Preston v. . Southwick , 23 N.Y. St. Rep. 977 ( 1889 )

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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] This case presents many of the features usually accompanying transfers of property made by an insolvent debtor to preferred creditors, which have incurred the disapprobation of those who are not benefited by their provisions. Notwithstanding the right of a debtor under the law to make such disposition of his property among his creditors, which, if made in good faith, shall cause some to be wholly paid and others to receive little or nothing upon their claims, they are seldom satisfactory to the excluded creditors and lead almost invariably, and perhaps naturally, to efforts to overthrow the disposition made by the parties of the property.

In this case the debtor, who had been for years under the necessity of soliciting aid and assistance in pecuniary affairs from two of his neighbors, received it under a promise to provide for them in case misfortune overtook him, and when it became impossible for him to continue business longer, transferred his scanty stock to those who had befriended him, and for want of requisite property to pay all, left his general creditors unprovided for. No question was made on the trial but that the debts and liabilities preferred were just and honest obligations, and it was not claimed in the complaint that the value of the property transferred exceeded the amount of such liabilities in any appreciable degree. The facts were fully investigated before the referee, and he found that the transfers assailed were made in good faith and without intent to hinder, delay or defraud creditors, and that the property transferred was not more than sufficient in value to pay the preferred claims. A perusal of the evidence has convinced us that this finding was warranted by the proof.

Although the appellant has argued several questions before us which are claimed by him to be unaffected by the findings, we are of the opinion that he has not successfully avoided the natural force and effect of the conclusions upon the facts arrived at by the referee upon the trial. His most strenuous contention is based upon some supposed distinction between bills of sale and mortgages, and the claim that if these transfers are held to be mortgages, as he argues they should be, that they have not been properly filed under the statute to constitute them valid liens upon the property. There is no question but that they were filed, whatever they may be held to be. It matters little, in our view, whether they are regarded as absolute bills of sale given in satisfaction of the debtor's obligations, or transfers by way of mortgage as security for debts. In either view, the main question in the case is whether they were given for the purpose of securing or paying valid and existing obligations of the debtor, or with the intent to hinder, delay or defraud creditors. If the debtor's purpose was to secure or pay honest debts, it could properly be done either by way of a mortgage or bill of sale, and if the statutory requirements applicable to such transfers were complied with, the creditors have no reason to complain, if they were made in good faith. In either aspect, we think there was sufficient evidence to show that all was done by the parties in reference to filing the instruments of transfer, that was necessary to rebut any presumption of fraud arising from any of the circumstances of the case. As found by the referee, the transfers were not only executed in good faith for a good consideration, but there was also a proper filing thereof under the statute as well as a change of possession of the property described therein.

Some difference undoubtedly exists between bills of sale and mortgages, but none, we think, which can be regarded as materially affecting the substantial rights of the parties here. Thus a bill of sale might be regarded as fraudulent if the property transferred greatly exceeded in value the amount of its consideration, while such a circumstance would not affect the validity of a mortgage. Here, however, the referee has found the property transferred was no more than sufficient in value to satisfy the demands of the vendees. No inference of fraud can, therefore, be based upon an alleged inadequacy of consideration. Neither does any difference arise over questions relating to the filing or non-filing of such transfers. If they be considered as absolute bills of sale, they were not required to be filed, as it is only "mortgages or conveyances intended to operate as mortgages of goods," etc., that are referred to in the statute requiring filing. (§ 1, chap. 279, Laws of 1833.) If we regard them as conveyances, intended to operate as mortgages, then they were properly filed in accordance with the statute.

It is claimed by the appellant that the evidence shows that the transfers were intended to operate as mortgages only, and because this intent did not appear in the instruments filed, the filing referred to did not satisfy the requirements of the statute. It would be a sufficient answer to this contention to say that the referee has found that the instruments in question were not intended to operate as mortgages, but were absolute transfers of property made in satisfaction of vendor's obligations to his vendees; and this finding has ample evidence to support it. The complaint alleged the transfers to be bills of sale. The answer admitted the allegation of the complaint and the instruments themselves purported to be absolute transfers of property. There was nothing which took place at the time of their delivery, or thereafter, which subverts or overthrows the conclusions of the referee.

Soon after the bills of sale were delivered the vendees took possession of the property and executed a contract with the vendor, which the appellant now claims was a defeasance. The paper in question was neither in form or effect a defeasance. It was not executed or agreed upon at the time of the delivery of the bills of sale, but was a subsequent transaction, intended simply to regulate the relations of the parties in view of the rights acquired under the bills of sale by the vendees, and consisted of an arrangement whereby the debtor was to act as the agent in carrying on business in the name of the vendees for the sole purpose of converting the property into money and paying its proceeds to the vendees. No other purpose is disclosed by the paper. It acknowledges the receipt of the possession of the property from the creditors and his obligation to sell it and pay the proceeds to them. It reserved no interest in the property to the debtor and provided for its unconditional appropriation to the payment of the debts mentioned in the bills of sale.

There was no necessity for or propriety in the filing of this paper with the bills of sale. The instruments required to be filed are: First. Mortgages; that is, instruments having the form and character of mortgages. Second. Conveyances intended to operate as mortgages. It is quite immaterial how this intention is expressed, whether in writing or by parol. However it exists, the requirement of the statute is that the conveyance shall be filed. It is quite obvious that the statute did not intend to require the filing of an intention, as that would be physically impossible if resting in parol alone. The existence of a parol agreement between parties that a conveyance shall be regarded as a security for a debt, undoubtedly invests it in many respects with the characteristics of a mortgage; but, strictly speaking, it does not make it a mortgage. It must, then, be filed as a conveyance or bill of sale, and the extrinsic agreement forms no part of the instrument required to be filed. The willful concealment or suppression of such an agreement by the parties might be regarded as some evidence of a fraudulent intent; but it has no effect upon the question of a proper filing of the instrument. The statute is aimed at secret liens and mortgages, and declares all such void as against creditors unless accompanied by an actual and continued change of possession, or a filing thereof as provided. There was no secrecy about the transaction in question. If these instruments could be regarded as within the meaning of the statute, its object was fully complied with by the filing of the bills of sale, making the transfer a matter of public record.

The fact that the debtor was deputized to act as the agent of the vendees in disposing of the property is not conclusive evidence of a fraudulent intent in the transfer, whether he be regarded as acting under a mortgage or a bill of sale. (Brackett v. Harvey, 91 N.Y. 214; Brown v. Guthrie, 110 id. 435; Ball v. Loomis, 29 id. 412; Miller v. Lockwood, 32 id. 293.) When a debtor is left in charge of property conveyed by him to a creditor in payment, or as security for a debt, that circumstance affords a presumption of fraud, which, in the absence of a satisfactory explanation, will, in some cases, become conclusive. (3 R.S. 2328, § 5; Blaut v. Gabler,77 N.Y. 461.) When, however, satisfactory reasons exist therefor, and it is done in good faith, there is no rule of law which prevents a creditor from availing himself of the services of his debtor in disposing of property honestly transferred in payment of debts. Neither is the fact that such debtor is to be paid for his services by the vendees, if the agreement therefor is not made a condition of the transfer, conclusive evidence of a fraudulent intent. A debtor is under no obligation to give his services to his creditors after he has failed and surrendered his property to them; and if he thereafter renders valuable services upon request, the law will, in the absence of any express agreement, imply a promise to pay him therefor; and it furnishes no proof of fraud, if done in good faith, for such creditors to promise to, or pay for such services.

Some evidence was also given that property, not correctly described in the bills of sale, was taken possession of by the vendees and sold by them. It was found by the referee that the debtor intended to cover his whole stock in trade by the bills of sale, and so declared to his vendees at the time of the transfers and upon the delivery of the stock to them by the vendor. The vendor having voluntarily delivered possession of the property intended to be conveyed to his vendees, at a time when he could lawfully do so, if done with an honest intent, no question can now be raised in respect thereto by general creditors, especially after a sale of the property and the application of its proceeds upon the debts owing to the vendees.

It is also claimed by the appellant that an exception to the question put by the defendants to the debtor McIntyre: "Did you turn over the whole stock of goods in the store and believe the bill of sale covered it?" which was objected to as incompetent and immaterial, was well taken. It will be observed that a portion of the question was clearly competent. The defendants had a right to prove what was done in delivering possession of the goods, and we think, in view of the issue of fraud raised in the case, it was competent for the defendants to prove that he did so in good faith, believing it was covered by the bills of sale.

The appellant also objected to an answer to the following question put to the defendant McIntyre: "Could that property, in your opinion, have been sold at public auction for over $1,775 at time bills of sale were delivered?" The case shows that charges of fraud were predicated upon the fact that the vendees continued the business for a short time selling goods at retail and on credit, instead of selling the same at auction. It was certainly competent for the defendants to rebut any presumption of fraud arising from the mode pursued in disposing of the stock and to show that the method of sale was adopted for the best interest of the parties concerned and not for the benefit of the debtor, and that they pursued the most prudent course to secure the highest price for the property. The proof tended to show the reasons for selling the property as they did. The question was not intended to put a value upon the property, but to show that a sale at auction was not deemed advisable under the circumstances of the case. We think that in this view the question was not objectionable.

No other questions have been raised by the appellant which require particular notice, and we are of the opinion that no sufficient reason exists for disturbing the judgment appealed from.

The judgment should, therefore, be affirmed.

All concur.

Judgment affirmed.