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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 250 When this case was before this court, on a former appeal, two questions seem to have been settled: 1st. That it was competent for the defendants to prove by way of defense to this action, that if the corporation was organized and the business thereafter carried on in its name, with the design of cheating and defrauding the creditors of William Montgomery or William Montgomery Co., such organization and proceeding was absolutely void as against such creditors, and that a sale and purchase of the property in question by such a creditor would have given him title thereto, as against a creditor of the corporation who had given it credit without notice of such fraudulent purchase.
2d. That the bona fide creditors of the corporation, who had trusted it without notice of the fraudulent purpose, did not have an interest in its property superior to the creditors of the person whom it (the corporation) was formed to defraud.
These propositions are not now open for discussion. They must be taken as the law of the case; and it only remains to inquire whether they have been properly applied by the court below, and whether any errors have been committed on the last trial of the cause.
The first point made by the defendants' counsel to reverse the judgment is that his motion to dismiss the complaint was improperly denied.
When the plaintiff rested he had proved the sale of the engine on an execution in his favor, against Montgomery Co., the purchaser, by his agent, at Montgomery Co.'s *Page 251 shop; the seizure and sale of the same property thereafter, on an execution against the steam saw-mill company, and the value of the property. This was all he was bound, in the first instance, to prove, to make out a cause of action. There was no evidence up to that point of time, that the corporation had any interest whatever in the engine. The motion was therefore properly denied. But if the plaintiff had failed to make all the proof he was bound to make to entitle him to recover, it was the duty of the defendant to point out the defect, so that it might be supplied.
A defendant cannot omit to point out the defects in the case made by the plaintiff, and entitle himself to a nonsuit. Neither morals nor law will sanction any such practice.
When the debt on which the plaintiff's judgment was recovered was contracted, Montgomery and Garrabrant composed the firm of William Montgomery Co., and they gave a mortgage on the partnership effects as security. That mortgage does not seem to have been enforced, and it ceases to be a fact of any importance in the case, except so far as it might bear on the equities between the parties.
When the transfer of the property was made by Montgomery Co. to the corporation, Lund had succeeded to the interest of Garrabrant in the partnership property, and joined with Montgomery in the conveyance of it to the corporation.
Lund was not liable to the plaintiff on the notes he held against Montgomery Co., nor was his interest in the joint property liable to be seized and sold on an execution issued on a judgment on said notes. The transfer, therefore, of his interest in the partnership property to the corporation cannot be fraudulent as against the creditors of Montgomery, or of Montgomery and Garrabrant. If, then, the transfer was made by Montgomery to the corporation, and if the corporation was formed and its business carried on for the purpose of defrauding the creditors of Montgomery, or of Montgomery and Garrabrant, the creditors of the latter did not become entitled to seize and sell the interest of Lund in the property. *Page 252
Again, the corporation had carried on business after its organization, purchased property, contracted debts, manufactured engines and machinery with which Montgomery, or Montgomery and Garrabrant had nothing whatever to do. This property, thus acquired, could not be taken, upon any principle of law or equity, from Lund and his creditors, and applied to the payment of the debts of Montgomery, or of Montgomery and Garrabrant. If the corporation was swept away, the rights of the partners would revive to the property, unless it was proved that Montgomery was the owner of the whole property, which was not proved or pretended. On the contrary, on the formation of the corporation, certificates of stock were issued, and Montgomery and Lund retained but a share each, and transferred the residue to others. It would be monstrous injustice, under these circumstances, to allow the creditors of Montgomery, or of him and Garrabrant, to appropriate the property of the corporation, or of Lund, to pay their debts. Yet the sheriff sold to the plaintiff the whole engine, not the interest of Montgomery, or of Montgomery and Garrabrant therein. Whatever conclusion we may arrive at on the other questions in the case it is quite clear that the plaintiff was not entitled to recover the whole value of the engine.
If it were found that Lund united with Montgomery to form and conduct the partnership for the purpose of defrauding his (Montgomery's) creditors, that did not forfeit his title to his own property, or subject it to the payment of his (Montgomery's) debts.
I am not prepared to say that there is no evidence of fraud in support of the finding of the jury on that question. I must say, however, it is very slight indeed.
We must assume, for the purposes of the case, that the corporation was organized, and its business conducted with intent of defrauding the creditors of Montgomery, or of Montgomery Co. It is not possible to say whether the jury has found that the business was conducted for the benefit of Montgomery alone, or for the benefit of Montgomery Co.; nor is it perhaps important. As the plaintiff was a *Page 253 creditor of Montgomery, he had the right to seize his individual property or his interest in any partnership of which he was a member. If the Montgomery Co. whose creditors were intended to be defrauded, and for whose benefit the business of the corporation was carried on, was that composed of Montgomery and Lund, the plaintiff was not a creditor of that firm. If it was the firm of Montgomery Garrabrant, then that firm as such had no interest in the property transferred to the corporation, nor was it in existence so as to be entitled to the profits of the business. This uncertainty as to the persons intended by the firm of Montgomery Co., exposed the defendants to a finding against them, which, if the jury had been more fully instructed, might have been in their favor. But it is their own fault that more full and specific instructions were not called for.
The first branch of the judge's charge to the jury is in accordance with principles settled by this court in this case on the former appeal.
The third branch of the charge is erroneous: 1st. Because there is no evidence in the case which would justify the jury in finding that Bunce Co. knew that Montgomery used or possessed the property of the corporation as his own, after its organization. It is proved that the firm of Bunce Co. knew that Montgomery, as president of the company, gave its notes in renewal of the notes of Montgomery Co. But this did not prove that he was conducting the business on his own account. It is conclusively proved that Montgomery never had the exclusive ownership or use of the property. If there was no corporation, then Lund owned an interest in the property and business; if the corporation was valid, then it (the corporation) owned and Montgomery did not own it. 2d. Because acquiescing in such use and possession did not, in any manner, injure the rights of the creditors of Montgomery or of Montgomery Co., and certainly did not destroy the right of Bunce Co. to compel payment of their debt from the corporation; and, 3d. Bunce Co. were powerless to do anything to prevent Montgomery from using and possessing the property as his own. They were compelled to acquiesce, *Page 254 and as long as the creditors of Montgomery Co. could not require Bunce Co. to act in their behalf, and so long as there was nothing that Bunce Co. could do that would benefit said creditors, acquiescence was entirely proper, and it could not be made to impair the rights of Bunce Co. to enforce their debt against the corporate property.
Without examining either of the other branches of the charge, or the requests to charge, I am of the opinion, for the reasons above stated, that the judgment of the General Term should be reversed and a new trial ordered, costs to abide event.
The other judges concurred in reversal on the ground that the third branch of the charge was improper.
Judgment reversed. *Page 255