23 N.Y.S. 981 | The Superior Court of the City of New York and Buffalo | 1893
An owner of property having the jus disponendi may undoubtedly make any disposition of it he chooses, but the rule is subject to the exception that, if he has creditors who are prejudiced by the disposition, they may challenge the propriety of the disposition, and, if it be made to appear that it was made with intent to hinder, delay, or defraud them, and stands in the way of
The action brought by the plaintiff on the $100,000 note was begun in December, 1889, and was tried in October, 1891, before Mr. Justice Freedman, who directed a verdict for the plaintiffs,' and ordered the exceptions to be heard in the first instance at the general term. The general term, on April 11, 1892, overruled the exceptions, and directed judgment to be entered for the plaintiffs on the verdict. 18 N. Y. Supp. 956. On May 6, 1890, a few months after plaintiffs had begun their suit, an action was brought by Mrs. Benjamin against her husband upon a promissory note for $114,-380.67, alleged to have been made by him to her on December 31, 1887, payable in 30 days. The summons and complaint in that action were served on the husband on May 6, 1890, the wife’s attorney occupying the same office as the husband’s attorneys. The complaint was verified on the same day it was served, and Mr. Benjamin accompanied his wife to the lawyer’s office, where the verification was made, and service effected. No answer was interposed, and nothing further was done in the action until after the decision of the general term in the plaintiffs’ suit, when, on April 16, 1892, the affidavit of service was sworn to. During the period from April 11, 1892, to April 19, 1892, negotiations were pending between the plaintiffs’ attorneys and the attorneys for Mr. Benjamin for a settlement of the plaintiffs’ claim, or for securing the judgment on appeal. These negotiations fell through on April 19, 1892, when Mr. Simonds, one of the attorneys for the plaintiffs, met Mr. Dougherty, one of the attorneys for Mr. Benjamin, in the clerk’s office, at about 10 o’clock, and told him, as Mr. Dougherty testifies, ■that the offer of the defendant had been refused. On the same day, and probably subsequent to the interview at the clerk’s office, Mrs. Benjamin’s attorney swore to the affidavit of regularity iu
Certain conclusions are inferable from these facts: (1) That the withholding of the deeds from record was to hide from creditors, particularly the plaintiffs, knowledge of the fact of the transfers, which act of concealment is in itself a badge of fraud. Talcott v. Levy, (Super. N. Y.) 20 N. Y. Supp. 440. (2) That the defendant Edward M. Benjamin controlled not only the possession and use of the deeds, but the beneficial enjoyment of the property described therein, and that it continued his until it became necessary to have it appear the property of some one else, and that the coercing factors were the plaintiffs. (3) That there was no delivery of possession or continued change of possession, as required by law, nor was there any attempt to comply with these requirements. (4) That the defendant Edward M. Benjamin controlled the proceedings in the action commenced against him by his wife; that the suit was brought to anticipate thereby any judgment that might be recovered by the plaintiffs; that it was permitted to lie dormant until it suited his purpose to put it in the form of a judgment; and that it was put into judgment to aid him in avoiding the consequences of the plaintiffs’ judgment. (5) That the different transfers, the action by the wife, the entry of judgment in her favor, and finally the general assignment, were steps taken with such apparent intervals of time between them as was thought would not arouse suspicion, but were, nevertheless, successive acts in the general scheme which resulted iii the judgment in favor of the wife, and the general assignment to Kean. (6) Edward M. Benjamin was the agent and attorney in fact of his wife. She acted when and as he acted. When he protected her, he protected himself. In dealing with the entries in the books—transactions with banks, deposits, drafts, and the. like—there was but one dominating mind and master spirit, and that was the husband. So with the transfers and the action by the wife, which culminated in the judgment in her favor. Under such circumstances, the language of Judge Grover in Warner v. Warren, 46 N. Y., at page 233, becomes suggestively applicable. “His objects became hers; his frauds were her frauds; and she is responsible therefor, however destitute of any knowledge thereof.” Mr. Benjamin had a 20-year endowment policy, payable to himself. He himself paid the premiums. On Yovember 22, 1890, Mr. Benjamin, with the plaintiffs’ action pending against him, and being then insolvent, and claiming to owe to his wife a note of over $114,000, on which she was then suing him, turned over to her the sum of $5,084, and concealed the fact from
“A man's moral perceptions may be so perverted as to imagine an act to be fair and honest which the law justly pronounces fraudulent and corrupt; but he is not therefore to escape from the consequences of it.”
The policy of the law in regard to general assignments is that the debtor shall devote all his property to the satisfaction of his debts. The nature of the relation created by insolvency requires that the transfer should be of this comprehensive character. Creditors have an equitable claim on all the property of their debtor, and it is his duty, as well as his right, to devote the whole of it to the satisfaction of their demands. The intentional withholding of assets from the assignee has repeatedly been held to be !a fraud upon the rights of creditors sufficient to render the assignment void. Shultz v. Hoagland, 85 N. Y. 464; Talcott v. Hess, 31 Hun, 282; Iselin v. Henlein, 16 Abb. N. C. 73; Chambers v. Smith, 60 Hun, 248, 14 N. Y. Supp. 706. In Chambers v. Smith, supra, it appeared that on the day of the assignment the defendant gave his wife, for household expenses, a check for $200. The court said:
“If, therefore, in contemplation of the assignment, the assignor intentionally and for the purpose of putting any considerable portion of his assets beyond the reach of the assignment gave this money to his wife, it would be such a fraud as to taint the whole assignment, and tend to show it fraudulent as against the creditors affected by the withdrawal of the assets from the assigned estate. In the case at bar the withdrawal of the money paid by the assignor to his wife is an act of great significance, and it is difficult to distinguish it from the cases above cited, in which such withdrawal was regarded as evidence of fraud for which assignments were set aside.”
In Rothschild v. Salomon, 52 Hun, 486, 5 N. Y. Supp. 865, it appeared that the assignor gave to his wife three days before the assignment $402, which was charged to the household expenses, and the assignment was set aside. The court held that the abstraction
In Coursey v. Morton, 132 N. Y. 556, 30 N. E. Rep. 231, it appeared that on the eve of assignment one of the assignors drew a check for $963.50, and delivered it to his wife. After the suit had been commenced it was turned over to the assignee. Held:
“The rule is that the intentional withholding and secreting of assets of a substantial value from the possession of the assignee is a fraud upon the rights of creditors, and renders the assignment void.”
This upon the familiar principle that every party must be deemed to have intended the natural and inevitable consequences of his acts; and where his acts are voluntary, and necessarily operate to defraud others, he must be deemed to have intended the fraud perpetrated.
From the preceding facts and citations, and without commenting upon the inaccuracies in the books, or the question of compound interest, or the manner of computing it as to yearly rests or otherwise, (matters which do not at present require comment,) it is apparent that the pure administration of justice will not permit any of the fraudulent contrivances by the defendant, or through his agency, to stand in the way of honest creditors in their attempt to enforce just' demands. The fraud found is in the beginning and runs through to the end. The various transfers and contrivances had their inception in fraud, were conceived by the husband,—not demanded by the wife,—lead one to one and the same end, and were calculated to reach a certain result,—that which was consummated by the judgment in the wife’s favor, and the general assignment to Kean. That they were sufficiently connected to form one complete transaction is evident from their purpose and intent, forming, as they do, links in one chain, part and parcel of one general scheme or design, and that to put the property of the assignor beyond the reach of creditors, particularly the plaintiffs. There was no pressing necessity which required the assignor to make the transfers to his wife, or the numerous provisions for her benefit, except the pressure put upon him by the plaintiffs; and the transfers and provisions were intended to put so .much property beyond their reach or that of legal process. They could have no other object. They were designed to secure all to the wife, leaving the other creditors—particularly the plaintiffs—practically remediless. While the separate property of the wife is as much under the protection of the law as that of an entire stranger, transactions between husband and wife, if to the detriment of creditors, must be carefully investigated to prevent fraud. As was aptly said in Hoxie v. Price, 31 Wis. 86:
“On account of the great facilities which the marriage relation affords for the commission of fraud, these transactions between husband and wife should be closely examined and scrutinized, to see that they are fair and honest, and not mere contrivances resorted to for the purpose of placing the husband’s property beyond the reach of his creditors.”
Follett, C. J., in Berger v. Varrelmann, 127 N. Y., at page 289, 27 N. E. Rep. 1065, said:
“The words of the section must he construed to embrace all the instrumentalities which failing debtors, in contemplation of a general assignment, voluntarily employ to give preference to particular creditors.”
In Spelman v. Freedman, 130 N. Y. 421, 29 N. E. Rep. 765, the action was brought to have a confessed judgment entered in contemplation of assignment declared void, and amounts realized returned to assignee. Demurrer. It was claimed that the complaint failed to allege that the judgment creditors knew of the assignment. Held, (Vann, J.:)
“Whatever is done in connection with or contemplation of the assignment, with the intent to defeat the operation of the statute, falls within the spirit of its prohibition, and should receive the condemnation of the courts. When the assignment is part, of a scheme to circumvent the law, and judgments are confessed by the debtor, executions issued thereon by the creditors, and levies made upon the property of the debtor in then behalf as parts of the same scheme, it is the duty of the courts to see that the object of the legislature is not defeated by such acts, which, although not a part of the assignment, are done in contemplation of it, and with the intent of both debtor and creditor to frustrate the statute.”
In Bank v. Bard, 59 Hun, 529, 13 N. Y. Supp. 688, Clarke, Radcliffe & Co., being on the eve of failure, confessed judgments to several creditors in amounts exceeding one-third of their assets. The assignment was executed, and withheld until after the judgments had been confessed and execution levied. Held, (O’Brien, J.:)
“These facts, beyond a reasonable doubt, show that the assignment and confession of judgment together constituted a single transaction for the disposition of all the firm’s property, then upon the verge of insolvency. They were all drawn and prepared at the same time and the same place, by the same parties, and were executed at substantially the same time. Those acts were undoubtedly the result of a common scheme, by which it was sought to make a disposition of the debtor’s property, and therein to give a preference to •those to whom the judgments were confessed. * * 18 There is, therefore, much force in the suggestion that, as the assignment and judgment constituted a single transaction, part of which the court held to be fraudulent, thereby the whole became tainted with fraud. * * * But there is another and distinct ground upon which these judgments must be set aside. * * * Judgments confessed by debtors, about to make an assignment for the benefit of creditors, the effect of which judgment will be to prefer creditors beyond the amount of one-third in value of the assignor’s estate, * * * are void if made as part of one plan for the disposal of all their property.”
—Citing Abegg v. Schwab, (Sup.) 9 N. Y. Supp. 681. And in a concurring opinion, Van Brunt, P. J., said:
“It is apparent that the confession of those judgments was part of the fraudulent scheme of the judgment debtors, by which they, by means of*988 another fraudulent judgment, and a fraudulent assignment, sought to defraud their creditors.”
“It is true that the judgment creditors were not privy to this fraud, but that does not validate their judgments, because, if a judgment is suffered in pursuance of a fraudulent intent of the debtors, the judgment is void, irrespective of the intent of the creditors.”
In Bank v. Seligman, (Sup.) 19 N. Y. Supp. 362, defendants, on the eve of assigning, allowed certain creditors to take judgment against them, (though the judgments were not entered until after the assignment.) Under them they levied and sold practically all of the debtors’ property. Held, (O’Brien, J.:)
“The assignor refused to allow these judgments to be entered before the assignment, or to give any preference by judgment. Expressions, however, of this character on the part of the assignors cannot destroy the force and effect of their action. The question presented was whether or not all these transactions were part of one scheme, the effect of which was to create forbidden preferences. I£ so, under the authorities, the assignments and the judgments must be held to be fraudulent and void. * * * The fact that the judgments were allowed to be taken on the same day, to be entered after the assignment, standing alone, as far as any presumption or inference of fraud to be drawn therefrom, would not be as strong in favor of attacking creditors as judgments on which levies were made on the same day, but which were docketed prior to the assignment. * * * We are of opinion, therefore, that creditors holding bona fide debts, who secured illegal and fraudulent preferences, are not entitled to any benefit by reason thereof, and that where, as in this case, the preferences consist of judgments or an assigned account, money realized thereunder cannot be retained by them.”
In Wilcox v. Payne, (Sup.) 8 N. Y. Supp. 407, judgments were confessed shortly before making the assignment for about $30,000, execution issued, and levies made. These exceeded one-third. Held, (Daniels, J.:)
“The inference was warranted that the judgments were confessed, and the property levied upon and sold in this manner to prevent it from passing under the assignment. * * * And it is to be inferred from what in this manner was done and accomplished that the assignors intended thereby to evade and disregard the statute: * * * and it formed an additional circumstance which the plaintiff was entitled to rely upon to set aside this assignment as fraudulent. All that was done at the time appears to have been the result of one general intention on the part of the assignors. * * * Whether the transfer in the manner condemned shall be made direct to the creditors or through the instrumentality of judgments and executions can create no substantial difference. It is as much the forbidden acts of the debtors to secure the transfer, confessed judgments, and executions as it would be to make them directly to the creditors, for the purpose of creating a larger amount of preferences than those permitted by the statute. The disposition of the debtors’ estate is equally as liable to be characterized as fraudulent and evasive of the law in the one instance as in the other.”
See, also, Abegg v. Bishop, (Sup.) 20 N. Y. Supp. 810, where Van Brunt, P. J., discusses at length the subject of judgments entered or transfers made in connection with an assignment, and holds that, where a transfer is made to a creditor in anticipation of an assignment, such transfer and the assignment are void, even when the transferee is ignorant of the contemplated assignment, unless he is a grantee for a valuable consideration.
The judgment in favor of Mrs. Benjamin, though founded on service of process, must for practical purposes be regarded as a confession. It was not a hostile suit, prosecuted against an unwilling suitor. On the contrary, it was a friendly action, commenced with a purpose, allowed to slumber and lie dormant, to spring into activity and vigor if the exigencies of Mr. Benjamin required that course, and his will directed it to be pursued. The crisis came. The suit was made to play its part, and must be treated, as it is, a practical confession of judgment to the wife, preferred over that obtained by a vigilant creditor, after a defense, litigation, and trial. The acts of the defendant Benjamin were evidently intended to hinder, delay, and defraud the plaintiffs, have had this effect, are in violation of the statutes, and must be set aside.
Fraud assumes so many forms and colors that it has defied all - efforts at a complete definition, and the proof in each case must depend upon its own circumstances. Fraud may be committed by acts or effected by words. The intent to defraud is an emotion of the mind, and can usually be shown only by the acts and declarations of the party. These and all the concomitant circumstances must be established, and then the motive may be deduced from them in accordance with those principles which are shown by experience and observation to rule human conduct. The proof usually consists of many items of evidence, which, standing detached and alone, would be immaterial, but which, in connection with others, tend to illustrate and shed light upon the character of the transaction, and show the position in which the parties stand, and their motives, conduct, and relations to each other. Although the evidence is generally circumstantial, it is often as potent as direct testimony. Sometimes a combination of circumstances characterizes a transaction so plainly and so clearly as to stamp upon it unerring and indelible marks of fraud which cannot be mistaken, and the transaction itself may present phases so remarkable and peculiar that no fair-minded person can hesitate to pronounce it fraudulent. These indicia are often the clearest proof, and quite
“It is obviously impossible to lay down any general rule limiting the time within which such transactions must have taken place in order to render proof of them competent. It is generally said in the cases that they must have occurred about the same time as the commission of the alleged crime; but that is quite indefinite, and in some of the reported cases proof of them has been received, although they occurred months before and after the time of the crime. Each case, as to the application of this rule, must depend largely upon its own circumstances, and not unfrequently the limit of them must rest entirely in the discretion of the judge presiding at the trial.”
The series of acts before enumerated are like steps in a flight of stairs,—each follows the other in regular order, and, combined, lead to one and the same end. They evidence one and the same purpose, and must, in like manner, be considered as the consummation of one and the same general scheme. With respect to the comparative weight due to direct and presumptive evidence it has been said that circumstances are in many cases of greater force and more to be depended on than the testimony of living witnesses, inasmuch as witnesses may either be mistaken themselves, or wickedly intend to deceive others; whereas, circumstances and presumptions naturally and necessarily arising out of a given fact cannot lie. Per Montgomery, B., in Annesley v. Anglesea, 9 State Tr. 426, 17 How. State Tr. 1430. Circumstances give rise to presumptions, and these in turn are proof. In Rex v. Burdett, 4 Barn. & Ald. 161, Abbott, C. J., said:
“A presumption of any fact is properly an inference of that fact from other facts that are known. It is an act of reasoning, and much human knowledge on all subjects is derived from this source. A fact must not be inferred without premises that will warrant the inference; but, if no fact could be thus ascertained by inference in a court of law, very few offenders would be brought to punishment.”
The various circumstances linked one to the other form a strong claim of evidence pointing to the common purpose of getting every
“Fraud is never presumed, either at law or in equity, but the burden is upon the party alleging to prove it, unless the circumstances shown are of such a strong and pregnant character that no other reasonable conclusion can be drawn from them, in which case the burden is shifted upon the other party to prove the bona tides of the transaction: and, if the presumptive circumstances are strong, they will outweigh positive testimony against it.”
Starkie, Crim. Ev. (7th Ed.) p. 23, under the head of “Presumption of Intent to Defraud,” says:
“This presumption is very similar to that of malice. It is always made whenever the natural consequence of the act is to defraud, and no proof is necessary that such was the intention of the prisoner.”
Whart. Ev. § 1258, says:
“We infer the motive from the facts of the particular case. The process is one of induction from facts.”
Even in cases of conspiracy the evidence is generally circumstantial. Though the common design is the essence of the charge, it is not necessary to prove that the defendants came together and actually agreed in terms to have that design, and to pursue it by common means. If it be proved that the defendants pursued by their acts the same object, often by the same means, one performing one part and another another part of the' same, so as to complete it, with a view to the attainment of that same object, the court will be justified in the conclusion that they were engaged in a conspiracy to effect that object. 3 Greenl. Ev. (13th Ed.) § 93. One act may reflect its light upon another until the several acts grouped together make plain the object and purpose of all. These must be weighed, and receive separately and collectively the force and significance they deserve. Chief Justice Robertson, in Johnson v. Mallory, 2 Rob. (N. Y.) 683, said:
“There js scarcely an article made or work accomplished that has not been so by a series of efforts.”
In Railroad Co. v. Hoge, 34 Pa. St. 221, Thompson, J., said:
“It is a great error, generally insisted on by defendants in cases involving questions of fraud, that each item of testimony is to be tested by its own individual intrinsic force, without reference to anything else in the case; and if, on such a test, it does not prove fraud, it must be excluded. The system of destroying in detail forces designed for concentrated action does well, doubtless, in military operations; but a skillful general never suffers such a disastrous result, except when he cannot prevent it. Courts have the power and must prevent such a system of assault, otherwise fraud would ever be victorious. It is a subtle element, and is to be traced out, if at all, by the small indices discoverable by the wayside where it travels; and to enable courts and juries to detect it they must in most cases aggregate many small items before the true features of it are discernible. Hence it is that great lati*993 hide in the investigation is a rule never departed from in such cases. This rule is elementary, and a citation of authorities to prove it would not only be useless but superfluous.”
From the determination made on the facts, aided by the authorities cited, certain legal results must be pronounced, and these must equal all emergencies. It is the just and proper pride of our matured system of equity jurisprudence that fraud vitiates every transaction; and however men may surround it with forms, solemn formalities, proceedings conforming to all the details required by the laws, or even by the formal judgment of the courts, a court of equity will disregard them all, if necessary, that justice and equity may prevail. Warner v. Blakeman, *43 N. Y. 487.
In conclusion, the court holds that the acts aforesaid vitiate the judgment and transfers, and they must be declared fraudulent and void as against honest judgment creditors. It follows, therefore, that the plaintiffs are entitled to a decree setting aside the general assignment and judgment, and for the other relief claimed herein, with costs.