Court Opinion

ID: 5504341
Source: CourtListenerOpinion
Date Created: 2022-01-10 03:06:24.552745+00
Date Added: 2024-06-11T08:34:00.851165
License: Public Domain

DWIGHT, P. J.,
(dissenting.) The action was in the nature of a creditor’s bill, to set aside a deed of a house and lot in the village of Addison, in Steuben county, made by the defendant Isaac to the defendant Lucretia, his wife, as being in fraud of creditors. The appeal is on the judgment record alone; the appellant relying for the facts of the case upon the findings of fact made by' the court, and his contention being that those findings are not only inconsistent with the conclusions of law and the directions for judgment, but that they entitle the plaintiff to the judgment asked for in this complaint. After the formal findings of indebtedness and insolvency of the defendant Isaac June, the recovery of several judgments against him bv the plaintiff, the return of executions thereon unsatisfied, and the relationship of the defendants, *856the court finds that the transfer assailed was made in the exchange of property between the judgment debtor and his wife; that the house and lot known as the “Tuscarora Street House,” conveyed by the former to the latter, was of the value of about $3,500, and the property conveyed by the wife to the husband, known as the “Hollis House,” was of the value of about $1,500; whereas the exchange was made at a valuation—agreed upon between the parties—of the Tuscarora street property at $3,000, and the Hollis property at $2,000, the difference between those valuations being made up to the husband by crediting to him an alleged indebtedness from him to his wife, of a like amount, for money loaned, goods sold, and money had and received. The court found that the amount of such indebtedness did not precisely appear, and the reference was ordered to ascertain the same. But the court also found, as facts, in terms, as follows:
“That the said transfer was made by said Isaac June to secure for himself and his family the use and occupation of the Tuscarora street house and lot, and to prevent his creditors from taking the same to apply upon his debts, and the same was received by Lucretia June for the purpose of securing the said Tuscarora street house to her as a. residence, and obtaining payment of the moneys due from Isaac June to her. That the consideration paid by the said Lucretia June for the Tuscarora street house and lot was inadequate and unfair, and that the said Isaac June consented to receive said consideration for the purpose of defrauding his creditors out of the amount which the value of the Tuscarora street house exceeded the consideration which was paid therefor by said Lucretia June, and that the said Lucretia June was aware of said intent.”
And therefore the court found, as conclusions of law, that the plaintiff was entitled to judgment setting aside the conveyance of the Tuscarora street house and lot by the defendant Isaac to the defendant Lucretia, “so far as the ■ same is an obstruction to the levying of executions to- be issued upon his said judgments,” but that the defendant Lucretia was. entitled to hold that conveyance as security for the actual value of the Hollis house and lot, and the amount of the indebtedness actually due from the defendant Isaac to her, at the date of the conveyances; and judgment was directed to be entered, giving leave to the plaintiff to sell the Tuscarora street house and lot on his judgments against the defendant Isaac," with the same force and effect as if the conveyance to Lucretia had not been made, but providing that such sale should be subject to the lien of Lucretia, as the same should be fixed after the coming in of the report of the referee. An interlocutory judgment was entered, accordingly. A hearing was had before the referee, and on the coming in of his report the amount for which the defendant Lucretia should hold the conveyance to her as security was fixed by the court at the sum of $2,111.04, with interest from the date of the conveyance; and a final judgment was directed and entered accordingly. It is from that judgment that this appeal is taken, with notice that with it the interlocutory judgment would be brought up for review.
Upon the case thus made, by the findings of the learned court at special term, 1 can have no doubt that the contention of the ap*857pellant is fully sustained, to the effect that the judgment is erroneous in so far as it adjudges the defendant Lucretia entitled to hold the conveyance to her as security, and gives her a lien upon the property conveyed, for the amount of the consideration rendered by her therefor. That conclusion does violence to the elementary principle that every contract, transfer, or transaction which is vitiated by fraud is vitiated altogether; that- the leaven of fraud leavens the whole lump. Here is the unequivocal finding that the conveyance was made with the intent on the part of the grantor to defraud his creditors, and that the grantee was aware of such intent. This takes the case out of the saving clause of the statute of fraudulent conveyances, which provides that “the provisions of this chapter shall not be construed in any manner to affect or impair the title of a purchaser for a valuable consideration, unless it shall appear that such purchaser had previous notice of the fraudulent intent of his immediate grantor,” etc. 2 Rev. St. p. 137, § 5; Birdseye, p. 1237, § 23. The first section of the title pronounces its absolute condemnation upon every conveyance “made with the intent to * * * defraud creditors,” without any mention of the intent with which such conveyance is received, or of the consideration paid therefor; and section 5, supra, saves from such condemnation only those conveyances which are made for a valuable consideration, and to purchasers who are without notice of the fraudulent intent; so that the statute itself makes a perfect case against the conveyance in question. And such is the doctrine of all the authorities. Starin v. Kelly, 88 N. Y. 421; Dewey v. Mover, 72 N. Y. 70; Billings v. Russell, 101 N. Y. 226, 4 N. E. Rep. 531; Baldwin v. Short, 125 N. Y. 553, 26 N. E. Rep. 928; Van Wyck v. Baker, 16 Hun, 168; approved in Davis v. Leopold, 87 N. Y. 620; Baldwin v. Short, 54 Hun, 473, 7 N. Y. Supp. 717; Babcock v. Jones, (Sup.) 17 N. Y. Supp. 67.
The only contention made by the respondents against the application of the statute to this case is an attempt to limit its operation to cases in which the grantee was not merely cognizant of, but an active participant in, the fraud. It is clear that the limitation cannot be upheld. It has no warrant in the statute itself, nor.in any authoritative decisión. The dictum of the commission of appeals in Dudley v. Danforth, 61 N. Y. 626, which is apparently 'favorable to such contention, was altogether obiter, since the referee in that case found, expressly, that both purchase and sale were made in good faith, while in Inglehart v. Hotel Co., 109 N. Y. 462, 17 N. E. Rep. 358, the referee not only did not find, but refused, on request, to find, fraud, either in fact or in law. The case of Boyd v. Dunlap, 1 Johns. Ch. 478, which affords an early precedent for the relief granted by the judgment appealed from, was one in which the chancellor held the conveyance assailed not fraudulent, either actually or constructively, but only given under suspicious and inequitable circumstances. See Bigelow v. Ayrault, 46 Barb. 143.
But it is quite unnecessary to discuss the question, here, whether the fact of knowledge by the grantee of the fraud intended by the-grantor is sufficient to avoid the conveyance in toto, without a find*858ing of active participation in the fraud, because such participation is clearly made out by the findings in this case. The fraud, as found, consisted chiefly of a fictitious valuation of the two properties for the purposes of the exchange; and in this false valuation the court finds that the defendant Lucretia participated with knowledge that the purpose of it was to defraud the creditors of her husband out of the amount by which the relative value of the property conveyed by her was thereby enhanced. Moreover, she was the beneficiary, and the sole direct beneficiary, of the fraud. She was to have the benefit of every dollar fraudulently withheld from the creditors of her husband. The Tuscarora street property was to come into her hands for a consideration of $1,000 less than its true value, as known to her, and, as she knew, for the purpose of fraudulently defeating the remedy of her husband’s creditors by that amount. Clearly, when she became a party to the fictitious valuation of the properties transferred, and a party to the exchange based upon the fictitious valuations, with knowledge of the fraudulent purpose of both, she became a party to the fraud, and amenable to its consequences. In my opinion, the judgment should be modified by striking out the provision for security and a lien, in favor of the defendant Lucretia, upon the property conveyed to her, and inserting a provision for the applictation of the entire proceeds of the sale of the Tuscarora street property, or so much thereof as may be necessary, to the payment and satisfaction of the executions to be issued on the plaintiff’s judgments; also, by striking out the provision for costs in favor of the defendant Lucretia, and substituting therefor a provision for costs in favor of the plaintiff, against both defendants.