Case ID: ad_66/html/0293-01.html
Source: Caselaw Access Project
Author: {"author": "Williams, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Third National Bank of Buffalo, Respondent, v. Buffalo Wheel Company and Joseph P. Devine, as General Assignee for the Benefit of the Creditors of Buffalo Wheel Company, Appellants.
    
      Promise by a debtor,, in consideration of an extension of time, not to do any act to prejudice the creditor — it renders a general assignment, made by the debtor fraudulent.
    
    Where a debtor induces a creditor who has brought an action against it to grant an extension of time to answer or demur and to defer the entry of judgment, by promising that it will not do, or suffer anything" to be done, which will prevent the creditor from obtaining the priority which it has practically secured by the bringing of the action, and the debtor, in violation of its promise, makes a general assignment for the benefit of .its creditors without preferences, the fact that the promises to the creditor were originally made in good faith and that at the time they were made the debtor had no intention of making the general assignment but hoped to be able to continue business, does not prevent the violation of such promises by the execution of the assignment from constituting such fraud as will render the assignment invalid.
    McLennan, J., dissented.
    Appeal by the defendants, Buffalo Wheel Company and Joseph P. Devine, as general assignee for the benefit of the creditors of Buffalo Wheel Company, from, a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Erie on the Ith day of November, 1900, upon the decision of the court rendered after a trial at the Erie Special Term.
    
      James McC. Mitchell and Martin Carey, for appellants.
    
      Loran L. Lewis, Jr., and Niles C. Bartholomew, for the respondent.
   Williams, J.:

The judgment appealed from should be affirmed, with costs The action was brought to set aside a general assignment for the benefit of creditors as fraudulent and void as to the plaintiff and its judgment, and the relief asked for was granted by the trial court. The assignment was made by the defendant wheel company, an insolvent domestic corporation, and was without preferences. The facts constituting the alleged fraud found by the trial court upon adequate evidence were as follows: The wheel company was indebted to the plaintiff upon a note of $2,500, dated' February 24, 1898, payable one month after date. An action was commenced upon this note April 8, 1898.- Ho notice of appearance, answer or demurrer was ever served in the action by the wheel company. Two extensions of time for the wheel company to answer or demur were obtained from the plaintiff, of ten days each,, with an agreement that judgment should not be entered in the meantime, the first one April 28, 1898, and the other May 8, 1898, the latter expiring May 18, 1898, so that judgment might have been entered May 19,1898. These extensions were obtained by the wheel company upon the agreement by it that no other claims should intervene or judgments be entered against the wheel company ahead of the plaintiff’s claim; that the wheel company would permit nothing to occur that would prejudice the plaintiff’s claim, or prevent the plaintiff from obtaining the priority which it had under its action that nothing would occur to prevent the plaintiff from Collecting its debt from the wheel company, in the order in which it then stood, and if during the time of the extensions anything intervened to prejudice the priority,of the claim which the plaintiff had obtained in the commencement of its action, the wheel company would immedir ately notify the plaintiff’s attorneys, and the plaintiff could then enter its judgment and protect, retain and preserve the priority which it had acquired by the commencement of its action. These extensions were granted, and the agreement not to enter judgment in the meantime was made by the plaintiff in reliance upon the statements and agreements made by the wheel company.

On the 18th day of May, 1898, the whéel company, in violation and disregard of its promises and agreements made to the plaintiff, and without notice to the plaintiff, made and delivered the assignment, and it was recorded.

The court further found, in the nature of conclusion of fact, that the assignment was made by the wheel company for the purpose and with the intent of hindering, delaying and defrauding the plaintiff in the collection of its claims, and in obtaining the priority and advantage in the entry of its judgment which had accrued to the plaintiff in the commencement of its action, and but for the wheel company’s acts would have accrued to it in the entry and enforcement of its judgment. It was further found that the wheel company had real and personal property upon which such judgment would have been a lien more than sufficient to satisfy the plaintiff’s claim, and that the making, delivering and recording of the assignment deprived the plaintiff of its right of priority in the entry of the judgment which it had obtained by the commencement of the action.

There was no finding that the wheel company, when it obtained the extensions and agreement not to enter judgment, had in view or intended to make an assignment, or that the extensions and agreement were obtained for the purpose of enabling it to make the assignment. The evidence in the record seems to indicate that the wheel company, all the time, until just before the assignment was made, intended and hoped to be able to bring new capital into the business and to continue the same, and obtained the extensions and agreements for the purpose of enabling it to do this, and that it intended to keep its promises and agreements made with the plaintiff, and only at the last was an assignment suggested or thought of. So that the real question here involved is, whether the violation of the promises and agreements of the wheel company by the making, delivering and recording of the assignment, although such promises and agreements were originally made in good faith, constituted fraud for which the assignment should be set aside.

The respondent relies in support of the judgment appealed from upon Jaques v. Greenwood (12 Abb. Pr. 232); Clark v; Taylor (37 Hun, 312); Claflin Co. v. Arnheim (87 id. 238).

In Jaques v. Greenwood, a judgment having been taken by default against the debtors, they obtained a stay of proceeding’s on the pretense that they had a .defense to the action, and on the assurance of the attorney that they would not make an assignment for the benefit of creditors. They did, during the time of the stay, make an assignment with preferences, and thereby prevented the. creditors from realizing anything on their judgment. The court held the assignment void as to these creditors as made with intent to hinder, delay and defraud them.

This case is referred to and distinguished without criticism upon this point in Hauselt v. Vilmar (2 Abb. N. C. 222, 226 ; S. C., 11 J. & S. 574; S. C., 76 N. T. 630).

In Clark v. Taylor, the debtor, for the purpose of inducing two of his creditors to refrain from entering judgment (which they might have done, and such judgment would then have been collectiblfrom the debtor’s property), among other things, promised that, if he. concluded to make a general assignment, he.would give these creditors notice of his intention so to do twenty-four hours before executing it. Thereafter the debtor, without giving any notice to these, creditors, made a general assignment, containing preferences, these creditors being placed in the fifth class.

These creditors thereafter entered judgment, issued execution, and after its return brought action to set aside the assignment as fraudulent as to them. The court, upon the trial, found that the debtor intended to make the assignment at the time of making his promise, which he made for- the purpose of preventing these creditors from exercising their legal rights, and to gain time in which to make the assignment, and, therefore, held that the assignment was fraudulent as to .these creditors, and set it aside as to them.

This case approves of and follows Jaques v. Greenwood, and distinguishes Hauselt v. Vilmar.

In .Claflin Co. v. Arnheim, the debtor, before his time to answer had expired, procured his time to be extended, upon his promise to one of his creditors, among other things, that he would not dispose of his property, and that there would be no change in his property, that no judgments would be entered against him, and that the creditor would not in any way be prejudiced by the delay. The debtor, in violation of his promise, and with a view to defrauding this creditor, and to prevent his obtaining a preference, confessed judgments to five other creditors. Upon a motion to restrain the sheriff from disposing of the proceeds of the property until the determination of an action brought to have the first creditor’s judgment declared to be a lien upon the proceeds prior to the lien of the five creditors whose judgments were confessed, it was held that a debtor would not be allowed, by fraudulent promises or agreements, to deprive one of his creditors of a benefit which but for such fraud he would have obtained; that the right to enter the judgment which the creditor had secured could not be postponed by the fraud of his debtor, and such judgment thus be made subsequent and subordinate to judgments confessed to others of his creditors for antecedent debts. This case approves of and follows Jaques v. Greenwood and Clarke v. Taylor, and considers and distinguishes Wood v. Mitchell (26 Abb. N. C. 129 ; S. C., 44 N, Y. St. Repr. 694; S. C., 137 N. Y. 567).

In this latter case the court said the case was not analogous to Jaques v. Greenwood, but was more like Hauselt v. Vilmar.

In Robinson v. Hawley (45 App. Div. 287), Clark v. Taylor and Claflin Co. v. Arnheim were cited as authority for the proposition that the execution and delivery of chattel mortgages by a debtor in violation of an agreement with a creditor, with the intent to deprive the creditor of the benefit of a security theretofore given by the debtor, was a gross fraud, and one which should not be permitted to deprive the creditor of the benefit which, but for such fraud, he would have obtained, and should not operate to postpone the judgment so as to make it subordinate to the chattel mortgages. There are no authorities in conflict with those here cited.

None of these cases are precisely like the one we are considering, but the principles determined are applicable, and are decisive of the question here involved. The plaintiff was called upon to give the extensions and to defer the entry of its judgment in the meantime upon the promises and agreements made by the wheel company. It had acquired a right practically to priority in payment of its claim over the claims of other creditors. It had commenced its action and the wheel company’s timé to answer or demur was about to expire. It would have expired and the judgment could have been entered and a lien secured upon property sufficient to satisfy the claim in full ahead of the other creditors.

It consented to give the extensions and defer entry of its judgment upon the promise made by the wheel company, in effect that its priority should be preserved and the debtor would do nothing to interfere therewith. The question is not whether these promises were fraudulently made, but whether the assignment was fraudulently made and delivered and recorded. There was no time-after the promise was made that it could be violated honestly or in good faith. The mere making of the assignment was a violation of the promise, was dishonest, was a fraud, and the finding by the trial court as conclusions of fact that the assignment was made by the wheel company for the purpose and with the intent of hindering, -delaying and defrauding the plaintiff in the collection of its claim and in obtaining the priority and advantage in the entry of its judgment' which had accrued to it in the commencement of its action, and but for the wheel company’s acts would have accrued to it in. the entry and enforcement of its judgment, flowed naturally from the facts proven and necessarily resulted in the relief granted in the case.

It is said .that it was the duty of the wheel company to make a general assignment, and making such assignmént without preferences evinced an honest purpose. The difficulty with the claim is that there was no duty imposed upon the wheel company to be dishonest, to cheat or to defraud. The cases cited show that the plaintiff here had acquired practically a right to full payment of its claim before any other creditor was paid anything. This right the wheel company could not honestly deprive plaintiff of by the making and violation of promises relied upon by the plaintiff. The assignment, if permitted to stand, would deprive plaintiff of this right, this priority, and no duty imposed upon the wheel company to make an assignment, nor the failure to make preferences, could render the act of the wheel company, in violating its promises by the making.of the assignment, honest or other than fraudulent.

The case was properly disposed of by the trial court.

The judgment appealed from should be affirmed, with costs.

Adams, P. J., and Spring, J., concurred; Rumsey, J., not sitting; McLennan, J., dissented upon the ground that the promise or agreement made by the president of the defendant corporation did not in any manner affect or control its action; that immediately upon becoming insolvent it was the duty of the defendant corporation to make an assignment-of its property and without preferences; that the promise or agreement relied upon by the plaintiff ought not to have the effect to create a preference in plaintiff’s favor, which is the result of the decision of a majority of the court.

Judgment affirmed, with costs.