DANZIG et al. vs. ISADOR SAKS

DANZIG et al. vs. ISADOR SAKS. Assignments; Fraud; Practice. 1. Where ,a preference in a deed of assignment for the benefit of creditors is made under a mistake as to the legal right of the party preferred to claim as a creditor, the assignment, if not otherwise fraudulent, is not thereby rendered void, but the mistake must be corrected. 2. Where, in the judgment of the court, a verdict, if found for the plaintiff, should be set aside, the court is justified in withdrawing the case from the jury. 8. Where the financial condition of a firm is such that an assignment for the benefit of creditors should be made, and is accordingly made, the fact that immediately before the assignment, the members of the firm drew out a large amount of cash which they appropriated to their individual uses, does not render the assignment void, if it be in all other respects honestly made. At Daw. No. 28,345. Decided October 19, 1891. The Chief Justice and Justices Cox and James sitting. Motion for a new trial on a bill of exceptions. Judgment affirmed. The Facts are stated in the opinion. Messrs. C. C. Core and Deon TobrinEr for plaintiffs; If the intent of the assignor in the execution of the deed is fraudulent the deed is void. The intent of the assignee or preferred creditors is immaterial. The statute of 13 Eliz., C. 5, which declares “clearly and utterly void all conveyances” devised and contrived of malice, fraud, &c., to “the end, purpose and intent to delay, hinder or defraud creditors and others,” is in force in this District. Sexton vs. Wheaton, 8 Wheat., 242; Catchcart vs. Robinson, 5 Peters, 279; Mattingly vs. Nye, 8 Wall., 372; Walter vs. Lane, 1 MacA., 280; Offutt vs. King, 1 MacA., 317. There is a distinction, however, between mere voluntary conveyances and conveyances founded on a valuable consideration. In voluntary conveyances the intent of the grantor is the criterion, while in the conveyances founded upon valuable consideration the grantee must be chargeable with knowledge of the grantor’s intent. Waite on Fraudulent Conveyances, Sec. 200; Bump on Fraudulent Conveyances, 267 (3d ed..) Savage vs. Knight, 92 N. C., 499; Beecher vs. Clark, 12 Blatch., 259; Laughton vs. Harden, 68 Me., 213; Prewitt vs. Wilson, 103 U. S., 24. An assignment for the benefit of creditors is a voluntary conveyance ; the assignee is not a purchaser for a valuable consideration. Clements vs. Berry, 11 How., 409; Pierson vs. Manning, 2 Mich., 450; Flanigan vs. Lampman, 12 Mich., 60; Farrington vs. Sexton, 43 Mich., 454; Gere vs. Murray, 6 Minn., 223; Bennett vs. Ellison, 23 Minn., 254; Seaving vs. Brinkerhoff, 5 John Ch., 332; Griffin vs. Marquardt, 17 N. Y., 29; In re Fulton’s Estate, 51 Pa. St., 211; Stickney vs. Crane, 35 Vt., 94; Willis vs. Henderson, 4 Scam., 19; Frow vs. Downman, 11 Ala., 885; Clough vs. Hart, 8 Kan. 325; Craft vs. Bloom, 59 Miss., 76; Bank vs. Payne, 86 Ky., 446; Savage vs. Knight, 92 N. C., 499. Nor can the preferred creditors be considered bona fide purchasers for value. They paid no consideration for the execution of the deed, nor did they surrender any security or release any debt due them, or assume any obligation whatsoever. If the deed were set aside they would be in no worse position than before its execution. Bank vs. Bates, 120 U. S., 564. The intent of the assignor in making the assignment is the material consideration in determining as to its validity in cases where it is assailed as fraudulent, and the prevailing rule is that a fraudulent intent on the part of the debtor alone is sufficient to avoid the assignment without proof of an}r notice of or participation in the fraud, on the part of the assignee or creditors. Waite on Fraudulent Conveyances, Section 319. The only intent which will determine the validity of an assignment is that of the assignor at the time it is made, and contemporaneous fraudulent acts are evidence of this intent. Adler vs. Ecker, 1 McCrary, 257. An assignee in trust for creditors is not a purchaser for a valuable consideration, however innocent he may be of participation in the fraud intended by the assignor. The uprightness'of his intention, therefore, will not uphold the instrument, if it would otherwise for-any reason be adjudged fraudulent and void. Griffin vs. Marquardt, 17 N. Y., 28; Van Heusen vs. Radcliff, 17 N. Y., 582; Starin vs. Kelly, 88 N. Y., 421; Mead vs. Phillips, 1 Sandf. Ch., 85. The statute is “every conveyance made with intent,” &c. In the face of this statute it will not do to say that honesty of purpose in the assignee has any effect whatever on intent of the assignor, and this latter is the intent with which the assignment is made. He makes the assignment and no one else, and the making is his and no one else’s. There is no need of referring to authority on such a point, but it has been so decided.” Wilson vs. Forsyth, 24 Barb., 120. In assailing a voluntary assignment for the benefit of creditors it is important only to establish the fraudulent intent of the assignor, and when that has been established the assignment may be set aside. Loos vs. Wilkinson, 110 N. Y., 209. It is the intent and purpose existing in the mind of the insolvent debtor, ,at the time of making the assignment, to delay, hinder, defeat and defraud his creditors that vitiates his assignment and renders it void. Savage vs. Knight, N. C., 493; Ruble vs. McDonald, 18 Iowa, 496; Pierson vs. Manning, 2 Mich., 450; Stickney vs. Crane, 35 Vt., 93; Bank vs. Payne, 86 Ky., 446; Flanigan vs. Lampman, 12 Mich., 60; Farrington vs. Sexton, 43 Mich., 454; Bennett vs. Ellison, 23 Minn., 242; Lesher vs. Getman, 28 Minn., 95; Kaiser vs. Hearenrick, 5 Kans., 202; Clough vs. Hart, 8 Kans., 325; Baldwin vs. Peet, 22 Tex., 715; Fuller vs. Ives, 6 McLean, 479. To establish fraud it is not necessary to do it by direct and positive evidence. Circumstantial evidence is not only sufficient but in most cases it is the only proof that can be adduced. It is sufficient if facts and circumstances are-proved from which a fraudulent intent may be inferred. Rea vs. Missouri, 17 Wall., 543; Bryant vs. Simoneau, 51 Ill., 327; Strauss vs. Kranert, 56 Id., 256. Very slight circumstances, apparently trivial and unimportant in themselves, when combined together "may afford an irrefragable proof of fraudulent intent. Waite on Fraudulent Conveyances, Sec. 224; Castle vs. Bullard, 23 How., 187; Hopkins vs. Surert, 58 Mo., 201; Kane v. Drake, 27 Ind., 31. It is fraudulent for the members of a firm to reserve moneys out of the firm assets for their individual use and families support when making an assignment. It is taking from their assets an amount of money which the creditors are entitled to, and within the authorities it is a fraudulent disposition of so much of their assets. Victor vs. Henlein, 34 Hun., 562; White vs. Fagan, 18 N. Y. Weekly Dig., 358; Globe Co. vs. Carhart, 67 How. Pr., 403. The appropriation by an insolvent firm of partnership property to the payment of the individual debts of one partner is not simply void, but is fraudulent and avoids the deed of assignment. It is, in effect, a gift from the firm to the partner, a reservation for the benefit of such partner or his creditors, to the direct injury of the firm’s creditors. Goodbar vs. Cary, 16 Fed. Rep., 317; Wilson vs. Robertson, 21 N. Y., 587; Menagh vs. Whitewell, 52 Id., 133; Keith vs. Fink, 47 Ill., 274; Ferson vs. Monroe, 21 N. H., 462; Hurlbert vs. Dean, 41 N. Y., 98; Vernon vs. Upson, 60 Wis., 418; Willis vs. Bremmer, Id., 622; Bump on Fraudulent Conveyances, 389; Burrill on Assignments, Secs. 210, 295. The fact that the firm execute the note for money previously loaned to an individual member does not make the note a partnership transaction, nor does the fact that the partner borrowing applies the fund in the payment of the partnership indebtedness. Lill vs. Egan, 89 Ill., 609; Ferson vs. Monroe, 21 N. H., 465. The fact that it was understood between the parties to the loan, that the money, after the loan was made, was to be used in the firm business, could not of itself create a liability upon the firm. Goodbar vs. Cary, 16 Fed. Rep., 318. The subsequent acts may reflect light back upon the original intent and help us discern that correctly. Schultz vs. Hoagland, 85 N. Y., 468; Lines vs. McGregor, 13 Allen, 179; Wilson vs. Forsythe, 24 Barbour, 121. Fraud may be imputable to the parties, either by direct co-operation in the original design at the time of its concoction, or by constructive co-operation from notice of it, and ■carrying the design, after such notice, into execution. Magniac vs. Thompson, 7 Pet., 394. Messrs. A.- S. Worthington and Job Barnard, for the defendant. If a conveyance be made by a debtor for the purpose of defrauding his creditors, and the grantee knew of and participated in the fraudulent intent, the deed is void as against the injured creditors; otherwise it stands against the world. Kohn Bros. vs. Clement, 38 Iowa, 589; Ford vs. Williams, 3d B. Monroe, 557; Beaurman vs. Van Buren, 44 Mich., 499; Holmes vs. Braidwood, 82 Mo., 615; Root vs. Reynolds, 32 Vermont, 139; Greenlow vs. Blung, 59 Texas, 124; Moline Wagon Co. vs. Ren, 14 Fed., Rep., 155; McLarrin vs, Thompson, 40 Me., 284; Hamilton vs. Staples, 34 Conn., 316; Banfield vs. Whipple, 14 Allen, 13; Bear’s Estate, 60 Pa. St., 430; Fraser vs. Passage, 53 Mich,, 551. An examination of these cases will show the clear distinction made between one who purchases the property of an insolvent debtor, and one who takes the property of an insolvent debtor in payment of a pre-existing debt. The former is termed “a volunteer” or a “mere purchaser;” while the latter, who is simply receiving payment of a just debt, cannot be guilty of fraud by that act, no matter what may be the intent of the grantor himself, and no matter even what may be the intention of the grantee, He may intend what he thinks to be a fraud, but what he does the law considers an innocent act. The question in this case is, what is the proper application of these well settled principles to the case where the insolvent debtor applies his property to the payment of some of his creditors to the exclusion of others, with intent, let us say, to hinder, delay and defraud such excluded creditors, when the conveyance is made, not directly to the creditors, but to a third person, who is to convert the property into money and pay it to the creditors according to their respective claims? Preferred creditors — indeed, all the creditors where there is a residuary gift to the creditors at large — are presumed to accept the assignment the moment it is made. Tompkins vs. Wheeler, 16 Peters, 118. Immediately upon the acceptance of the assignment by the trustee it becomes irrevocable. The slightest expression in the instrument purporting to secure to the grantor the right of revocation, for however brief as pace of time, invalidates the whole instrument. The law will not imply a provision which, if expressly inserted, would make it void. Burrill on Assignments, Chap. 27, sec. 361; Bump on Fraudulent Conveyances, 3d edition, page 380; Waite on Fraudulent Conveyances, sec. 358. And see the leading case on this subject of Riggs vs Murray, 2 Johnson, 565. Therefore, in legal effect, as soon as the assignment is made, the property belongs to the beneficiaries. The assignor and the assignee together cannot destroy, or in any way affect the rights of the creditors. If the assignee did wrong, or intended to do wrong, on the application of any creditor he may be removed and an honest man put in his place. Why, then, should not the question of whether the conveyance is made with intent to delay, hinder and defraud creditors; be decided upon the same principles which are universally applied where the property is given directly to the preferred creditors? That our contention in this regard is correct, is settled by a line of decisions of the Supreme Court of the United States in which each one of these decisions refers back to the preceding ones, or some one of them. The Supreme Court states in these cases, that it is laying down a general rule of law, and not deciding the law in any particular State. It is idle, therefore, for counsel on the other side to contend that these decisions refer to local laws inapplicable here; These cases in order are: Marbury vs. Brooks, 7 Wheat. 556. Brooks vs. Marbury, 11 Wheat. 78; Tompkins vs. Wheeler, 16 Peters, 118; Emerson vs. Senter, 118 U. S. 1; Peters vs. Bain, 133 U. S. 690. It is true that in Means vs. Dowd, 128 U. S. 280, Mr. Justice Miller intimates that at common law a conveyance is void under the statute of 13 Eliz., if the grantor alone intends to delay, hinder, or defraud his creditors. In the above case, this remark is made in speaking of the rule which the learned Justice assumed existed in the State of North Carolina, which, as he states, is to the effect that the grantee as well as the grantor must have a fraudulent intent. It is worthy of note as showing how little weight Justice Miller himself gave to what he was saying, that three years before, in the case of Savage vs. Knight, 92 N. C., 499, the Supreme Court of North Carolina clecided the law in North Carolina to be precisely opposite to what Justice Miller assumed it to be.' And it is obvious that from what has been above stated, that the same mistake was made in regard to the common law — the error as to the construction placed by the English courts upon the statute of 13 Elizabeth. It is, and always has been, admitted that the question whether the grantee’s intent can effect the conveyance, depends entirely upon circumstances. If it be a conveyance without consideration, whether in England or the several States of this Union, the courts agree that proof of notice to the grantee is unnecessary. This must be the class of cases Justice Miller had in mind when he was writing the opinion in Means vs. Dowd. But where the deed is made directly to the creditors, in fair payment of a pre-existing debt, no case can be found in England or the United States which holds that the conveyance is void because the grantor by it intended to defraud other creditors. That is in substance of the case here, and therefore the language relied upon by the counsel on the other side in Means vs. Dowd can have no bearing upon this case. ' There are many cases besides those decided by the Supreme Court of the United States which hold what we contend is manifestly the proper doctrine, and that is, that where an assignment is made for the benefit of creditors, a fraudulent intent on the part of the grantor alone will not vitiate the instrument, any more than it would vitiate it if the conveyance had been directly to the creditors, instead of to them through a trustee. Among other cases on this point, see: Truss vs. Davidson, 7 South. Rep., 812, Ala., 1890; Mills vs. Haynes, 40 Tenn., 331; Deering vs. Collins, 38 Mo. App., 73; State vs. Keeler, 49 Mo., 548; Wilson vs. Efler, 7 Cold., 32. And see Burrill on Assignments, Section 337. As to the talcing of the three thousand dollars just before the assignment was made, it is sufficient to say that that was a fraud on the assignment, and not a fraud in it. Why should creditors who are receiving payment of their just debts be required to withdraw their hands and allow these particular creditors — the plaintiffs in this case — to take the money which is about to be paid- to them, because, forsooth, the common debtors have kept some of their money to themselves? But it is useless to pursue this subject, because the point is adjudicated by the Supreme Court of the United States. Emerson vs. Senter, 118 U. S., 1; Estes vs. Gunter, 122 U. S., 450. , No pretense is made that any of the preferred debts were fictitious or improper; but it is urged as a matter of law, that the debt due to Mr. Rose was'for an individual obligation of Mr. Rohr, and should not have been assumed or paid by the firm. In answer to this, we only call attention to the evidence as shown in the printed record. That shows that Mr. Rose, to help the firm, undertook to borrow the $10,000, and became personally responsible for it to Hammerslough; that the firm agreed to pay it to Rose; and Rohr agreed to keep down the interest, that the money went into the firm’s bank account, and was paid out on firm debts. But if this was not a proper debt to be preferred; or even if it were a fraudulent or fictitious claim (which is not pretended), still that would in no way tend to prove the issue here in favor of the plaintiffs. The $2,500, directed to be paid Rose, would, in that.case, fall into the general fund, and be distributable by the trustee to the other legitimate purposes named in the deed of Assignment. Burrill on Assignments, Sec. x 17; Pinneo vs. Hart, 30 Mo., 561; Mackintosh vs. Corner, 33 Md., 607; Henderson vs. Pierce, 108 Ind., 462. In New York and California a fraudulent preference will, under their laws, make an assignment void; but even there a mistaken preference will have no such effect. Kavanaugh vs. Beckwith, 44 Barb., 195; Barroilhet vs. Fisch, 63 Cal., 462. [MAJORITY — The Chief Justice] The Chief Justice delivered the opinion of the Court: The plaintiffs sued Mayer & Rohr, retail merchants in Washington, on an account and recovered judgment. They then issued an attachment, and had it served on the defendant, as garnishee, with three interrogatories, the first two being questions usually asked garnishees, namely, whether the party served had property, money's, or credits of defendants, or knew of any such, and the third being a special question, asking him what moneys, if any, he held under a certain deed of assignment from the judgment defendants, dated December 27, 1887, which plaintiffs claimed was fraudulent and void. The garnishee answered the first two interrogatories in the negative, and the third by stating he still held some $6,300 as trustee under the said deed. The plaintiffs joined issue on the answer to the first and second questions, but admitted the answer to the third. On the trial of these issues in the Circuit. Court, after the evidence of the parties had been submitted to the jury, the justice presiding held as matter of law, that there was not sufficient evidence to authorize the case to be submitted to the jury and directed a verdict for the defendant. The evidence is set out in the bill of exceptions. Counsel for plaintiff maintained that there was sufficient evidence of fraud to justify a verdict for the plaintiff, or at least to require the submission of the case to the jury, and secondly, that it was unnecessary that the plaintiff should prove that the assignee had any knowledge whatever of any fraudulent purpose on the part of the assignor. The discussion of counsel chiefly relates to the second proposition as one of law, whether or not it is necessary in cases of this character that the assignee should have a knowledge of the fraudulent purpose and intent .of the assignor before a recovery can be had by the plaintiff who sues to set aside the assignment for fraud, and to convert the proceeds of the estate to the payment of his particular debt. We think that the decision of the second proposition is unnecessary, because clearly if the proof is not sufficient to justify a verdict for the plaintiff on account of fraud on the part of the assignor; or in other words, if the plaintiff has failed to prove a fraud to have been committed by the assignor in making the assignment, by such evidence as would justify a verdict, then there was no error in the action of the Circuit Court in taking the case from the jury, and in the view which we take of this case, it is readily disposed of upon that ground. In this assignment a preference is given for the sum of $2,500 to one Rose, who was the father-in-law of Rohr, one of the parties, and who it is claimed was not the creditor of the firm, but was the mere surety of Rohr to a party in the city of New York, from whom Rohr at the time of the formation of this partnership, in February, 1885, borrowed the sum of $10,000, and that while the firm had executed a note to Rose to indemnify him for having become the surety of Rohr for the sum of $10,000 ; that this in no manner constituted Rose the creditor of the firm ; that so far as he had any relation to either of the parties, either Rohr or the firm, he clearly was the creditor not of the firm, but of Rohr, and only entitled to the. rights of a creditor of the latter by reason of his being surety for him to the party from whom Rohr had borrowed the money. It is admitted by counsel for plaintiffs that even conceding that Rohr and not the firm was the debtor, and that the firm had no right whatever to prefer Rose because of the fact that he was the creditor of Rohr and not of the firm, yet, that does not constitute a case where fraud would be inferred; that it does not alone and by itself make the assignment fraudulent. It is worthy of remark that from the evidence it can hardly be inferred that there was any actual fraudulent intent on the part of either partner in making the preference to Rose. It would seem at most to be only a mistake as to legal right which, if so, would not be a ground for impeaching the assignment in this action, but would be corrected in a proper case. And so in relation to the circumstance that these parties, very shortly prior to the execution of the deed of assignment, took out of the firm quite a sum of money and appropriated it to their own use. It is conceded by counsel for plaintiff that this is not such a fraud as would make the deed of assignment for that reason fraudulent, but it is claimed to be a circumstance which the jury should have been allowed to look at for the purpose of inferring fraud in connection with other circumstances connected with this assignment. • We think the position of counsel for the plaintiffs as to these propositions may be conceded, that this was evidence and could not when it was offered properly be ruled out as irrelevant or immaterial; that these circumstances were not to be considered separately, but -were to be viewed in connection with all .the testimony in the case; and upon that sort of consideration the court was to determine whether or not there was sufficient evidence before the jury to justify a verdict. If in the judgment of the court, if the jury should for any reason find for the plaintiff, it would become the duty of the court to set aside thát verdict on a motion, for a new trial, the court would be perfectly justified in withdrawing the case from the jury. Without examining the evidence in detail we will refer to it somewhat generally. This partnership was formed in February, 1885. At that time money was borrowed by each of the partners through the aid of their relatives respectively. It appears, so far as we know, that the business was conducted regularly until the 1st of July, 1887, when an account of stock was taken, and it is shown that the stock had become reduced from $20,000 to $12,000, and that there was then an indebtedness of the firm shown of an amount more than equal to the capital stock. It is also shown that for three or four months prior to making the assignment on the 24th of December, 1887, the firm made large purchases of goods, and this, it is claimed, is a circumstance which the jury were entitled to consider for the purpose of inferring fraud. Now, in looking at the other evidence in the case, which we must not lose sight of in determining the question whether or not the Court erred in reaching its conclusion, we find this is a circumstance (which is clearly competent when the real question is, as in this case, whether the debtor purchased the goods creating the debt upon which the plaintiff’s judgment was rendered, with the intention not to pay for them but to appropriate them or the proceeds thereof, or through the instrumentality of an assignment to the payment of the claims of. more favored antecedent creditors) to wit, that there is no . evidence that Mayer & Rohr ever contemplated an assignment up to about the latter part of the- month of November, and then they consulted a prominent business man,- Mr. Saks, who ultimately became the assignee, and he advised them to consult their counsel. They did so. They consulted the firm of Edwards & Barnard, according to the undisputed evidence, laying before them all the facts of the entire situation as it was at that time. It is shown by the testimony of not only Mayer & Rohr but by that of Saks, Evans and Edwards, that at that time Mr. Edwards advised the firm not to make an assignment; that their situation was not such as demanded of them to do so; that there was a strong probability that they might be able to weather the storm, and avoid an assignment. Thereupon they proceeded with their, business. A short time after this they became aware that they were in further trouble. Some of their creditors were threatening attachments; and they again consulted Mr. Edwards, who upon full investigation a second time, advised them it was then proper to 'make an assignment. The assignment was executed on the day following this consultation. It appears that perhaps bn the very morning before they executed the assignment, they withdrew quite an amount of money from the firm, one of them some' $3,000, and one a little less than $1,000. Now, that the withdrawing of the money at this time was a fraudulent transaction on the part of the firm, there can be no doubt; that the creditors would be entitled to resort to legal remedies for the purpose of bringing this money back into the hands of the assignee to be administered as a part of their assets, there can be no doubt. But that it does necessarily prove that the-assignment itself is fraudulent, we think does not follow. It is a fraud on the assignment, but not a fraud in the assignment, as was very well remarked by one of the counsel in argument. We think that the assignment must be fraudulent, and that the fact of withdrawing this money does not make it an assignment which could be held to be fraudulent as matter of law; nor is it a fact which necessarily tends to prove that the assignment is fraudulent. It was done in accordance with the advice of reputable counsel, and under the facts and circumstances of the situation, beyond all question, they should have made an assignment at that time. If they did not do that to the full extent that honesty and good faith and the law would require of them, nevertheless, to the extent to which they did follow the law and give up for the use of their creditors their assets, they were doing an honest and proper thing. Upon this point we refer to a few authorities which, with many others, sustain this position. Emerson vs. Senter, 118 U. S., 1; Estes vs. Gunter, 122 U. S., 450; Burrill on Assignments, Sec. 117; Pinneo vs. Hart, 37 Mo., 561; Macintosh vs. Corner, 33 Md., 607; Henderson vs. Pierce, 108 Ind., 462. It may be that the circumstances to which we have alluded as having been such as the counsel for plaintiff, in argument claimed, indicated fraud, and were proper matters to be left to the jury for their verdict, might altogether raise such a presumption of fraud as in the absence of explanation or opposing testimony would justify the jury in finding a verdict for the plaintiff, but when considered in connection with all the circumstances in the case, as shown by all the evidence, they are not of such significance and weight as. would justify a jury in finding a verdict for the plaintiff, and we think there was no error on the part of the Circuit Court in withdrawing the evidence from the jury and directing a verdict for the defendant. The judgment is affirmed.