App. Div.]

SECOND DEPARTMENT, MARCH TERM, 1897.

In view of the principles applicable to this class of cases there seems to be no support in the evidence for the charge that the plaintiff's injury was caused by the negligence of the defendants.

The judgment and order should be reversed and a new trial granted, costs to abide the event.

All concurred.

Judgment and order reversed and new trial granted, costs to abide the event.

TRADESMEN'S NATIONAL BANK, Appellant, v. JOHN W. YOUNG and Others, Respondents.

Fraudulent conveyance — transfer to a corporation of all the property of a firm which the next day executes a general assignment for creditors.

On February 19, 1895, a firm executed a transfer of all its personal property to a corporation formed, in July, 1894, by the partners thereof, with the intention that such transfer should have accompanied (although it was in fact delayed until the first-mentioned date) a conveyance of real estate made by the senior member of the assigning firm to the corporation.

On February 20, 1895, the firm and the individual members thereof executed a voluntary assignment of all their property for the benefit of creditors without preference. There was no evidence to show that, until after the transfer, there was any intention to execute the assignment, but, on the contrary, the firm expected to raise money on the bonds and property of the corporation with which to pay off the firm creditors. The firm was not insolvent at the time of the conveyance of the real estate by the senior partner, who received in consideration thereof all the stock of the corporation - bonds thereof being given to the firm as a consideration of the transfer of personal property made by it. In an action brought by a judgment creditor of the firm to set aside the transfer made by it and to secure a preference it was

Held, that the court would consider that the assignors were, at most, guilty only of constructive fraud and would maintain the validity of the assignment; That as the result of the proceedings in this case had been to place the entire property of the firm in a position in which there would be an equal distribution thereof among the creditors, the court would not willingly disturb such an arrangement in order to work out a preference for a particular judgment creditor.

APPEAL by the plaintiff, the Tradesmen's National Bank, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of Westchester on the 1st day

SECOND DEPARTMENT, MARCH TERM, 1897.

[Vol. 15.

of June, 1896, upon the decision of the court rendered after a trial at the Westchester Special Term dismissing its complaint upon the

merits.

A. Blumenstiel, for the appellant.

John Jay McKelvey, for the respondents.

GOODRICH, P. J.:

This is a creditor's action upon judgments recovered in April, 1895, against the defendants John W. Young, Albert J. Young and Irving W. Young, formerly composing the firm of John W. Young & Sons, against Charles T. Sutton, assignee of the firm and of the individual partners, and against the John W. Young & Sons Company, whereby the plaintiff seeks to secure for its own judg ments payment in preference to all other creditors. It is not brought for the benefit of creditors who may unite with the plaintiff in the prosecution of the action. Later, Austin B. Fletcher, who had been appointed receiver of the property of the firm, was made a party defendant.

The firm of John W. Young & Sons had transacted business as dealers in lumber, coal, etc., at White Plains for many years, having occupied in their business certain real estate belonging individually to John, the senior partner, upon which the firm had erected a mill, elevator and other buildings used in their business.

The defendants Albert J. Young and Irving W. Young, with three other persons, had, some time previously to the assignment, formed a corporation, the Tuckahoe Lumber and Coal Company, which was doing a coal business at Tuckahoe.

The parties in July, 1894, had formed another corporation, the John W. Young & Sons Company, to which corporation John conveyed the real estate theretofore as well as thereafter occupied by the firm, and there is evidence tending to show that it was the intention of the parties that this company should succeed to the business of the firm on account of the illness and expected death of the father, John. The three Youngs, their sister Laura, and one Cromwell, were the directors; John was president, Albert vicepresident, and Irving secretary. All of the stock of this corporation was issued to John in payment for the transfer of the real estate,

App. Div.]

SECOND DEPARTMENT, MARCH TERM, 1897.

and all of it, except five shares held by Laura and five by Cromwell, was owned by the three Youngs. The Young Company had no other property, and seems to have transacted no business down to February 19, 1895.

The firm, on February nineteenth, transferred to the Young Company all of its property except outstanding accounts and the bonds and stock of the company. There is evidence tending to show that this was one of the purposes for which the corporation was originally formed; that it was all along intended to carry out this plan, and that John supposed that it had been consummated as agreed upon at the start. The value of the personal property thus transferred amounted to about $80,000, and the consideration therefor was bonds of the company of the face value of $112,000, payable in twenty years. The Tuckahoe Company also conveyed to the Young Company some real estate at White Plains, occupied by it, in consideration of certain bonds of that company, which thus became the owner of all the real estate which had been occupied by the Tuckahoe Lumber Company and by the firm, and of all the property of the firm except its outstanding accounts and the bonds and stock of such company. The Tuckahoe Company, which was indebted to one Henry J. Braken in the sum of $30,000, also made a general assignment on February nineteenth to the defendant Sutton.

John had conveyed to his wife, Hester, by deed dated July 30, 1894, and recorded on February 4, 1895, for a nominal consideration, certain other real estate, the real consideration being the release by Hester of her inchoate dower in the conveyance to the Young Company.

Albert also had conveyed to his wife, Mary, by deed acknowledged and recorded November 24, 1894, certain other real estate in consideration of an indebtedness due by Albert to his wife and in excess of the value of the property.

Irving, by deed acknowledged and recorded September 29, 1894, had conveyed to his wife, Hettie, certain other real estate in consideration of an indebtedness due by him to his wife, in excess of the value of the property.

On February twentieth the firm and the individual members thereof executed a voluntary general assignment of all their prop

SECOND DEPARTMENT, MARCH TERM, 1897.

[Vol. 15. erty to the defendant Sutton for the benefit of creditors, without preferences, and delivered to the assignee thereunder the book accounts of the firm, a small parcel of real estate and the stock and bonds of the Young Company.

At the trial there was evidence tending to show that the assignment and other transactions were not made with any fraudulent intention on the part of the firm, and that it was expected to sell the bonds and raise money on the bonds and property with which to pay off the creditors of the firm. This was elicited by the plaintiff's counsel in his examination of the defendant Irving Young, whom he called as a witness. Other witnesses testified that one of the reasons why the real estate was conveyed to the Young Company was that John was an invalid, bedridden and unable to attend to business and that his death was anticipated, and it does not appear that either he or the firm was insolvent at the time of such conveyance of the real estate.

It is to be observed in this connection that the original agreement. made when John conveyed his real estate to the Young Company, was that the firm should also transfer all its personal property and business, and that this transfer was delayed for some unexplained reason, but without the knowledge of John, so that the bonds and stock which had been delivered to him in payment for his land were not as valuable as they would have been if the firm's personal property and business had been transferred to the company at the same time as the real estate, whereby the bonds and stocks would have had additional basis of value, and that John was not aware of the failure. When this fact came to the knowledge of Judge Robertson, his counsel, on February nineteenth, he advised that it was only just to John that the transfer should be made at once, and it was then made in pursuance of the original plan and agreement which were arranged at the time of the formation of the Young Company. Up to that time there had been no conclusion arrived at as to any assignment by the firm. The reason for making the assignment was testified to be the fact that the firm was indorser on the notes of the Tuckahoe Company, and that as that company was a foreign corporation it was feared that an attachment would be obtained against its property, but no suggestion was made as to such necessity for an assignment by the firm until the evening of the nineteenth of

App. Div.]

SECOND DEPARTMENT, MARCH TERM, 1897.

February, after the transfer to the Young Company had been completed. The assignment of the firm was drawn that evening, although it was not executed till the twentieth, and even when it was drawn there seems to have been a reasonable doubt in the minds of the parties whether or not it would be executed.

Irving, who especially proposed and urged the assignment, was in a nervous and excited condition, but stated that the firm had assets in excess of its liabilities. This, undoubtedly, was not true, but it is evidence tending to show that there was not an intention to execute the assignment till after the transfer had been made to the Young Company.

Although there had been discussion as to the making of an assignment on the eighteenth, there is positive testimony that this intention had been abandoned, or at least suspended, till the evening of the nineteenth, when it was renewed through fear of the issuing of attachments against the Tuckahoe Company.

In April, 1895, Badger and Winslow, creditors of the firm of John W. Young & Sons, commenced an action against Sutton as assignee, and against the members of the firm and their wives, and against the Young Company, to which defendants the Tuckahoe Company and Sutton, assignee of that company, were subsequently added as parties, praying that the deeds which had been given by John to the Young Company and by the three Youngs to their wives, and the transfer of the firm assets to the Young Company should be declared fraudulent and void as against the assignee, and that the Young Company and the three wives of the defendants be compelled to turn over all the real and personal property thus received, or the proceeds thereof, to the assignee; and that pending the action a receiver might be appointed. Such receiver was appointed July 15, 1895.

By stipulation between the parties to this action, approved and signed by a large number of the creditors of the firm and corporation, the action as to the wives was dismissed, and a judgment was entered in February, 1896, setting aside, as against the plaintiffs, the other creditors of the firm and the assignee, the conveyance by John to the Young Company and the transfer of the personal property of the firm to that company.

APP. DIV.-VOL. XV. 15