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The issue thus raised by the answer of Fanny Meng was tried in the United States District Court, before the court and a jury. The jury found that Fanny Meng was insolvent at the time such judgments were recovered, and thereupon, and on the 17th day of May, 1901, a decree was duly made and entered in said court adjudging that Fanny Meng was insolvent at the time of the recovery of such judgments, and declaring her a bankrupt. Thereafter, and on the 3d day of June, 1901, the plaintiff was duly appointed trustee in bankruptcy of the estate of Fanny Meng. He duly qualified and entered upon the discharge of his duties as such. Thereupon the plaintiff brought this action to recover from the defendant the amount which was paid to her upon the judgment which she recovered against Fanny Meng, alleging and claiming that said judgment, and all proceedings had thereunder, were void, because recovered and had when Fanny Meng was insolvent, and within four months prior to the filing of the petition in bankruptcy against her. The defendant denied the insolvency of Fanny Meng, and alleged that her judgment was obtained in the ordinary course, and in good faith, to recover a valid debt owing to her by Fanny Meng.
After making prima facie proof of the other necessary facts, the plaintiff, for the purpose of establishing the insolvency of Fanny Meng, at the time the defendant and the other judgment creditors referred to recovered their judgments, introduced in evidence the decree of the United States District Court, which adjudged that Fanny Meng was insolvent at such time, and rested. The learned trial court held and decided that such decree was no evidence of the insolvency of Fanny Meng, as against the defendant in this action. The plaintiff then offered to make common-law proof of such insolvency, but the court held that having rested his case he ought not to be permitted to reopen for that purpose, and denied his application for leave to make such proof. Thereupon the learned trial court granted the defendant's motion for a nonsuit, and directed that the exceptions be heard in this court in the first instance.
In case Fanny Meng was insolvent within four months prior to the filing of the petition in bankruptcy against her, and the judgment of the defendant was recovered against her within that time, it must be conceded that such judgment, and all proceedings taken thereunder, were void, because unquestionably the effect of the recovery of such judgment, the issuing of the execution thereon, and the sale of Fanny Meng's property thereunder, was to give a preference to the defendant, which is prohibited by the bankrupt law. Section 67f, c. 541, Act July 1, 1898, 30 Stat. 564, 565 (U. S. Comp. St. 1901, p. 3450], is as follows:
“All levies, judgments, attachments or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment or other lien shall be deemed wholly discharged and released from the same, and shall pass to the trustee as a part of the estate of the bankrupt.”.
We think it should be held that the decree of the United States District Court put in evidence conclusively establishes, for the purposes of this action, that Fanny Meng was insolvent at the time the defendand 121 New York State Reporter ant recovered judginent against her, and sold her property, by virtue of the execution issued upon such judgment. Any other holding would lead to endless confusion in the administration of the law, and would in many cases nullify one of the principal purposes of the bankruptcy act. If the question of Fanny Meng's insolvency can be retried in this case, notwithstanding the decree of the United States District Court adjudging such insolvency, it may be controverted and litigated in any case brought by a trustee in bankruptcy to secure the estate of a bankrupt against a person who may have obtained such estate by process issued out of the state courts, where such person was not made a party to the bankruptcy proceedings. In the case at bar the entire property of Fanny Meng was devoted to the payment of four judgments obtained by her three sisters-in-law, one of whom is the defendant, within four months of the time when other of her creditors filed a petition in bankruptcy, in which it was alleged, in substance, that she was a bankrupt at the time such judgments were obtained, and basing such allegation upon the fact of the recovery of such judgments, and upon that and other sufficient proof, as we must assume, such insolvency was established, and the decree of a court of competent jurisdiction was made in accordance with such allegation and proof.
We think the decree of the United States District Court, for the purposes of this action, should be regarded as conclusively establishing that Fanny Meng was insolvent at the time when the defendant recovered her judgment, and that the validity of such decree cannot be questioned in this action.
In Carter v. Hobbs, 1 Am. Bankr. Rep. 215 (D. C.) 92 Fed. 594, the headnote is as follows:
“An adjudication in bankruptcy being an adjudication in rem, all persons interested in the res are regarded as parties to the bankruptcy proceedings. Among such parties are not only the bankrupt and trustee, but all creditors, including lienors."
See, also, Chapman v. Brewer, 114 U. S. 169, 5 Sup. Ct. 799, 29 L. Ed. 83; Rhoades v. Selin, 4 Wash. C. C. 716, Fed. Cas. No. 11,740.
In Levor v. Seiter, 34 Misc. Rep. 382, 69 N. Y. Supp. 987, it was held that an adjudication which adjudges bankruptcy is sufficient proof of the fact of insolvency, within the language and intent of the act.
In Matter of Ulfelder Clothing Co., 3 Am. Bankr. Rep. 425 (D. C.) 98 Fed. 409, it was said:
"So it seems, in proceedings against a bankrupt, any creditor who had a right to appear and join in a petition to be heard in opposition thereto, under section fifty-nine, even though entitled to notice, and though he does not appear, is in contemplation of the law represented by the bankrupt, and concluded as to all matters directly in issue and determined by the decree. At all events, the decree is conclusive upon the bankrupt and a creditor who is a direct party to the proceedings.”
In Chapman v. Brewer, supra, it was said:
“The district court which made the adjudication having had jurisdiction of the subject-matter, and the bankrupt having voluntarily appeared, and the adjudication having been correct in form, it is conclusive of the fact decreed, and cannot be attacked collaterally in a suit brought by the assignee against a person claiming an adverse interest in property of the bankrupt.”
In In re Breslauer, 10 Am. Bankr. Rep. 33 (D. C.) 121 Fed. gio, it was said:
"The filing of a petition in bankruptcy is a caveat to all the world, and in effect an attachment and injunction.”
The many cases cited in the opinion in that case we think fully sustain the proposition.
The cases referred to would seem to establish that the decree of the United States District Court, put in evidence in this case by the plaintiff, was sufficient to prove the insolvency of Fanny Meng at the time when the judgment of the defendant was obtained, and this was really the only issue involved. There is no suggestion in the evidence that the adjudication in bankruptcy was obtained by collusion with the bankrupt. In fact, as we have seen, she appeared in that proceeding and vigorously contested that issue. We are therefore constrained to hold that the decree of the United States District Court put in evidence furnished conclusive evidence that at the time the judgment of the defendant was obtained Fanny Meng, the judgment debtor, was insolvent, and that, therefore, under the bankruptcy act, such judgment was absolutely void, and that the plaintiff had a right to recover the amount which the defendant received in satisfaction of such judgment, it having been paid to her out of the proceeds of the property of the bankrupt. We also think the learned trial court improperly exercised its discretion in denying the plaintiff permission to reopen his case and make common-law proof of the insolvency of Fanny Meng at the time when the judgment of the defendant was obtained. We therefore conclude that the plaintiff's exceptions should be sustained, and a new trial granted, with costs to the plaintiff to abide event.
Plaintiff's exceptions sustained, and new trial ordered, with costs to the plaintiff to abide event. All concur; SPRING and WILLIAMS, JJ., in result only.
(Supreme Court, Special Term, Fulton County. January, 1904.) 1. PLEADING-ANSWER—SEPARATE DEFENSE.
In an action to recover for false representation, the answer contained tive numbered paragraphs. The first two were denials. The third alleged that “defendant, for a further and separate answer and defense, shows," etc., while in the fourth and fifth the recital of the facts was continued without any preliminary statement. Plaintiff demurred to the matter set up as a further and separate answer. Held, that the denials in paragraphs 1 and 2 were no part of the last three paragraphs, which
were meant as a single defense. 2. SAME-NEW MATTER_DEMURRER.
A demurrer lies to new matter set up by way of a defense, whether or
not the facts are provable under a general denial. 3. FBAUD--FALSE REPRESENTATIONS-DEFENSE.
A purchaser of lands sued his vendor for false representations as to liens upon the property, and defendant alleged that the deed was delivered to the grantee after the representations were made, but did not allege that it was received with knowledge of the fraud. Held to set forth no defense.
and 121 New York State Reporter 4. SAME-ESTOPPEL.
A grantee is not estopped to sue for damages caused by false representa: tions by his grantor as to incumbrances on the land by the fact that an examination of the public records would have informed him as to the
same. 5. SAME-ACTUAL DAMAGES.
In an action for fraud, actual damages need not be alleged nor proved.
Action by Herman Blumenfeld against William W. Stine. Demurrer to answer sustained.
Alvah Fairlee and Marvin H. Strong, for plaintiff.
SPENCER, J. This action is to recover damages for false representations alleged to have been made by the defendant in respect to liens and incumbrances upon certain real property situated in the city of Schenectady, sold and conveyed by the defendant to the plaintiff. The defendant's answer consists of five paragraphs numbered consecutively. The first paragraph denies allegations i and 2 of the complaint. The second paragraph alleges that the defendant has no knowledge or information sufficient to form a belief as to allegation 3 of the complaint. The third paragraph begins as follows: "Defendant for a further and separate answer and defense shows and alleges,” etc. The fourth and fifth paragraphs continue the recital of facts without preliminary statement.
I think paragraphs third, fourth, and fifth must have been intended as a single defense to the cause of action set forth in the complaint (Brenen v. Kelly, 30 Misc. Rep. 46, 61 N. Y. Supp. 695), and that the denials contained in paragraphs first and second constitute no part of such defense (Eells v. Dumary, 84 App. Div. 105, 82 N. Y. Supp. 531; Douglass v. Phenix Ins. Co., 138 N. Y. 209, 33 N. E. 938, 20 L. R. A. 118, 34 Am. St. Rep. 448). But, even if they may be so considered, they, being denials only, do not add to the matter alleged by way of defense in the subsequent paragraphs. Garrett v. Wood, 27 App. Div. 312, 50 N. Y. Supp. 950.
The facts alleged in paragraphs third, fourth, and fifth, briefly stated, are to the effect that the contract for the purchase of the property was in writing; that such contract was consummated by a deed delivered to the plaintiff; and that the liens and incumbrances upon the property were of public record. To these allegations the plaintiff has demurred.
If I understand the contention of the defendant, it is that the facts so alleged constitute a defense to the cause of action set up in the complaint, but that such facts are not new matter alleged in avoidance or confession, and therefore may not be reached by demurrer; that plaintiff's remedy, if any, was by motion to strike out. The defendant, in support of this contention, cites Staten Island M. R. R. Co. v. Hinchliffe, 170 N. Y. 473, 63 N. E. 545, and emphasizes what is there quoted from Judge Selden in respect to two classes of defenses: "(1) Those which deny some material allegation on the part of the plaintiff ; (2) those which confess and avoid those allegations." That demurrer is not the proper method of getting rid of such defenses, for the "plain reason that a demurrer admitted the truth of the plea, and the facts contained in such a plea, if proved or admitted, must necessarily constitute a good defense.
14. See Frauds, Statute of, vol. 23, Cent. Dig. & 19.
It is, however, well to note that what is there quoted from Judge Selden was clearly obiter, the court passing upon the merits of the separate defense deinurred to, and holding that the facts alleged constituted a valid defense to the cause of action set out in the complaint. That the Court of Appeals did not intend the construction put upon its language by the defendant here is shown in Kraus v. Agnew, 80 App. Div. 1, 80 N. Y. Supp. 518, and Jaeger v. City of New York, 39 Misc. Rep. 543, 80 N. Y. Supp. 356. But however this may be, the practical rule adopted and acted upon by the Court of Appeals is to the effect that, when facts are alleged as new matter by way of defense, their sufficiency as such defense may be tested by demurrer, whether such facts are admissible in proof under a general denial or not. A plaintiff is certainly at liberty to demur to a defense consisting of new matter contained in an answer, on the ground that such defense is insufficient in law (Code Civ. Proc. $ 494), and, whenever a defendant alleges facts as new matter by way of defense, he may not, when such defense is demurred to be heard to say that the facts so alleged are not new matter, because forsooth they are admissible in proof under his denial.
If I am correct in this view, then the demurrer herein requires a decision of the question whether the facts alleged by the defendant constitute a defense to the cause of action alleged in the complaint. A careful examination of this subject leads me to the conclusion that they do not. The fact that a deed of the premises was executed and delivered subsequent to the alleged fraudulent representations, without alleging that such deed was received and accepted with notice of the fraud, constitutes no defense. Nor does the fact that the plaintiff could have informed himself as to incumbrances by an examination of the public records preclude him from maintaining his action. Negligence is no defense to fraud. That the victim was an easy mark has not yet been heard to justify garroting.
The defendant challenges the complaint on the ground that the facts there alleged do not constitute a cause of action. He relies chiefly upon the claim that no specific damages are alleged. In actions of fraud it is not necessary to allege or prove actual damages. Pryor v. Foster, 130 N. Y. 171, 29 N. E. 123. The demurrer is therefore sustained, with leave to the defendant to plead over upon payment of costs.
Demurrer sustained, with leave to defendant to plead over upon payment of costs.