer of the property is made. ' (Wilder v. Winne, ■6 Cow. 284 ; Auburn Ex, Bank v. Fitch, 48 Barb. 344; Loeschigk v. Hatfield, 5 Robt. 26 ;. 51 N. Y, 660; Hale v. Stewart, 7 Hun, ■591; Murphy v. Briggs, 89 N. Y. 446.) ” ' "

The evidence warranted the finding stated in the following language by the trial judge: Thatsaid purchase was made.by-said Sherwood with no other purpose or intent on his part than to obtain payment of said Bolton’s indebtedness to himself in preference to other creditors ; ” ' and the further fact -that Bolton did -not dn any. manner reserve to himself any right or interest in the property so Required' by Sherwood ; and the further finding “that said Thomas Bolton made the said transfer to said Sherwood .for the purpose.of paying his indebtedness, and without any intent or expectation of ever receiving to his .'own use any part of the .undivided half of said property sold and transferred by him to Sherwood, and withr out-reserving to himself any benefit therefrom except that which would .incidentally follow if he could have .'the business continued, und the half which he transferred to liis wife employed therein.”

Those findings are not inconsistent with any principle laid down in Hardt v. Schwab (72 Hun, 110), as in that, case it. clearly appeared that the transfer was for the benefit of the failing debtor.”

After the defendant Sherwood had shown that he became a purchaser for a valuable consideration, it was incumbent upon the party making the attack upon the purchase by him to. show “ that he had previous knowledge of the fraudulent intent of the vendor, or that he participated in .the fraud.” (Starin v. Kelly, 88 N. Y. 418 ; 2 R. S. 137, §§ 1, 5.)

By the terms of the agreement of August 2, 1893, the status'of the defendant Sherwood became fixed, and there is no force in the-suggestion that because he had not actually surrendered all of the: -notes which formed a part of the consideration of his purchase, some of them having been discounted, he was not a purchaser for a valuable consideration.

The cases of Macauley v. Smith (132 N, Y. 525) and Sargent v. Eureka Spund Apparatus Co. (46 Hun, 19) are inapplicable to the case in hand.

Nor does Ross v. Caywood (16 App. Div. 591) aid the.contention of the appellants. In that case it was said that the responsibility-of a vendee for the fraud of his vendor might be established by actual knowledge or notice, or inferred from circumstances. In the. case in hand all the facts and circumstances, and all the evidence tending to indicate any knowledge, or notice of a fraudulent intent on the part of .the vendor, as against the agreement so far as it. related to Sherwood, were considered by the trial judge, and, notwithstanding such evidence, the conclusion was reached that ,the-defendant Sherwood had no fraudulent intent on his part in becoming the purchaser of the property, but that his leading motive and principal object was to acquire payment of his debt which he held against Bolton.

The legal effect of the agreement which was made by Sherwood was that the purchase price named therein, so far as he was concerned, was paid at the time of the execution of the agreement. By the language used therein Sherwood agreed to surrender the evidences of the indebtedness held by him and agreed to indemnify ■ Bolton against the same, and within a reasonable time he carried out. the agreement.

The evidence very clearly indicates that Sherwood was negotiating for the purchase of an undivided half of the property, and that his leading, principal and constant effort was to secure the payment: ■of the- indebtedness which he held against Bolton, and that in consummating that , purpose he was compelled to ■ acquiesce in the. purchase made by Mrs. Bolton of the other half of the property., By that purdíase he became a tenant in common of one-half of the property. His title thereto was just as clear and distinct, as though separate instruments had' been provided, one assigning one-half of the property to him and the other assigning one-half of the property to Mrs. Bolton; and it. is to be kept constantly in mind that the ■consideration moving from the one to■ Bolton and the consideration moving from the other to Bolton were distinct and separate. The ■case is, therefore, unlike those where there is a taint to: the whole ^consideration.

'It differs from Read- v; WilUams (125 R. Y. 560), where- the false and fraudulent consideration was fabricated by the joint act <of both grantor and grantee. -

The case, in hand is unlike Russell v. Winne (37 N. Y. 596); as in that case it was said: “ The mortgage was one single instrument .given to secure one debt,” and - it was, therefore, appropriately held that the unlawful intent pervaded the whole instrument,

The bill of sale and the agreement made on the 2d of August, 1893, must be construed in the light of the facts and circumstances ■attending their execution,.-and when ' they are considered the sitúation is the same as though Sherwood. had given his check for the value of one-half of the property innocently' and honestly with an intent to acquire the title thereto, knowing nothing of any fraudulent intent on the part of the assignor in respect to the sale of the other half of the property. We think his purchase may legitimately be upheld.

In Smith Y.-Post (3 T. & 0. 650) it was said : “ Although- two parties are secured, separately in one instrument, it must be con-' -sidered as a transfer separate and distinct, which enables each one to hold' the property independent of the other,. in proportion to the debts secured. The same rules apply to conveyances -of real estate. (Bump on Fraudulent 'Conveyances,. 172.), Also -to assignments of property. (Prince v. Shepard, 9 Pick. 176).”

In the case cited from 9 Pickering, 176, Prince had transferred ■to Hodges and John C-. Prince property to secure their respective indebtedness, .and, although it turned out that there was no'indebtedness to Hodges, the transfer, so far as he. was concerned, was held to be fraudulent, and in delivering the opinion of the court Chief Justice Parker observed: “ It is insisted that, as tire debt to the plaintiff was attempted to be secured in the same instrument as the feigned debt to Hodges, the assignment is void in the whole, so that the plaintiff can claim nothing under it. This must depend upon the nature of the transaction and of the instrument by which the assignment was made and the connexion of the parties to whom the property is conveyed.”

Applying the test laid down by the learned judge, we are of the opinion that the case in hand falls within the principle approved. Here we have a creditor confessedly "holding a just claim against his debtor, knowing that his debtor is in somewhat embarrassed circumstances and that bis means of paying the debt rest largely in. the plant and property which he owns, and the creditor, with a view of obtaining satisfaction of his debt, acts according to the usual business impulses in such cases and treats with his debtor, and finally reaches a conclusion that he will take one-half of the plant' and property offered in liquidation, of the indebtedness and liabilities which he held against his debtor.. Such negotiations result in a conclusion on the part of the debtor that he will assign the half of the property to the creditor simultaneous with his assignment of the other half of the property to another creditor, to wit, his wife, and while that negotiation is transpiring the debtor vigorously asserts that he is indebted to his wife and that she is. justly and honestly a creditor to the value of the other half of his property which is proposed'to be transferred to her.

It is not difficult to suppose that Sherwood was credulous and believed the assertions that were made to him in respect to the indebtedness to the wife. However, his uppermost and earnest intent evidently was the acquisition of property, the value of which should liquidate the indebtedness and liability of Thomas Bolton to him. We think his purchase should be sustained. We have looked at the exceptions taken during the progress of the trial and find no occasion to interfere with the decision made by reason of any rulings made in the progress of the trial.

The trial judge has, in an opinion, very clearly stated his views of the law of the case.

The foregoing- views lead to the: conclusion that the results reached at the trial should he sustained.

That.part of .the- judgment which dismisses the plaintiffs’ "complaint upon the merits as to Frederick A. Skefwoodhaffi-rmed,. with costs againstj the plaintiffs. And the judgment, so "far. as it is appealed, from by Catherine Bolton, .is affirmed, -with- costs to the plaintiffs "against her as appellant.

All concurred, except. Eollett,. J„ not sitting.

That part of the judgment which dismisses the plaintiffs’ -complaint upon the merits as to.Frederick A. Sherwood affirmed,, with costs against the plaintiffs, and the judgment,, so far as it'is appealed from by Catherine Bolton is affirmed, with ten dollars costs, to the plaintiffs, against her as- appellant.  