A. and E. Scheitlin vs. Stone and others

A. and E. Scheitlin vs. Stone and others. A sale by an insolvent debtor of his whole stock in trade, upon credit, is not necessarily fraudulent against creditors. THIS action was brought by the plaintiffs as judgment creditors of the defendants, Edward Stone, William F. Kortright and James G. Littlewood, composing the firm of E. Stone & Go., after execution returned unsatisfied, to set aside a sale and transfer of the stock in trade of the firm to the other defendants, Edward F. Stone and John H. Hall, as being made to hinder, delay and defraud creditors. The complaint charged that previous to the pretended sale the firm had failed, and suspended payments, and declared themselves to be insolvent, and were in fact insolvent at the time of the sale; that the stock was sold for $12,000, for which the firm agreed to take the six notes of E. F. Stone & Hall, payable at six, nine, twelve, fifteen, eighteen and twenty-one months, respectively; that the sale was made to prevent the property from being seized under executions by their creditors; and that, at the time of the sale, E. F. Stone & Hall knew that the firm had suspended payment, and were insolvent, and that they knew, or had reason to know, that the sale was made with the intent and purpose of preventing the property from being seized by the creditors of the firm. The complaint also alleged various other facts and circumstances to show that the sale was fraudulent as to creditors. The defendants, E. F. Stone & Hall, in their answer, admit the sale for the notes, but insist that it was bona fide, and made in good faith, and they allege that they agreed to pay more for the stock than it was worth, as the good will was included in the sale, and that the firm turned out the notes which they received to their creditors, and that they (E. F. Stone & Hall) have paid the notes as they matured, and that by the sale the firm had received a larger sum for the merchandise than they otherwise could. E. F. Stone & Hall also deny that they knew that the firm was insolvent, and they deny that they knew, or had reason to know, that the sale was made to prevent the property being seized by the creditors of the firm. The defendants, Edward Stone, Kortright & Littlewood, composing the firm, in their answer, deny that they declared themselves to be insolvent or unable to pay their debts, but do not deny that they were in fact insolvent. They insist that the sale was a bona fide transaction, and not made for the purpose, or with the fraudulent intent, charged in the complaint, and that they received by the sale more for the property than it was worth, and more than they could or would have received from any other disposition of it. The concluding paragraph of their answer is in these words: “And these defendants, further answering said complaint, say, that at the time of said sale of said merchandise, alleged in said complaint, they were embarassed in their financial affairs, and were unable to meet their liabilities as they became due and payable, and were obliged to ask their creditors for an extension, but these defendants did not consider or believe that they were insolvent. They owed confidential debts which it was their duty to pay in preference to others, and said sale was made in order that said property should not be sacri- . ficed, and that the confidential creditors of said E. Stone & Go. should get the avails of said merchandise, and for no other purpose ; and these defendants aver that the confidential creditors of E. Stone & Co. received the avails of said sale of said merchandise; that the notes of said Stone & Hall were immediately turned out as security to the confidential creditors of E. Stone & Go. and that said notes have been paid by said Edward F. Stone and John M. Hall, as they have matured, to the creditors of the said E. Stone & Go. On the trial at special term a large amount of evidence was given on the part of the plaintiffs, to show that the sale was fraudulent. The justice who tried the cause found as a fact, that the plaintiffs recovered the judgment alleged in the complaint for the indebtedness and the amount and at the time alleged in the complaint, and that executions were issued and returned unsatisfied, as alleged in the complaint. He further found as a fact, that the firm of E. Stone & Co. sold the stock of goods in the complaint alleged to the other defendants, Stone .& Hall, at the time and for the prices therein alleged, and upon the credit therein specified, and that the sale was made in good faith, and for a good and valid consideration. He also found that the sale was not made to hinder,, delay or defraud creditors, and ordered judgment for the defendants, •dismissing the complaint with costs. From the judgment, entered in pursuance of this order, the plaintiffs appealed. •Henry Nicoll, for the appellants. Mr.-, for the respondents. [MAJORITY — Ingraham, P. J.] Ingraham, P. J. I see nothing in the transaction in this case, upon the contract as made between the parties, which will warrant us in setting aside the sale. The purchasers deny all knowledge of a fraudulent intent; they show that the sale, as made, was the best mode of getting the highest price for the property sold, and that the notes, when sold, were paid to the creditors, and have all been paid by the makers. I know of no principle of law that prevents a party who is involved in debt from selling his property, nor from making such sale on credit, nor from taking the notes received for his goods and paying his creditors with them. If a creditor chooses to receive a note in payment of his claim, he is not hindered or delayed in its collection. His debt is paid as soon as he receives the note in payment. Hor can I see any wrong in selling on credit, if thereby the debtor is able to pay two debts, when, by sale for cash, he would only be able to pay one creditor. The justice who tried the case found that the sale was made in good faith and for a good consideration, and was not made to hinder creditors or defraud them. Under such findings it was impossible to hold the sale void. Until the courts go so far as to hold that all sales made by a debtor in failing circumstances are void, I can see no reason for so holding in this case ; and when such a rule is adopted, it will render it necessary for every purchaser of goods, before he makes a purchase., to institute an inquiry into the solvency of the vendor. If a man who purchases without notice, for a good consideration and without any intent to hinder or defraud creditors, can not he protected by the law, there will be no safety in commercial transactions. The statements in the answer of the firm who sold the goods are not evidence against the purchasers in whose favor the judge found on the trial, even if they admitted a fraudulent intent on their part. The purchasers had no such intent, and knew nothing df any fraudulent transaction. As to the findings of fact by the judge, I think they were warranted by the evidence, and I concur with- him in the conclusions to which he arrived. [New York General Term, February 1, 1865. I think the judgment should be affirmed. Clerke, J. concurred. [DISSENT — Sutherland, J.] Sutherland, J. (dissenting.) It is impossible to sustain the transaction, even on the answers. The statute declares void every conveyance, &c. “made with the intent to hinder, delay or defraud creditors,” &c. The necessary effect or result of the transaction, as avowed in the answers, was to hinder and delay creditors. The parties must be presumed to have intended the necessary effect or result of the transaction. Even the favored creditors, to whom the notes were turned out, were obliged to take the notes and wait until they matured, or get nothing. Take the statement of the transaction in the answer of the defendants composing the firm, and it can not be supported without evading the statute. They say that the sale was made to prevent the property from being sacrificed, and that the confidential creditors should get the avails ; but, as I have said, even the confidential creditors could not get the avails until the notes matured, and the necessary effect was to hinder and delay even them. It is quite immaterial how good or pure in a moral aspect the motives of the defendants may have been. The giving of the notes did not make E. F. Stone & Hall purchasers for value. When this action was commenced, by their own answer they were not purchasers for value, except to the extent that they may have actually paid their notes. Without examining the evidence on the question of fraud in fact, or other questions in the case, I think, then, that the judgment should be reversed, and a new trial ordered, with costs to abide the event. Judgment affirmed. Ingraham, Clerke and Sutherland, Justices.]