
    William N. Zimmer, as Assignee, etc., of Hazard M. Templeton, Respondent, v. Daniel Hays and Charles Palmer, as Sheriff of Fulton County, N. Y., Appellants.
    
      Chattel mortgage—invalid as to creditors, where the mortgagor retains possession of and deals with the property as his own—assignment for benefit of'creditors — fraud must be affirmatively shown — surrender of property by an assignee under a mistake of Imo — the assignee should retake the property.
    
    In an action brought by the assignee for the benefit of creditors of Hazard M. Templeton, it appeared that, as security for certain indorsements, Templeton gave to Daniel Hays a real estate mortgage and also a chattel mortgage, it leing agreed that they should not be recorded, and that Templeton should continue to deal with'the chattel mortgaged property as his own. Subsequently, Templeton notified Hays that he did not think he could go on in business, whereupon Hays asked that he execute a new chattel mortgage, which he declined to do, but executed a general assignment for the benefit of his creditors.
    After the plaintiff (the assignee) had taken possession of the assigned property, Hays demanded the property covered by the chattel mortgage, and the assignee, then believing the claim of Hays to be just, surrendered it to him.
    
      Thereafter, the assignee brought this action to recover the mortgaged property which had been seized upon an execution against Templeton.
    Upon the trial the court found that when the mortgages were given neither party to them supposed that Templeton would be compelled to make an assignment, and also found that the assignment was not made to benefit Hays, nor as a protection to any fraud respecting the real estate or the chattel mortgages. Held, that no fraud in the making of the assignment was shown;
    That, to invalidate such an assignment, there must be actual proof of a fraudulent intent upon the part of the assignor when he executed the instrument; and that where it and the acts of the parties were as consistent with innocence as with guilt, the assignment should be allowed to stand;
    That the fact that the chattel mortgage was void as to creditors, although a fact to be considered, did not necessarily avoid the assignment;
    That, as the assignment had been executed properly and apparently in good faith, the title to the mortgaged property covered by the assignment at once passed to the assignee, and was not divested by his subsequent surrender of the mortgaged property to the mortgagee;
    That it was the duty of the assignee to assail the chattel mortgage and regain possession of the property covered by it.
    Appeal by the defendants, Daniel Hays and 'another, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Fulton on the 26th day of November, 1895, from the decision of the court rendered after a trial at the Fulton Circuit before the court without a jury.
    
      Jerome Egelston and Andrew J. Nellis, for the appellants.
    
      Robert J. Sanson, for the respondent.
   Herrick, J.:

This is an appeal from a judgment rendered upon a trial by the court without a jury, wherein it was adjudged that the plain tiff recover, from the defendants, possession of the property described in the complaint.

The plaintiff is the assignee for the benefit of the creditors of Hazard M. Templeton.

Prior to the 9th day of February, 1895, Templeton was indebted to the appellant Hays, upon paper which had been indorsed by said Hays, in the sum of about $2,000. Templeton, finding himself embarrassed in his business, made application to Hays for further assistance by money or indorsement; and Hays, at that time, indorsed additional notes for him to the amount of $1,600, Templeton then and there giving him as security for both the prior and the new indorsements a mortgage upon his house, and also a bill of sale or chattel mortgage upon his personal property, which consisted of goods manufactured or in process of being manufactured, for the purpose of being sold in Templeton’s business. It was agreed at that time that such mortgage and bill of sale should not be placed upon record, but should be retained in the appellant, Hays’, vault, and that, in case Templeton should be pressed by his other ‘creditors, Hays was to be immediately informed. And it was further agreed between them that Templeton should remain in possession of the property and should continue to sell and deal with it the same as before, except that Hays advised that he ought not to purchase any additional goods or merchandise. This transaction was on the 19th of February, 1895.

Under this arrangement Templeton continued to do business for some time, manufacturing and selling goods, living out of the proceeds of the business, paying some of his old debts, but none of the defendant Hays’, and contracting new ones; becoming further embarrassed on the 6th of May, 1895, he made an assignment to the plaintiff herein for the benefit of creditors. Prior to the execution of such assignment he caused word to be sent to Hays that he was in trouble, and did not believe that he could go on. Hays thereupon met with Templeton and his attorney, when the assignment was being drawn, and requested that Templeton give him a new mortgage or bill of sale of the personal property then in his possession, which Templeton refused to do. The assignment was then executed and filed in the county cleric’s office.

Upon the trial it was admitted that on and prior to the 6th day of May, 1895, Hazard M. Templeton was the owner, and in possession, of all the property replevined in this action ; and that the plaintiff immediately, upon the day of the execution of the assignment to him, took actual possession of said property.

After the execution of the assignment Hays claimed the right to the possession of the property described in the bill of sale, or chattel mortgage, to him, and demanded the same of the plaintiff, and the plaintiff was apparently advised at that time that Hays had a right to take possession of the property, and. accordingly delivered the same to him, but took an account of every article delivered to Hays. Templeton set forth the property so taken by Hays in the inventory made and tiled by him as assignor, with this memorandum added: “ The above goods are held by Daniel Hays as per bill of sale to secure endorsed paper. Bill of sale dated February 19th, 1895.”

The trial court found, and I think the evidence sustains it in that finding, that the plaintiff was at that time ignorant of the facts relating to the claim of Hays, and believed in good faith that the latter had a right to the possession of the property mentioned in the bill of sale.

Thereafter Templeton appears to have been examined in supplementary proceedings, when plaintiff became cognizant of the facts in relation to Hays'’ claim; he thereupon, about the 21 st day of May, 1895, demanded possession of such property from Hays, which was refused.

In the meantime a judgment had been recovered against Temple-ton by some of his creditors, and an execution thereon placed in the hands of the defendant Palmer, as sheriff of Fulton county; he made a levy upon such personal property and took possession, and refused to deliver the same to plaintiff upon demand, but claimed to possess the same by virtue of his levy under such execution, declaring the same to be the property of Templeton.

The court has found, and I think the evidence sustains it, that, at the time of the execution and the delivery to the appellant Hays of the mortgage and bill of sale, or chattel mortgage, on the 19th day of February, 1895, neither Hays nor Templeton contemplated an assignment by Templeton for the benefit of creditors, nor deemed that the same was imminent; and further finds that the assignment for the benefit of creditors was no part of any scheme contemplated by the assignor or the mortgagee to benefit the said mortgagee in any manner, nor as a. protection to any fraud, in fact or in law, respecting the giving of the said mortgage, bill of sale, or chattel mortgage, or the retention of either of them from the records.

The contention is made here, upon the part of the appellants, that the assignment was fraudulent and void, and that, therefore, the plaintiff, as assignee, cannot maintain this action.

To set aside an assignment upon the ground of fraud, the evidence must establish a fraudulent intent on the part of the assignor at the time of the execution of the instrument, and that fraudulent intent must be proved; it will not be presumed. (Shultz v. Hoagland, 85 N. Y. 464.)

And where the instrument and the acts of the parties are fairly capable of a construction consistent with innocence and the general rules of law, they should be given that construction in preference to one which would impute a fraudulent intent, or defeat the general intent and purpose of the conveyance. The instrument must be interpreted according to the intent of the parties, and, if possible, such a construction given to it as will sustain and not defeat it. (Roberts v. Buckley, 145 N. Y. 215.)

The principal acts relied upon to show fraudulent intent are the execution and giving of the real estate mortgage and the bill of sale or chattel mortgage to Hays on the nineteenth of February, with the understanding that they were not to be placed upon record, and that the assignor should continue in possession of the property and merchandise, and continue to deal with them as before, coupled with the fact that, after the assignment was made, Hays was permitted to take possession of the property described and covered by his bill of sale, or chattel mortgage.

The bill of sale or chattel mortgage was undoubtedly void as against creditors. (Mandeville v. Avery, 124 N. Y. 376; Potts v. Hart, 99 id. 168; Stephens v. Perrine, 143 id. 476.)

But conceding the bill of sale or chattel mortgage to be void as against creditors, or even fraudulent, that does not necessarily avoid the assignment, although it may be considered in determining whether there was any fraud in the assignment itself. (First Nat. Bank v. Wood et al., 86 Hun, 491; Loos v. Wilkinson, 110 N. Y. 195.)

And in considering it as merely evidence of fraud in the assignment, we must take into consideration the circumstances under which the bill was made, and whether it had any connection with the assignment itself.

It appears from the evidence in this case, and the court has found, that at the time of the execution of such bill of sale, or chattel mortgage, neither party considered an assignment imminent, and it was not executed and delivered in contemplation of any future assignment; and the further fact that, upon the eve of making the. assignment, the assignor refused to deliver to Hays a bill of sale in. place of it, under which he might take immediate possession of the-property. The circumstances attending the interview at that time between Templeton and Hays show rather that the assignment so-made was in antagonism to Hays’ interest under his bill of sale, or chattel mortgage, rather than in aid of it.

The subsequent delivery by the plaintiff, as assignee of Temple-ton, to Hays of the property described and covered by the bill of sale, or chattel mortgage, appears to have been made by the assignee in good faith and under the impression and belief that Hays was entitled to the same, and not made for the purpose of aiding and assisting in any scheme to hinder, delay or defraud the other creditors of the assignor, or to commit any fraud upon the assignment itself.

The assignment having been properly executed, and apparently in good faith, and the assignee having taken possession of the property under the assignment, his subsequent act in delivering it to> Hays, or permitting him to take possession of it, cannot be held to invalidate it. (Hardmann v. Bowen, 39 N. Y. 196.)

The bill of sale or chattel mortgage being void, the title to the property covered by and described in it vested immediately in the assignee. (Tremaine v. Mortimer, 128 N. Y. 1.)

And it was not only the right but the duty of the assignee to assail such conveyance of the property, and regain possession of it or its proceeds, for the benefit of the creditors. (Matter of Cornell, 110 N. Y. 351.)

The judgment should, therefore, be affirmed, with costs.

All concurred.

Judgment affirmed, with costs.  