#### The Phœnix Iron Co., Resp’t, *v.*The Vessels “Hopatcong” *et*al., App’lts.1

*(Court of Appeals, Second Division,*

*Filed June 2, 1891.)*

1. Lien (maritime)—When not lost by receiving notes.

In July, 1884, W. S. & Co., shipbuilders, contracted with the H. L. & I. Co. to construct two iron ferry boats. Part of the materials were obtained from plaintiffs, terms cash, but were not paid for. In November, 1884, W. S. & Co. sent the plaintiffs their notes at three and four months, and in December made a general assignment. W. 8. & Co. were insolvent at the time of giving the notes, and knew it, and had previously transferred the unfinished boats and materials to the H. L. & I. Co. *Held,*that the notes were sent with fraudulent intent and relieved plaintiffs from the extension of credit which they purported to create.

2. Same—Unfinished vessels.

Hulls on the stocks in the course of completion are unfinished vessels, and within the contemplation of the statute subject to lien of debt for work done and materials furnished in building them.

3. Same—Place of contract.

Plaintiff was a corporation doing business in Philadelphia and the goods were there shipped to the builders and delivered to them at Newburgh in this state. *Held,*that the debt, within the meaning of the statute, was not contracted until the iron was delivered and then was contracted at the place of delivery.

4. Same—Ferry boats.

Ferry boats are within the terms *vessels*as used in the statute.

Appeal by the Hoboken Land & Improvement Company from' an order of the general term of the supreme court, in the second judicial department, reversing upon the facts and upon the law judgment entered on the decision of the special term.

*Leon Abbett,*for app’lts; *E. A.*Brewster, for resp’t.

1

 Affirming 35 N. Y. State Rep., 703.

Bradley, J.

This controversy between the respondent and the Hoboken Land & Improvement Company is in a proceeding instituted and conducted pursuant to chap. 482 of Laws 1862, entitled “An act to provide for the collection of demands against ships and vessels,” amended by Laws 1863, chap. 422.

On July 23, 1884, Ward, Stanton & Co., ship builders at New-burgh, by contract with the Hoboken, etc., Company, undertook the construction for the latter of two iron ferry boats, at the price of $150,000, and proceeded to construct them. Part of the materials for the work was ordered from the Phoenix Iron Company and it delivered to them August 5th, 7th, 18th, 19th, September 11th and October 17, 1884, quantities of angle iron at prices aggregating $4,958.72. The terms of sale were cash, which imports no credit, No payments were made for the iron. But on November 21, 1884, Ward, Stanton & Co. sent the Phoenix Com*67pany, by mail, their two notes, one at three and the other at four months, for the amount of the claim, and December 24,1884, they made a general assignment for the benefit of their creditors. On application of the Phoenix Company to a justice of the supreme court a warrant to enforce its lien for such debt pursuant to the provisions of the statute was issued February 5, 1885, to the sheriff against such vessels, their tackle, apparel and furniture, and on the same day the sheriff attached and seized the two iron ferry boats, etc., which were then incomplete. Afterwards an order was made by the same justice directing the sheriff to sell, and they were sold March 28, 1885, pursuant to that order, and two others, on the application respectively of the Chester Rolling Mills and Whitehall, also lien creditors of Ward, Stanton & Co. And on the application of the Phoenix Company a second warrant was issued against the proceeds of the sale, April 16, 1885.

The Hoboken Co., as owner of the Hopatcong and Musconetcong, filed answers to those claims and proceedings of the Phoenix Co., and thus were presented the issues for trial The special term determined that the warrant of February 5th was ineffectual because the right to it was suspended by the then unmatured notes given and held for the debt, and the proceedings founded upon it were dismissed; and that upon the proceeding instituted April 16th the company was entitled to receive from the proceeds of the sale of the vessels satisfaction only of the last bill of iron delivered in October, 1884, amounting to $369.74, as the lien of the debt arising from the prior sales and deliveries had terminated when that proceeding was commenced. The statute upon that subject provides that the debt shall cease to be a lien at the expiration of six months after it was contracted unless, etc. Id., § 2. The view of the general term in support of the last proceeding was that all the iron was delivered in performance of a single contract, also that the first proceeding was sustainable upon the ground that the notes were sent to the Phoenix Co. with the intent on the part of the makers not to pay the debt. The first proposition is not sustained by the evidence. The Phoenix Co. did not undertake to deliver any specific amount of iron or the entire quantity requisite for any particular purpose. It agreed to furnish angle iron at specified prices, which was done from time to time upon the orders of Ward, Stanton & Co. The second is the main proposition and is one of fact. The contention of the appellant’s counsel that the facts were not before the general term is not supported. The paragraph following the evidence in the case that “ the foregoing is all the testimony and proceedings upon the trial,” is presumptively sufficient to meet the question so raised. Although a certain inventory and schedule introduced in evidence do not appear in the record, it is evident from what does appear that they could add nothing essentially bearing upon any contested fact.

It is also urged that the statute does not provide for a lien upon unfinished vessels; and that the debt in question was not contracted in this state and therefore was not alien upon them. These boats were partially constructed at the time they were at*68tached, and the hulls were then in no condition to float in the water, and would not if launched The statute provides that- “ whenever a debt amounting, etcl, as to any * * * vessel shall be contracted by the master, owner, charterer, builder or consignee of any ship or vessel * * * within this state * * *" on account of work done or materials or other articles furnished in this state towards the building, repairing, fitting, furnishing or equipping such ship or vessel * * * such debt shall be a lien upon such vessel, her tackle, apparel and furniture, and shall be preferred to all other liens thereon except mariners’ wages.” The iron was furnished by the respondent as material towards the building of these vessels and all of it, except a small portion, had been put into the work. The hulls were on the stocks in' the course of completion. They were unfinished vessels, and within the contemplation of the statute were subject to lien of debt for. work done and materials furnished towards building them. *Phillips*v. Wright, 5 Sandf., 342. And the debt was contracted by the owner within this state on account of materials furnished in this state. The Phoenix Iron Company was a corporation of the state of Pennsylvania doing business at the city of Philadelphia, and the goods were there shipped to the builders and delivered to them at Newburgh in this state. The debt, within the meaning of the statute, was not contracted until the iron was delivered and then was contracted at the place of delivery. *Veltman*v. Thompson, 3 N. Y, 438; *Crawford*v. Collins, 45 Barb., 269; *Mullin*v. Hides, 49 id., 250.

The materials were furnished for and used in the building of both vessels, which were being constructed at the same time and place, and no reason appears why they are not subject to the lien and to a single proceeding to enforce it against them.

The ferry boats are within the term vessels as used in the statute referred to. The construction given in *Birkbeck*v. *Ferry*Boats, 17 Johns., 54, to the statute in question in that case, has no necessary application to that under which the present proceedings were had *King*v. *Greenway,*71 N. Y., 413.

The remaining question is one of fact, and has relation to the effect to be given to the notes sent by Ward, Stanton & Co. to the Phoenix Co. The acceptance of the notes apparently operated as an extension of the credit of the makers until maturity. And if such was the effect, the right of the creditor to enforce the lien it béfore had was not only suspended during that time, but when the suspension terminated the lien as to most of its debt had expired by lapse of time. *Happy*v. Mosher, 48 N. Y., 313; *Mott*v. Lansing, 57 id., 112. But it is contended on the part of the respondent that the notes did not have the effect , to suspend the right of the creditor to take proceedings to enforce the lien, because they were made and sent to it with the fraudulent intent on the part of the makers not to pay the debt. The general term disagreed with the trial court on that question, and reversed the judgment upon the facts as well as on the law; and this court must review the determination there made upon the questions of fact Code Civ. Pro., § 1338. This section, as well as §272 of the -old Code, *69which was in this respect substantially the same, has received some judicial consideration, and the rules applicable to the review in such cases have been somewhat defined. *Godfrey*v. Moser, 66 N. Y., 250; *Moran*v. McLarty, 75 id., 25; *Baird*v. *Mayor, etc.,*96 id., 567. And it is there held that the rule that where there is conflicting evidence, or any evidence to sustain the finding of the trial court, it is error for the general term to reverse, has no application to such a case. “ While proper allowance should be made in reviewing the facts, where testimony is conflicting, for the judgment of the trial court, who saw and heard the witnesses testify while upon the stand, this is not entirely controlling, and the general term must assume the responsibility of examining the whole case and determine from the evidence where the truth lies.” And in the *Baird*case, the court added : “ To justify a reversal it must appear that such findings were against the weight of evidence, or that the proofs so clearly preponderated in favor of a contrary result that it can be said with a reasonable degree of certainty that the trial court erred in its conclusion.” The doctrine of these cases was followed in *Aldridge*v. *Aldridge,*120 27. Y., 617; 31 N. Y. State Rep., 948, although the absence of a certificate that the record contained all the evidence rendered it unnecessary to do more than to see that there was some evidence to sustain the findings of the trial court.

In *Nostrand*v. *Knight,*123 N. Y, 614; 34 N. Y. State Rep., 96, an expression in the opinion of the court delivered by Chief Judge Ruger seems to go further in support of the determination of the general term in reversing the judgment of the trial court than does the view on that subject expressed by the court in any previous case to which our attention has been called. It is that “ the general term had jurisdiction to review the conclusion of the trial court, both upon the facts and the law, and we cannot reverse its determination, unless upon examination we conclude that there was such a preponderance of evidence in favor of the conclusions reached by the trial court as would have constituted error of law for it to have found otherwise than it did.” But in the examination of the evidence, the court proceeded to the conclusion that there was a preponderance of 'evidence against the findings of the trial court, and the reversal by the general term was sustained.

In the present case there was not much controversy about the facts other than the single one of the intent of the makers of the notes in sending them to the creditor» Ward, Stanton & Co. were then insolvent, and knew they were so. The Phoenix Co. did not know it, but supposed the firm to be solvent. These facts alone and the failure of the debtors to inform their creditor of their condition of insolvency, without the aid of intent on their part not to pay, did not constitute fraud. *Nichols*v. *Pinner,*18 N. Y, 295 ; *Wright*v. *Brown,*67 id., 1; *Morris*v. *Talcott,*96 id., 100. The sales were for cash and not on credit, and when each of the bills of iron was delivered the Phoenix Co. was entitled to payment for it; and at the time the notes were made the debt arising from the sales was secured by lien upon the vessels. There *70was no previous understanding or agreement for making and taking of notes, but the debtors without consultation with their creditor voluntarily made and by mail sent the notes to the Phoenix Co., enclosed in a letter stating merely, “ Please find enclosed two notes for acct.,” then followed a statement of the notes as made for the amount of bill rendered November 1, and interest added. The company received the notes, placed them in bank for collection and retained the title to them. They were surrendered to the court for cancellation at the trial.

The firm of Ward, Stanton & Co., prior to November 15,1884, had received of the Hoboken Company, upon the contract, $70,000. Up to that time the firm owned the unfinished vessels, and on that day a new contract was entered into between those parties whereby the firm sold, transferred and delivered to the Hoboken Company those vessels and all material and personal property of every kind forming any part thereof, with all the wood work, iron work, materials and personal property of every description in the ship yard. And the firm agreed to do the additional work and furnish such material as should be necessary to complete the ferry boats as and at the time provided by the contract of July ; and that when so completed neither of them, nor any material for them purchased by the firm, should be liable or subject to or affected by the debts of the latter.

The Hoboken Company paid to the firm $10,000 on the day this contract was made, $10,000 December 2d and $10,000 December 17th, making together payments amounting to $100,000, leaving unpaid of the contract price $50,000. There was evidence tending to prove and the trial court found that the $80,000 unpaid at the time the contract of November 15th was made was “sufficient to enable the firm to complete the boats and pay for all material and labor therefor; ” and that at the time the notes were sent the firm owned tools which had cost it $100,000, on which there was a mortgage of $25,000; and that it had other stock in the yard not covered by the mortgage or included in the sale of November 15th, which had cost it about $10,000. The then value of the property not included in the sale does not necessarily appear, but there was evidence that the mortgaged property was afterwards sold upon the mortgage for about $19,000.

Prior to Hovember 21st, and in September and October, several notes of the firm had been protested. At the time of mailing the notes to the Phcenix Company the indebtedness of the firm was at least $115,000. notwithstanding this situation one member of the firm testified as follows:

> “ Q. At the time of giving the notes to tire Phoenix Iron Company was your firm solvent and able to pay its indebtedness, or whatever was outstanding against them? A. Yes, we considered that we were.”

> “ Q. As matter of fact were you? A. We considered ourselves so.”

And he afterwards testified that the liabilities of the firm at the time of making the assignment were from $150,000 to $175,000 ; that the firm did not, nor, so far as he knew, did any of its mem*71bers, own real estate; and that most of its property was covered by the mortgage before mentioned. The Phoenix Company had no knowledge or information of the insolvency of the firm or of the transfer made by it to the Hoboken Company until after the general assignment was made. Upon this state of facts the question arises as to the motive by which the firm may be deemed to have been actuated in sending the notes to the Iron Company, The firm knew that it was then in no condition to pay its debts, and it is difficult to see any solid foundation for reasonable expectation that it would be able to do so, especially without an unusual indulgence of creditors. So far as appears, Ward, Stanton & Co. were not in a business from which they could expect to realize such large profits as to reasonably justify hope of relief from their embarrassed financial condition. Why did they send the notes ? They did it without any previous understanding with or consent of the company, and its consent to extend the credit depended upon the acceptance of the notes. The company then had a lien upon the ferry boats. The notes, if rendered effectual, would operate to suspend the lien and discharge it as to most of the debt. The firm had by the contract with and transfer to the Hoboken Company undertaken to complete the boats free from all liens. It is not unreasonable to suppose that these boat and ship builders, who had been in the business in this state for twelve years, were advised of the statute relating to liens on ships and vessels for labor and materials. The most of their property was mortgaged. The money due on their contract would no more than complete its performance, and of that which they had received they paid none to the Phoenix Company. Under such circumstances the inference quite strongly arises that they did not expect when they gave the notes to pay them at maturity, and if they did not, they by the notes made a promise which they did not expect, and consequently did not intend to perform.

The fraud sufficient to relieve the respondent from the extension of credit which the notes purported to create is not such as is essential to constitute a criminal charge. *Nichols*v. Michael, *23 N.*Y., 264. And there is no pretense of the latter imputation in this case. In *Wright*v. Brown, 67 N. Y., 6, the court say: “ Upon the case made by the plaintiffs the inference is legitimate that the defendant must have known when he purchased the barley that he could not continue in business and that he could not pay for it, and hence that he is chargeable with an intent not to pay for it.” In cases like the present, purposes are not usually directly proved, but are to be inferred from the circumstances which furnish the motive for the act. The credit which the firm sought by the notes to obtain was not nor was any credit provided for in the contract of purchase. The debt was due. There was no reason for the acceptance of the notes by the Iron Company and the extension thereby of the credit, except for the accommodation of the makers, and upon the faith of their solvency and ability as well as purpose to pay.

The inference was by the evidence permitted that it was the purpose of the debtor firm to substantially defeat the lien which *72the company had on the boats by suspension of the right to enforce it until to that extent it had expired. And in view of the then actual financial condition of the firm, known to the latter, and of the transfer then recently made by it, followed as it was by the general assignment, the conclusion of the general term was justified that the firm was hopelessly insolvent when it sent the notes to the Phoenix Co. and then had knowledge that it was in that condition and could not and did not intend to pay the debt. And the determination that the inference of such facts was supported by a preponderance of evidence was also warranted.

The order should be affirmed and judgment absolute directed for the respondent.

All concur, except Brown, J., not sitting.