National Union Bank of Dover v. Reed

NATIONAL UNION BANK OF DOVER v. REED. N. Y. Common Pleas, General Term; January, 1891. zr. Pleading; intent to defraudl\ An intent to defraud is properly pleaded by an allegation of such intent without alleging any fact to show the intent. 2. The same ; actimi to set aside assignment.} Nothing more than an intent to defraud creditors is requisite to defeat an assignment. It is error, therefore, in an action to set aside an assignment, to dismiss a complaint as if for a defective averment of fraud, which alleges, not fraud generally, but thp specific fact of an intent to defraud. Appeal from an order dismissing the complaint upon the ground that it does not state facts to constitute a cause of action; also from a judgment entered upon said order. The action was brought by the National Union Bank of Dover, New Jersey, to set aside an assignment for the benefit of creditors made by the defendant Marvin T. Reed to the defendant Leonard S. Haward. The complaint after setting forth the assignment, plaintiff’s judgment, and unsatisfied execution thereupon, contained the following paragraph: “ That the said alleged assignment was made in bad faith, and with intent to hinder, delay and defraud creditors.” Whereupon the plaintiff asked that the assignment be set aside as fraudulent. At the trial the defendants moved to dismiss the complaint. Their motion was granted upon the ground that the above paragraph of the complaint stated a conclusion of law merely, and did not set up any issue of fact to be determined by the court. This appeal was argued at a previous general term, but the court being divided a reargument was directed, and the case thus comes before this general term. The opinions rendered on the first argument were as follows: The cases make a distinction, which practitioners have not «infrequently overlooked, between fraud and the intent to defraud. Fraud is, for the purposes of pleading, a conclusion, and to make out a case of fraud the pleader must allege the facts constituting it. A mere allegation that in a specified transaction the defendant was guilty of fraud, is a mere conclusion, and if in one sense it is not a conclusion of law, it is nevertheless treated on a question of pleading precisely as if it were, and such an allegation is bad on -demurrer. If the pleading is sustained, it must be because the facts which justify that conclusion are also alleged. The maxim that fraud is a question of fact for the jury, is of no avail to secure respect for it as an allegation of fact in pleading. This may be thought an anomaly; and if the rules of procedure were controlled by the logic of metaphysics, it would justly be so regarded. But there are quite sufficient reasons for the distinction in legal reasoning. Fraudulent intent, however, or the intent to defraud, is quite another question. Intent, however fraudulent, is not in itself fraud either in law or in equity. There may be fraud—constructive fraud—without fraudulent intent. There may be fraudulent intent without fraud actual or constructive. This intent then is frequently an element in fraud, just as the reliance of the other party on the false representations is an element in fraud, although neither alone constitutes fraud. Each is a fact, not a conclusion of Jaw; each when relevant is one of the facts constituting fraud, and therefore is an issuable fact, which may properly be alleged simpliciter without stating the evidence which goes to substantiate it. Each is a mental state or condition, incapable of direct proof except by the testimony of the person himself, but capable of indirect proof by circumstantial evidence, declarations, admissions, etc. Hence a witness cannot testify that he was defrauded, but may testify that he relied on what was said. He cannot testify that he did not defraud, but he may testify that he had no intent to defraud. This illustrates, because it states in another form, precisely the distinction established as to pleading. [MAJORITY — J. F. Daly, J. Larremore, Ch. J. Pryor, J.] J. F. Daly, J. When the motion to dismiss upon the pleadings was made, the only allegation of a cause of action with respect to the assignment was, that it was “ in bad faith and with intent to hinder, delay and defraud creditors.” This was a general allegation of fraud, and was of no value as stating a cause of action (Wood v. Amory, 105 N. Y. 278 ; Cohn v. Goldman, 76 Id. 284). The judgment should be affirmed with costs. Larremore, Ch. J. This action was brought to set aside an assignment for the benefit of creditors made by the defendant Reed to the defendant Haward. The complaint alleged a non-compliance with the requirements of the assignment act, claiming that the instrument was therefore void on its face, and also that the “ said alleged assignment was made in bad faith and with intent to hinder, delay and defraud creditors.” On the trial plaintiff waived the first point as to the assignment being void on its face, and defendant therefore moved for judgment on the pleadings on the ground that the allegation as to fraudulent intent was a mere conclusion of law, and that the complaint accordingly did not contain facts sufficient to constitute a cause of action. Under the authorities we think the trial judge erred in granting such motion. In Hastings v. Thurston (18 How. Pr. 530), it was held, that in an action to set aside an assignment for creditors, an allegation similar in purport to the one before us was a statement of fact and that the complaint was not demurrable (see also Mott v, Dunn, 10 How. Pr. 225). The language of DANIELS, J., in Wilcox v. Payne (28 State Rep. 712, 716), would seem to indicate in the opinion of the general term of the supreme court in this department a general allegation of fraudulent intent in making an assignment was to be looked upon as an allegation of fact. “ Further leave during the trial was made to amend the complaint, but not in any material respect. For as the plaintiffs had alleged the assignment to have been •actuated by a fraudulent intent, what was in this manner added to the complaint would probably be admissible as evidence without it, in support of that general •allegation.” In the still more recent case of Durant v. Pierson (29 State Rep. 510), the same view was taken, the court even going so far as to say that to state facts •on which the plaintiff relied to establish fraudulent intent would be to set forth evidence in a pleading. The principle upon which these cases turn seem to be that fraudulent intent constitutes the very gist of the •action, and although whether a man acted with fraudulent intent can often be determined only inferentially, the averment is still one of fact. There is nothing in the case of Cohn v. Goldman (76 N. Y. 284) to necessitate a departure from the rule which has prevailed in the lower courts as to the proper and sufficient form of pleading in actions of this character. The complaint there averred that the defendants “ did by connivance, conspiracy and combination, cheat and defraud the plaintiff out of eight bales of Havana tobacco.” There is nothing to show how the alleged cheating and defrauding were consummated, whether for instance, defendants stole the property or induced others to steal it, or by misrepresentations procured its stoppage in transitu on its way to plaintiff. No facts were set up in such complaint, and the view the court of appeals seems to have taken was, not that it was repugnant to the rule, because alleging a conclusion of law, but that it was to be disregarded as meaningless. In the case at bar the two essential facts for the cause of action are the making of the assignment and fraudulent intent, and they are both alleged. We, therefore, think that the complaint was sufficient, and that the judgment must be reversed, with costs. Geo. Carlton Comstock, for plaintiff and appellant. I. An intent to defraud in an action in equity to set aside a conveyance is a fact to be proven and not a conclusion oi law (citing Seymour v. Wilson, 14 N. Y. 569; Wilson v. Forsyth, 24 Barb. 105; Syracuse Chilled Plow Co. v. Wing, 85 N. Y. 426; Birdseye’s Rev. Stat. 1237, § 22; Billings v. Russell, 101 N. Y. 226, 234; Storm v. Kelly, 88 Id. 421; Platt v. Mead, 9 Fed.. Rep. 98 ; Wilcox v. Payne, 28 State Rep. 716; Durant v. Pierson, 29 Id. 540.) William F. McRae, for defendant and respondent.— I. The complaint was properly dismissed. The bold allegation that the assignment was made “ in bad faith and with intent to hinder, delay and defraud creditors,” was the assertion of a mere conclusion (citing Code Civ. Pro. § 481; Cohn v. Goldman, 76 N. Y. 284; Wood v. Amery, 105 Id. 278; McMurray v. Thomas, 5 How Pr. 14; Reed v. Guano Co., 47 Hun, 410; Butler v. Viele, 44 Barb. 166; Strong v. Epstein, 14 Abb. N. C. 322; Hammon v. Earle, 58 How. Pr. 437; Coulson v. Whitney, 14 Abb. N. C. 62). II. The case is an equitable action, and it has always been a rule of pleading in a court of equity that facts must be specially and fully set forth (citing James v. M’Kernon, 6 Johns. 543; Kelsey v. Western, 2 N. Y. 506; Chautauqua Bank v. White, 6 Id. 237; Clark v. Post, 113 Id. 27 ; Cook v. Warren, 88 Id. 40). Pryor, J. Appeal from order dismissing complaint and from judgment entered on the order. Action to set aside an assignment for the benefit of creditors on the ground that it was made with intent to hinder, delay and defraud creditors. The assignment was incorporated in the complaint. At the trial a motion by defendants was granted, dismissing the ^complaint for insufficient statement of a cause of action. The contention of defendants and the ruling of the court were that an allegation in the complaint “ that the said assignment was made in bad faith and with intent to hinder, delay and defraud creditors ” was such an essentially defective averment of fraud as to invalidate the pleading and whether or not this be a true proposition of law, is the only question for review. Embodying an immemorial rule of common law, the Code prescribes that a complaint “ must contain a statement of the facts constituting the cause of action.” By the imperative import of this language, facts must be stated, and not conclusions of law. ■ But what facts ? Not evidentiary facts; that is, facts tending to prove the ultimate facts in litigation, but those ultimate facts themselves ; in other words, facts “ constituting the cause of action.” Now, what is the fact that invalidates an assignment ? By the express terms of the statute that fact is “ an intent” on the part of the assignor “to hinder, delay or defraud creditors.” Nothing more than this intent is requisite to defeat an assignment; this intent alone is fatal to an assignment. The intent to defraud is a fact—a' subjective fact, indeed—but still as essentially a fact as anything cognizable by the senses. In other actions a mental condition is a fact—an essential fact, too—as, for example, an evil motive in malicious prosecution. An intent to defraud is so much a fact that a party to whom it is imputed may testify to its existence, or in disproof of it (Forbes v. Waller, 25 N. Y. 430; Seymour v. Wilson, 14 Id. 567)—is so much a fact that, in all cases of conflicting evidence, it must be submitted to the jury, and the verdict of the jury upon it is conclusive (Tilson v. Terwilliger, 56 N. Y. 273; Tallman v. Kearney, 3 T. & C. 412 ; Miller v. Lockwood, 32 N. Y. 293.) And not only is the intent to defraud a fact, but in a suit to avoid an assignment it is the essential fact in the cause of action—a fact without an allegation of which the complaint is defective (Shultz v. Hoagland, 85 N. Y. 464, and cases infra). So,, conversely, it is a perfect defense to such an action to show that the assignment was made in good faith and without intent to defraud (Tallman v. Kearney, 3 T. & C. 412). The intent to defraud, being the single and the all-sufficient fact requisite to defeat the assignment, it results that any allegation of fact to show that intent would have been a pleading of evidence, and so inadmissible. Upon principle, therefore, the allegation of fraud in the complaint was sufficient to support the action. And so are the authorities. In Beardsley v. Foster (36 N. Y. 565), the court of appeals held a complaint insufficient because it did not directly aver that the transfer was made with intent to hinder, delay and defraud, but, instead, did what defendants here say plaintiff should have done, namely, set out the details, of the alleged fraudulent arrangement (Jessup v. Hulse, 29 Barb. 539; Hastings v. Thurston, 10 Abb. Pr. 418; Mott v. Dunn, 10 How. Pr. 225, 231; Durante v. Pierson, 29 N. Y. State R. 510). None of the cases cited by respondent holds a different doctrine from that maintained in this opinion. Plainly enough, in an action of deceit, it is not sufficient to allege a “ fraudulent representation ” without more ; but the representation must be set forth that the court may see whether it be calculated to impose upon plaintiff. So, to impugn any transaction, a bare, general allegation of fraud is nugatory, because fraud is an inference from particular facts. But the statute makes an intent to defraud creditors, the premise from which the law deduces the invalidity of the assignment; the fraudulent intent is the factthe invalidity of the assignment is the legal conclusion. If here the allegation were generally that the assignment is fraudulent, then the cases cited would be analogous ; but the complaint avers, not fraud generally, but the specific fact of an intent to defraud; and this is enough to support the action. The judgment must be reversed, with costs to abide the event. Allen, P. J., and Bischoff, J., concur. Note on the Distinction in Pleading and Evidence between Fraud and Intent to Defraud.