73 N.Y.S. 203 | N.Y. App. Div. | 1901
Lead Opinion
This is an action to set aside an assignment of book accounts-aggregating $20,872.81, made by the firm of Humphrey & Hold-ridge to their banker, the defendant, on' the 2d day of October,, 1899, upon the grounds that such assignment was fraudulent and also voidable under the Bankruptcy Law. (30 U. S. Stat. at Larger 544.) The defendant’s answer denied this. An involuntary petition in bankruptcy against said firm was filed December 6, 1899,. and they were declared bankrupts on the 19th day of December, 1899, and the plaintiff was appointed trustee-of their estate. - The fact -that Mr. Holden did not know of the insolvency of" Humphrey & Holdridge until it was disclosed to him just prior to their general assignment cannot upon the evidence be questioned ;. besides his testimony we have that of both Humphrey & Hold-
If Humphrey & Holdridge and their bookkeeper were not aware, that the firm was in an embarrassed condition, it is difficult to understand how Mr. Holden could have had any reasonable cause to believe that the firm was insolvent at the time of the last transfer .of accounts to him, or that there was any intention of giving him. by such transfer a preference over other creditors.
The business of the firm was at that time apparently prosperous; the purchase of the building lot and the construction recently thereon of the two houses indicated that the "firm had the money to-spare from their business for that purpose. The permanent loans, .made by Mr. Holden to the firm were being reduced. The business relations of Humphrey & Holdridge with the firm of Willoughby & Hathaway were unknown to Mr. Holden, except that he supposed that the paper passing through the bank represented an indebtedness of the latter, and their commercial standing he had ascertained was good. The few instances of checks coining to the bank from Lima and some overdue farmers’ notes in the bank, isolated transactions not of much importance of themselves as indicating the financial standing of the firm, did not come to the. knowledge of the defendant.
It seems to me that upon this branch of the case the burden cast upon the plaintiff has not only not been met, but that the preponderance of the evidence is with the defendant.
The other proposition of the plaintiff is that the method which Humphrey & Holdridge and the defendant adopted for the purpose of supplying the firm with capital as it should be needed to-carry on its business was fraudulent in law; that is to say, the transaction, however honestly entered into and performed, is not permissible in law. There is no question here as to the actual good faith of the defendant and of Humphrey & Holdridge. The agreement was that the latter should collect the assigned accounts. ”
It is urged that by this method of giving security for the money defendant loaned to Humphrey & Holdridge, and the transaction of the business, it tied up their property while at the same time it gave them absolute dominion over it, thereby creating a secret lien,., and, therefore, a fraud upon creditors.
In regard to the secrecy of the lien it may be observed that every pledge of securities may be and generally is done in secret. The dealings had with mercantile houses are always with knowledge that available bills and accounts receivable may be so used to procure credit or capital.- The result of the exercise of dominion over the assigned accounts by Humphrey & Holdridge -and the mingling of the moneys derived therefrom with that received in trade, so far as creditors are concerned, is the same as if the identity of the money which came to their hands from the assigned accounts had been preserved. If the latter method had been pursued, the proceeds of the accounts would have been paid into the bank and the credit set off against the overdraft, the money borrowed at the bank by means of the overdraft would ■ have been separately used in their business, new customers’ accounts would have been made and these in turn assigned, and the process repeated to the end. In that case the identity of the money received from the accounts- and the
The rules pertaining to a change of possession of goods and chattels upon a sale thereof, or to the filing of a lien thereon, and the dominion required to be exercised by a purchaser; mortgagee or pledgee of tangible property, cannot be applied to a sale or pledge of indebtedness, intangible of itself, only the evidence of which if in writing is perceptible; the conditions are not the same, and the rules of law applicable to transfers of the two classes of property differ; as to one, the possession of which is evidence of ownership, the dealings must be open, visible and public, while as to the other the business may be, as it usually is, private. The necessities of business require it. Aside from the provision of the Bankrupt Law prohibiting preferences, and subject to the rules of law relative to transfers of goods and chattels, debtors may transfer and pledge their personal property to their creditors in any manner they see fit, and any attempt to apply fixed rules for the transaction of the business would interfere with this undoubted right.
The plaintiff’s right to recover the amount of the deposit made after the insolvency of Humphrey & Holdridge became known to the defendant is conceded.
It is suggested that it should be with costs to the defendant after the joining of issue, but as there was no formal offer, and as the concession was not made until after the plaintiff had been to the expense of preparing for trial, the recovery should be with costs.
Dissenting Opinion
Humphrey & Holdridge were copartners dealing in lumber, coal and general produce at Honeoye Falls, in this State. The defendant was a private banker, carrying on a bank at said village under the name of the Bank of Honeoye Falls. The firm did its banking business almost entirely with the defendant, and from 1896 until its failure in the latter part of 1899 its account with the bank was continuously overdrawn. On July 1, 1899, as collateral security for this overdraft, it assigned to the defendant current book accounts amounting to $17,903.36. On October 2, 1899, the firm made another transfer of its accounts to the defendant, listed
The village of Honeoye Falls contains about 1,500 inhabitants and the defendant and Humphrey & Holdridge had been long acquainted, and the- copartners carried on with the defendant their banking business which was extensive for a country community. The overdraft at the bank increased .from $34.12 in December, 1896,, to over $18,000 in October, 1899, and this despite the apparently vigorous endeavors of the defendant to stem the advance. There-are several circumstances which it seems to me lead incontestably to the conclusion that the copartners when they transferred the accounts to the defendant which composed- the bulk of their assets* realized that they had about reached the climax of their attempt to-carry on a large business without capital and with a heavy overdue indebtedness, and sought to secure above every one else the man wholiad long befriended them and who alone had rendered it possible for them to continue their business at all. Let us examine the undisputed facts as they are testified to by thé defendant and Humphrey & Holdridge and ascertain if their position that they did not
Many of the circumstances which have been recited are com vincing when we come to consider their effect upon the defendant. All their banking business Avas run through his bank. He knew Humphrey &. Holdridge had been buying lumber extensively of Willoughby & Hathaway, and the notes for these purchases had been negotiated by him until they aggregated $7,000. They became due, were unpaid and for a time were rdneAved. Finally drafts drawn on Willoughby & Hathaway and accepted by them were substituted for • the notes. The defendant must have known that the real debtors were Humphrey & Holdridge, and the change in the form of tliis large indebtedness and its continuance ought forcibly to have attracted the attention of 'any prudent man, The defendant knew that this overdraft Ayas constantly piling up. He knew that the draft of over $1,000, and on the "strength of which he had paid the sum it called for to Humphrey & Holdridge. had been lying unaccepted and dormant in his bank "for more than a year. He held their note of $3,000 overdue for several years and on which nonfe of the principal had been paid, and another originally of $2,000, but reduced somewhat, although no payments had been made on the principal since 1897. There was in his bank customers’ paper to a considerable amount which had been negotb ated by this firm upon its indorsement.. Between the time of the two transfers Humphrey & Holdridge apparently had collected from the accounts assigned in July about $2,500, and yet during the same time the overdraft had grown nearly $8,000, a potent fact showing that the collections Avere not applied in accordance with the
The defendant had allowed this claim to absorb a large portion of the assets of his bank, and permitted this indebtedness to increase and mount up to proportions wholly un warranted. The business of the firm was being conducted on the money of the depositors in the bank, and this is too flagrant a violation of prudent banking and ordinary business sagacity to be upheld simply because the participants in it vouch for-their honesty. Two facts are essential to bring this transaction within the condemnation of the Bankruptcy Law: Fi/rst. On the part of the insolvent debtors -an intent to give a preference to the defendant by the transfe: of these accounts. Second. On the part of the defendant “ reasonable cause to believe that it was intended thereby to give a preference.” (Nat. Bank. Law [30 U. S. Stat. at Large, 562], § 60, subd. b.) And both of these requirements have been fully satisfied in this case.
But passing the first ground of attack upon this transaction I think the transfer of these running accounts was fraudulent and void, and the facts upon which this conclusion is based are also sup-, ported by the undisputed evidence. When the assignment was made, the accounts were returned and were to be collected by the assignors. If this authority ended by this permission the transfer might be sustained, for the accounts in all probability could be collected more advantageously by Humphrey & Holdridge than by the assignee, and the natural place for the debtors to pay their demands was the jflace of business of the firm, but in addition to this authority Humphrey & Holdridge were to use the moneys
The vice here is that there was in fact no real transfer, no real vesting of title in the assignee. It was an arrangement whereby the title and authority of Humphrey & Holdridge were to be unrestricted as long as they were able to shunt along their business, but whenever the inevitable crash came, then by some sort of legerdemain the written assignment was to be stimulated into life to prefer the overdraft of the defendant. A transfer which at one time places no bar to the ownership of the assignor, and in another exigency is intended to be absolute, cannot be upheld against the creditors who are seeking an equal distribution of all the assets of the bankrupt assignors.
I am constrained, therefore, to dissent from a majority of my associates and vote for reversal of the judgment.
Adams, P. J, concurred upon the second ground stated in the opinion of Spring, J.