
    Commercial Bank of Rochester et al., Resp’ts, v. Thomas Bolton et al., Impleaded, etc., App’lts.
    
      (Supreme Court, General Term, Fifth Department,
    
    
      Filed June 21, 1895)
    
    1. Fraudulent conveyance—Payment oe debt.
    A debtor has the lawful right to transfer property to any, and less than all, of 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.
    
      2. Same—Intent—Evidence. /
    
    Where, in an action to set aside a conveyance as fraudulent, the question of the value of the property is material, entries in the books of the grantor, while admissible against him, are not admissible against the grantee, in order to establish a fraudulent intent in making the conveyance.
    Appeal from a judgment in favor of the plaintiffs.
    The plaintiffs are judgment creditors of the defendant Thomas Bolton. The Commercial Bank recovered judgments against him September 13, 1893, for $2,115.40 ; September 20, 1893, for $3,032.30: October 7, 1893, for 4,035.23 ; and October 30, 1893, $583.75. The plaintiff Menzo Yan Yoorhis recovered judgment against him October 21, 1893, for $5,185.74. Those judgments remain unpaid, except the sum of $2,863.66, which was realized by the Commercial Bank October 30, 1893, from collaterals. The Union Bank of Rochester recovered judgments against Thomas-Bolton September 21,1893, for $2,033.61; same day for $3,033.71. Frederick B. Hall recovered judgments against him November 1, 1893, for $1,025.48; same day for $4,048.64. Those judgments were assigned by Hall to the Union Bank. After executions against the property of Thomas Bolton issued upon all of those judgments were returned unsatisfied, these actions were brought to set aside a sale of property made by Thomas Bolton to the defendants Catherine Bolton and Sherwood, on the alleged ground that it was made in fraud of the creditors of the vendor; and Hermann Behn, to whom the defendant ' Sherwood sold his interest in the same property, was made a defendant- in both actions, and in the complaint it was charged that he purchased with notice of the alleged fraud, and that he was not a purchaser in good .faith. The complaints were dismissed as to Behn. As against the other defendants it was determined that the transfer of the property by Thomas Bolton to Catherine Bolton and Sherwood was in fraud of the creditors of the vendor, and subject to the right of such creditors to have the property applied to the payment of their debts; that the Commercial Bank was entitled to recover against Catherine Bolton and Sherwood $7,283.45, the amount of its judgements; that the plaintiff Van Voorhis was entitled to recover against them $5,439.55, the amount of his judgments ; and that the Union Bank of Rochester was entitled to recover against them $12,765.51, the amount of its judgments. Judgments were perfected accordingly. The property in question consisted of machinery, materials, stock, etc., in an establishment for the manufacture of shoes in the City of Rochester, in which business the defendant Thomas Bolton had for several years been there engaged.
    
      William F. Cogswell, for app’lts ; Walter 8. Hubbell and John Van Voorhis, for resp’ts.
   Bradley, J.

The alleged defense, and that which the defendants gave evidence tending to prove, in answer to the charge of fraud, was that the sale and purchase were made in good faith and for a consideration existing in the indebtedness of Thomas Bolton to the defendants Mrs. Bolton and Sherwood, respectively, and in payment of such indebtedness to them. It appears that Thomas-Bolton commenced the business in or about the year 1872, and continued until early in the year 1883, when, by reason of a personal injury received by him, he was advised to discontinue his-business, for a time at least. He then sold out to Gloodger and Hay lor for the consideration of $33,000. They paid him cash $14,000, and the residue by their notes on time. This,$14,000 lie-let his wife (the defendant Catherine Bolton) have, and it was deposited in bank and in securities in her name, and by them the fund, however invested, was then apparently treated as belonging to her. In the fall of 1883 he repurchased the business, and thereafter carried it on until the sale to the other defendants on the 2d day of August, 1893. This sale was evidenced by a written bill of sale made by the seller, accompanied by an agreement, in writing, of the parties to the sale, stating, among other things, that the consideration was an indebtedness to Sherwood of $11,744.56, all represented by promissory notes, except$1,492.42 in open account, and indebtedness to Catherine Bolton of $8,200, in two promissory notes, and a further indebtedness to her in a large amount of moneys loaned by her to him, and that he sold the property to her and Sherwood, and they purchased it in payment and satisfaction of his indebtedness to them. After Bolton repurchased the property, and in 1884, the plaintiff, Van Voorhis became his accommodation indorser, and continued to indorse his paper up to near the time of his sale in 1893, and the judgments recovered by the bank plaintiffs were upon notes so indorsed by him. And in the meantime Bolton obtained from his wife, for use in his business, her moneys and securities in which investments had been made by her. By written memorandum, of date January 31,1893, by them subscribed, they made what purported to be a statement and settlement of matters between them, the result of which, as there represented, was an indebtedness of Bolton to his wife of $18,196.96, which they adjusted at $18,000, and he agreed to and did convey to her some property, and transfer to her certain claims, amounting together to $4,166,79, thus leaving a balance of $13,833.21 due her. This constituted the apparent consideration of the sale to her of the undivided half of the property in question. A debtor has the lawful right to transfer property to any, 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; Bank v. Fitch, 48 Barb. 344; Loeschigk v. Hatfield, 5 Rob. (N. Y.) 26; 51 N. Y. 660; Hale v. Stewart, 7 Hun, 591; Murphy v Briggs, 80 id. 446. The fact and amount of the liability of Bolton to Sherwood are not seriously questioned.

The trial justice did not deem it necessary to find, and therefore -did not consider the question, whether or not the amount before mentioned as per their adjustment, due from Bolton to Bis wife, was a subsisting indebtedness to her. He did find that the amount of the debts which Bolton owed to Mrs. Bolton and Sherwood was very much less than the value of the property transferred to them. He also found that the transfer was made to hinder, delay, •and defraud the plaintiffs in the collection of their debts, and that Mrs. Bolton and Sherwood were aware of such fraudulent intent, participated in it, and accepted the transfer to enable him to consummate such fraudulent purpose. If this conclusion was without reference to the question of the amount of the consideration, and had the support of evidence, the latter question was unimportant for the purposes of the relief sought by the action. Billings v. Russell, 101 N. Y. 226; Baldwin v. Short, 125 N. Y. 553; 36 St. Rep. 138. In 1883, when Bolton gave his wife the $14,000, and it was placed to her credit in the bank, he was solvent, and at liberty to vest title in her to the fund. She evidently, in lending him her money, and the securities in which some of it was invested, was governed by his desire in that respect, and it may, in view of his relation to her, be assumed that she acted on his advice in taking the transfer of the property. For some years prior to the time of his transfer in question of the property, Bolton's indebtedness from time to time increased, and was represented largely by his notes, indorsed by Yan Yoorhis, to whom he transferred accounts of his customers as collateral. The customers were not advised of the transfers of the accounts, and Bolton was permitted by Yan Yoorhis to collect them and make use of the proceeds in his business. At length, and shortly before August, 1893, Yan Yoorhis advised Bolton that he had concluded to have the accounts ■which were and should be taken as collateral paid to him or to the banks where the notes were held. This it seems was deemed by Bolton embarrassing to him, as he depended much upon collections for current expenses. The depression in trade for some time had been and was such that he deemed it necessary to have all the resources of his business to maintain it. He thereupon consulted the defendant Sherwood, who was also his creditor, and stated to him that unless Yan Yoorhis permitted him to collect the accounts as he had done he should sell out the property and business, and proposed to make the sale in that event to him and Mrs. Bolton. His consultations with Van Voorhis finally, as evidence tends to prove, resulted in the requirement of the latter that the accounts should be paid to him or into the banks, and applied upon the notes indorsed by him. This precipitated the sale which was made August 2,1893. While Sherwood was not pressing Bolton, he evidently had become somewhat anxious about his own matter, and his leading object in becoming the purchaser was to get payment of BoltoiVs liabilities to him. There was, however, a state of facts and circumstances disclosed by the evidence which permitted the inference that the sale to Mrs. Bolton and Sherwood was contemplated and made with a view to some ultimate benefit to the seller in relation to the plant and business, and that of such expectation on his part the purchasers were advised before and when the sale was made by him to them. Such relation of confidence with a view to some future advantage to Bolton, if such was contemplated, was prejudicial to the legal rig 1 its of the plaintiffs as his creditors, and, as such, fraudulent as against them, although the main purpose of the purchasers was to secure or obtain the payment of the debts due them.

The view here taken is that whether or not the sale 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 of the trial justice to determine, and his 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. He had annually for some years furnished to Van Voorhis statements of his assets and liabilities. hile the later ones had shown much less balances in his favor than the earlier ones, that of June, 1893, showed a balance of resources over liabilities of $25,550.46. There was some evidence on the part of the defendants tending to prove that such statement was incorrect, and that his resources were much less than his liabilities, and not equal in arnount to the indebtedness, béfore mentioned, to Mrs. Bolton and Sherwood. The trial justice, however, found that the value of the property was $35,000. He also found that the consideration, which was $13,952.01, of the sale made by Sherwood to Behn on August 15, 1893, was not inadequate, that the sale was of all of Sherwood’s interest in the property which had been transferred to him by Bolton except certain accounts, which before then had been collected, and a considerable amount of the stock which had by Sherwood been made up and sold. By reference to his opinion it seems that the trial justice, in the process by which he illustrated that the value of the property was considerably reduced when Sherwood sold to Behn, assumed that Sherwood had received payment for the $7,400 of manufactured goods he had shipped to customers before the sale to Behn, and winch, less the expense to him incurred, amounted to $5,400, and that he also had the benefit of $4,000 of accounts transferred by Bolton, thus reducing the property $9,500' in value during the time intermediate the two sales, and giving adequacy to the consideration of the sale by Sherwood of his-interest to Behn. The evidence does not seem to warrant the conclusion that the value of the property was in that manner, to such extent, reduced within that time. The evidence on the subject is to the effect that the bills for goods shipped during the time between the two sales, and the accounts transferred by Bolton to his wife and Sherwood, remained unpaid, less about $300, at the time of the sale to Behn, that Sherwood’s interest in them, as in the other property, was transferred in that sale to him, and that during that time Sherwood paid out in and about the business $2,698, and received $444,18, leaving a balance of $2,253.80 to his credit. These facts are mainly represented by the evidence given by Sherwood, and are to some extent corroborated by the evidence of the bookkeeper. While their relation to the action and to the business was such as to put their credibility in question, we find no evidence to the contrary in the record. But error cannot properly be predicated upon incorrect statements in the opinion, appearing to have been made in the process of deduction of facts. Reference must be had to the facts as found in the decision, and if those which are material to the result have the support of evidence the conclusion may in that respect be sustained.

It is true that exception was taken to the finding on the subject of the receipts from goods shipped and from accounts transferred to Mrs. Bolton and Sherwood; but that finding has no essential bearing upon the issues between the parties to this controversy. The misapprehended fact, that the value of the property had been reduced by taking out of it $9,500 before the sale to Behn. may have led to the conclusion that the consideration of the sale to him. was not inadequate. This was the only material or available-bearing of that fact, and it does not concern the remaining parties to the record.

The more serious qnestion arises upon exceptions taken to the reception of evidence which may have led to the conclusion that the property transferred to Mrs. Bolton and Sherwood had the value of $35,000, and that the consideration of the sale was inadequate. A witness on the part of the plaintiffs went to the-factory in September or October, 1893, with a view of ascertaining the value of the property transferred by Bolton to the other-defendants on August 2, 1893. He there found the book containing the statement called “inventory,” made by Bolton or by his direction June 15, 1893, before mentioned. The book was offered and received in evidence for the purpose of proving that the value of the merchandise as there represented was at that time $8,934*09. The sales book, cash book, and ledger of Bolton were also offered and received in evidence, and from those books .the witness stated or read, as it there appeared, that after June 15, 1893, and prior to the 2d day of August following, the amount of merchandise purchased was $11,400.' the amount of cash paid for labor, $5,100, and the amount of new accounts charged, $8,500,. making together $33,934.09, which, with the estimated value of the machinery, fixtures, furniture, lasts, dies, and patterns, made $43,354.22, from which he deducted the amount of the accounts which had been transferred to Van Voorhis, $5,003.62, leaving a balance of $38,350.60, thus represented as the value of the property sold and transferred by Thomas Bolton to Mrs. Bolton and Sherwood. The fact, so assumed, that the merchandise on hand June 15th may not have been reduced by the sales during that time is not very apparent. That, however, is not important for the purposes of the questions here presented. When those books were severally offered in evidence, objections were taken by the defendants Mrs. Bolton and Sherwood to the reception of them as evidence against them, on the ground that the entries contained in the books were hearsay evidence, and, as against them, incompetent. The objections were severally overruled, the books received in evidence, and those two defendants excepted. Those entries in the books were in their nature the declarations of Thomas Bolton, made or caused to be made by him before (so far as appears) any sale to the other defendants was contemplated. They were admissible against him as bearing upon the question of his intent to defraud his creditors other than those to whom he made the sale. Fraudulent intent on the part of a vendor is sufficient to render the sale ineffectual as against his creditors, unless the vendee is a purchaser for value, and when the fraudulent intent of the vendor is shown the burden is cast upon his vendee to prove that he is a purchaser for a valuable consideration. 2 Rev. St. p. 137, §§ 1, 5; Stavin v. Kelly, 88 N. Y. 418. But the declarations of the vendor which may merely tend to impute such intent to him are not admissible as against his vendee. The intent alone of the former, in fraud of his creditors, is effectual to invalidate his sale as against them, when it does not appear that the sale was for a valuable consideration. The entries in question, as they appeared in Bolton’s books, were his ex parte declarations, and were in no sense competent as evidence against the other défendants, and their exceptions to the reception of the entries as evidence against them were well taken. Truax v. Slater, 86 N. Y. 630; Bush v. Roberts, 111 N. Y. 278; 19 St. Rep. 122; Baldwin v. Short, 125 N. Y. 553; 36 St. Rep. 138; Flannery v. Van Tassel, 127 N. Y. 631; 37 St. Rep. 228; Flagler v. Wheeler, 40 Hun, 125; Flagler v. Schoeffel, id. 178. The rule which gives admissibility to the declarations of one of several persons as evidence against all of them is applicable when they are united in a conspiracy, and the declarations are made in aid of the common purpose. Apthorpe v. Comstock, 2 Paige, 482; Dewey v. Moyer, 72 N. Y. 70. Such was the case of Loos v. Wilkenson, 110 N.Y. 195; 18 St. Rep. 110, where it was held that the declarations of one of the defendants were admissible against all of them, because they were in part the means used to accomplish the fraudulent scheme then in progress, and in which all of the defendants were united. The reason of that rule has no application to the question in the present cases, in relation to the declarations of Bolton as represented by the entries made in his books when they appear to have been made. In Brisbane v. Pratt, 4 Denio, 63, the declarations of the former holder of a promissory note were treated as admissible against the plaintiff, because it was held that the latter, as such party, represented the interest of the person whose declarations were in question, and therefore it was against the party in interest that the evidence was offered. That case in some of its features was questioned and practically overruled in Janes v. Chalmers, 6 N. Y. 209. In Van Sachs v. Kretz, 72 N. Y. 548, it was held that the declarations of a bankrupt, made before his bankruptcy, were admissible in support of a claim against his.estate, for the reason that the relation of the assignee in bankruptcy was that of representative of the bankrupt. And in Kennedy v. Wood, 52 Hun, 46; 22 St. Rep. 132, that doctrine was applied to an assignee of a voluntary assignment for the benefit of creditors of the assignor. It is unnecessary, for the purposes of the present case, to inquire whether or not the rule in such cases should be analogous. Vidvard v. Powers, 34 Hun, 221; Bullis v. Montgomery, 50 N.Y. 352. There is no opportunity, upon the evidence, to bring those entries in the book within any purpose common to the defendants, or to apply to them the rule of res gestee. They were made before the sale and purchase appear to have been had in view by the parties. The question, therefore, is whether it is reasonable to assume that the purchasers may have been prejudiced by the introduction of such evidence against them.

As has already been observed, there was evidence tending to prove that the sale was made,'and the property taken in payment of debts owing by the vendor to the purchasers. That being so, the purchase was for a valuable consideration, within the meaning of the statute. Murphy v. Briggs, 89 N. Y. 446. The value of the property was a legitimate fact bearing upon the main issue ; and those entries in the books apparently constituted the evidence upon which it was found by the court, as against the purchasers, that the consideration was inadequate. It is true that in respect to the items of amount of cash paid for labor and salaries ($5,100), and of new accounts charged ($8,500), there was some other evidence to. the same effect. But no other evidence in the record tends to prove anything like the amount of merchandise on hand between June 15, and August 2, 1893, as that indicated by the entries in the books. And, in view of the fact which that evidence tended to prove, it cannot be seen that the result reached by the trial court, as against Mrs. Bolton and Sherwood, may not have been and was not in some sense attributable to it, although it possibly may have been controlled wholly by other considerations. The exceptions to reception of such evidence against those two defendants were well taken, and the error such as to require the direction of a new trial as to them.

The further question, relating to the nature and form of the judgments directed against those defendants, is not considered on this review. If that question had been reached, and any correction found to be necessary, it could have been accomplished by modification.

There was no error as against the defendant Thomas Bolton. The judgments against the defendant Thomas Bolton should 'be affirmed, and as to the other defendants reversed, and new trials granted, costs to abide the final award of costs.

All concur.  