William Ottmann & Co. v. Robbins

PARKER, J.

For some little time prior to August 17, 1891, William M. Conner, who was the proprietor of the St. James Hotel, in this city, had been conducting the business, with the result that on that day his situation was substantially as follows: His indebtedness was about $66,000, of which $36,000 was due for rent and water rates. As security for the payment of rents, his lessors held a chattel mortgage covering all the furniture in the hotel. They had already applied to this court, by petition, for leave to foreclose the mortgage, upon which an order to show cause had been issued, returnable before the court on the 17th of August. The lessors had also commenced proceedings in the Sixth, district court to dispossess Conner for nonpayment of rent. The value of the hotel furniture, apart from the lease, was about $16,000. From this statement, it is at once apparent that unless money could be promptly had, with which to pay the rent, so as to stop the proceedings instituted to dispossess Conner and foreclose the chattel mortgage, his interest in the lease would be cut off, and the furniture taken from him, leaving substantially nothing for the unsecured creditors, having claims aggregating $50,000. Conner was powerless to prevent it, for he neither had $36,000 in money nor the means of getting it. In the presence of this situation, his creditors held a meeting, at which this plaintiff was represented. It was suggested by one of the creditors that if the proceedings pending against Conner could be terminated, so as to give the creditors time to find a purchaser for the lease, furniture, and good will, something substantial might be received on account of their claims; and, to that end, it was proposed that $35,700 should be advanced by the creditors, in proportion to their claims, and applied in satisfaction of the rent and Croton water charges, and that the creditors should cancel their claims against Conner, in consideration of a conveyance to them of the furniture in, and lease of, the hotel premises. Creditors, including the defendant, Bobbins, representing about $35,000 of the $50,000 indebtedness, agreed to enter into such an arrangement, and advance the sum of money needed. No creditor made any objection to the plan, but some of them, including this plaintiff, although requested to enter into it upon equal terms with the others, refused to do so. The agreement was entered into in accordance with the original plan, with one exception. An examination of the lease disclosed that it contained a provision forbidding an assignment of it, so a transfer of the lease was attempted to be made by means of a chattel mortgage, which was intended to accomplish the entire divesting of Conner’s interest therein, either through foreclosure, or through a surrender and new lease. Thereafter, the St. James Hotel was conducted by the defendant, Bobbins, and the other purchasing creditor, under the direction of an agent employed' by them, until the middle of November, 1891, when the property was sold and conveyed to Gustave Dorval for the sum of $80,000. This was accomplished by giving a bill of sale of the furniture to Dorval, and default being made in the payment of rent, so that the lessee and his mortgagee under the chattel mortgage should be dispossessed, and the purchaser, Dorval, should enter under a new lease, which was made. It will be observed that the result of the entire transaction was to vindicate the business foresight and courage of the creditors, who, combining together, advanced more money to save the interest which Conner then had in the property than their claims against him aggregated; the outcome of the transaction being that they received back the money thus advanced, together with the payment of their claims in full, with a sufficient overplus to at least defray the costs and expenses incident to the transaction. By this suit the plaintiff seeks to share in the fruit resulting from the enterprise and thrift of its co-creditors, notwithstanding its refusal to aid in its production. The ground of the action, as stated in the fifth article of the complaint, is:

“That, by the execution and delivery of the several instruments and the transfers herein referred to, it was intended to transfer all the property of the said William M. Conner to the defendant, Bobbins, for the benefit of himself and certain other creditors of the said William M. Conner, exclusive of the plaintiff; that all of the foregoing was done with a view to hinder, delay, and defraud a number of the creditors of the said William M. Conner, including this plaintiff, and with a view of giving unlawful preference to the defendant, Robbins, and certain other of the creditors of the said William M. Conner, exclusive of the plaintiff, and in violation of chapter 466 of the Laws of 1877, as amended by chapter 503 of the Laws of 1887.”

And the relief demanded is that the transfers be declared null and void, as against the plaintiff; that a receiver be appointed, of all the property and effects included in such transfers, and the plaintiff’s judgment paid out of the funds that may come into his hands. Upon this appeal the plaintiff presents still another ground upon which it predicates a claim for relief, which will be considered later.

It is apparent from the facts stated that the learned trial court was right in reaching the conclusion that there was no fraud in fact in this transaction, for it was openly and fairly conducted, with a view of securing such benefits as might result to all creditors who should come in and share the risks of the undertaking on equal terms. The plaintiff, who is the only creditor complaining, was invited to be present at the meeting of creditors, and to come in and share with its co-creditors in the gain or loss which should result from the transaction. It sent a representative to the meeting of August 17th, who listened to the discussion and heard the propositions; and, while it refused to join its co-creditors in an execution of the plan adopted, it made no objection to the making of the arrangement by the other creditors. It is apparent, therefore, that in the whole transaction, as against the plaintiff, there was no element of concealment, of unfair advantage, or of disregard of its rights. The alleged badges of fraud are:

1. That, by the bill of sale, everything contained in and belonging to the St. James Hotel, including the good will of the business, was transferred for the expressed consideration of one dollar, and other sufficient consideration, when, as a matter of fact, the dollar was not paid, and the other sufficient consideration therein specified appears to have been made up by a pretended cancellation of the claims of the defendant, Robbins, and the other creditors who were parties to the transaction. This statement is erroneous, in that it fails to recognize that the entire transaction must be considered together. The bill of sale cannot be separated from the chattel mortgage, and the subsequent proceedings to divest absolutely the title of Conner in the lease. If the transfer of the lease had been accomplished by means of an assignment, as at first contemplated, instead of the method adopted, of divesting Conner’s interest in the lease, made necessary by the clause in the lease prohibiting an assignment, there would be no excuse for the suggestions which are made on this appeal against the legal integrity of the transaction. It appears, however, that the bill of sale and chattel mortgage constituted parts of the same transaction, and they must be read and considered together. Thus considered, we find that the bill of sale and chattel mortgage, and the submission by Conner to being divested of all his title in the lease by the proceedings which were contemplated and subsequently took place, constituted the consideration moving from him for that which came from the creditors, while the payment ■of $35,700, and the cancellation of the purchasing creditors’ claims, furnished a consideration moving from them for all that came from Conner. The appellant says that there was no proof of cancellation •of the purchasing creditors’ claims, other than that it was so entered in the books of Conner; that, in addition to that, there should have been proof of cancellation in the books of the creditors. But this suggestion is without merit, for the purchasing creditors agreed to satisfy their claims in consideration of Conner’s executing the bill •of sale and chattel mortgage, and submitting to a divesting of his title in the lease. And, when Conner did the things which the creditors agreed to accept in satisfaction of the debts, such debts were in fact satisfied and discharged. Entries in their several books were not necessary to accomplish that result. A debt is discharged by payment, not by an entry in the debtors’ books.

2. That fact that the chattel mortgage was taken by the defendant, Bobbins, “individually and as trustee,” to secure the payment of an alleged indebtedness of $75,000 on demand, is alleged to furnish evidence that the scheme was fraudulent. No inferences of fraud can be drawn from the mortgage, considered in the light of the entire transaction. The giving of the mortgage was intended to be but a step in the direction of the transfer of title. The purchasing creditors were about to pay $35,700 in cash, for which they were to receive, outside of the mortgage on the lease, nothing, except furniture of the value of $16,000. The most valuable part of the consideration for which they were to advance this sum of money, and, in addition, satisfy their claims, aggregating about $35,000, against Conner, consisted of this lease. As they were prevented from getting an assignment of the lease, because of the clause prohibiting an assignment, they took a lien upon the lease for the entire amount of the consideration which Conner was getting from them, and by the mortgage the parties intended to. effectuate the performance of Conner’s original agreement to transfer the lease. The purchasers acquired nothing more by the giving of the mortgage than they were entitled to under the original agreement with Conner, but it operated to prevent Conner from mortgaging the lease to third parties, in violation ■of the purchasing creditors’ rights.

3. The appellant claims that the cancellation of a certain agreement by the defendant, Bobbins, and his fellow committeemen, was fraudulent, as against the plaintiff and the other creditors of Conner. This agreement, called a “trust agreement,” was entered into between Conner and his creditors, other than his lessors, in February, 1891, by the terms of which a committee of three, of whom the defendant, Bobbins, was one, were to represent the creditors in the conduct of the hotel business until the indebtedness due to the several creditors named in the agreement should be paid. It is conceded that under this agreement there was not accomplished the results hoped for. Indeed, from the time of its execution down to its cancellation, in August, the business of every month resulted in a loss, instead of a profit. One of the provisions of this agreement was:

“And it is also further agreed by and between the said parties that, should the result of any one month’s business show a loss, or a profit of less_ than the sum of $2,500, that then and in that event, at the option of said parties_ of the second part, or their said committee, this agreement may be forthwith abrogated, canceled, and annulled.”

At the meeting on the 17th of August, the result of the business was placed before the creditors, and after discussion a vote was taken upon a motion that the agreement be canceled; and no creditor voted in the negative, although this plaintiff had a representative at that meeting. The secretary thereupon noted upon the agreement that it had been canceled by a vote of the creditors; and the committee .indorsed thereon, in pursuance of the provision which we have quoted, the following, “The within paper canceled and abrogated, in pursuance of the provisions therein contained,” and signed their names thereto. It is perfectly clear that the committee had full authority to cancel this agreement, and that which they did operated to put an end to it There was no concealment about it, whatever. The matter was fully discussed in the presence of the creditors, and all either voted that it be done, or acquiesced in it by their silence. Our assertion that the effect of the action of the committee on the 17th of August was to cancel and put at an end the agreement of February, 1891, furnishes sufficient answer to the claim of the appellant that if any. title to the furniture and lease was transferred by the bill of sale and chattel mortgage, and the proceedings had thereunder, it was impressed with the agreement of February, 1891, and therefore the plaintiff became entitled to relief in equity against Robbins and his associate committeemen, as trustees. But there is another answer: The complaint does not refer to the lease, nor assert any rights under it. On the contrary, the cause of action alleged is wholly inconsistent with any such claim. It proceeds upon the theory that the transaction of August 17th, and the whole of it, was fraudulent and void, as against the plaintiff. Plaintiff is not, therefore, in this suit, in a position to ask that the transaction be regarded as a valid transfer to the defendant, Robbins, and others, as trustees, under the agreement of February, 1891, and the trial court properly so held. The judgment should be affirmed, with costs.