Humphrey & Holdridge were copartners dealing in lumber, coal and general produce at Honeoye Falls, in this State. The defendant was a private banker, carrying on a bank at said village under the name of the Bank of Honeoye Falls. The firm did its banking business almost entirely with the defendant, and from 1896 until its failure in the latter part of 1899 its account with the bank was continuously overdrawn. On July 1, 1899, as collateral security for this overdraft, it assigned to the defendant current book accounts amounting to $17,903.36. On October 2, 1899, the firm made another transfer of its accounts to the defendant, listed *428at $20,872.81. The accounts included in the latter assignment embraced those covered by the preceding transfer, except the sum of $5,407.47, which represented new accounts. The amount of the overdraft July 8, 1899, was $16,912.98, and on October fourth $17,697.67, and on October thirty-first it had increased to $18,992.13. On November twenty-eighth following, the copartners made a general assignment for the benefit of their creditors. On December sixth involuntary bankruptcy proceedings were commenced, and on the nineteenth Humphrey & Holdridge were adjudged bankrupts, and. later the plaintiff was appointed trustee of their estate. The unsecured liabilities of the firm exceeded $67,000, while their nominal assets were less than $30,000. The trustee commenced this action August 6, 1900, to set aside the assignment of said book accounts made on the 2d day of October, 1899, on two grounds: First. That such assignment was made within four months of the filing of' the petition in bankruptcy, and made with the intention of giving-preference to the defendant over the other creditors of the firm, and that' defendant had reasonable cause to believe that such intent induced the assignment. Second. That at the time of such transfer the said firm was insolvent and said assignment was fraudulent and void by reason of the facts which will more fully appear in this opinion.
The village of Honeoye Falls contains about 1,500 inhabitants and the defendant and Humphrey & Holdridge had been long acquainted, and the- copartners carried on with the defendant their banking business which was extensive for a country community. The overdraft at the bank increased .from $34.12 in December, 1896,, to over $18,000 in October, 1899, and this despite the apparently vigorous endeavors of the defendant to stem the advance. There-are several circumstances which it seems to me lead incontestably to the conclusion that the copartners when they transferred the accounts to the defendant which composed- the bulk of their assets* realized that they had about reached the climax of their attempt to-carry on a large business without capital and with a heavy overdue indebtedness, and sought to secure above every one else the man wholiad long befriended them and who alone had rendered it possible for them to continue their business at all. Let us examine the undisputed facts as they are testified to by thé defendant and Humphrey & Holdridge and ascertain if their position that they did not *429apprehend their insolvency finds reasonable support. As has been already stated, there had been a continuous augmentation of the •overdraft account at the bank, and it rose from about $10,000 in January, 1899, to $18,000 in October of that year. This large ■overdraft by a firm doing business in a country village indicates that Humphrey & Holdridge were being hampered by the lack of cash. They had purchased lumber for several years of Willoughby ■& Hathaway of Tonawanda, but for a year before their failure had' ceased to buy of them. They were, however, owing that firm $7,000 which was evidenced by their notes and which were indorsed by Willoughby & Hathaway and discounted with defendant evidently at the instance of Humphrey & Holdridge, as the defendant did not know the members of the Tonawanda firm. These notes had been taken up, and drafts drawn on Willoughby & Hathaway and accepted by them, were substituted in the place of the notes, and these drafts were numerous and were coming due daily to harass and add' to the perplexities of both Humphrey & Hold-ridge and the defendant. There was a draft drawn by Humphrey ■& Holdridge in the bank which had been overdue for over a year and on which they had received their pay, although not accepted by the drawee. In order to meet small debts which they owed about Honeoye Falls they frequently gave a check on their account with ihe defendant and requested the payee named in the check to present it at the bank in Lima, which was four miles distant from Honeoye Falls, and the drawers of the check would pay twenty-five cents exchange ill collecting each check.. This was done to gain time for •a day or two in the hope of getting their account with the defendant in better shape to meet the payment of the small sum to pass by the check. During the early fall of 1899 many creditors whose claims had been for a considerable time overdue, were pressing Humphrey & Holdridge for pay, threatening to draw on them at sight and complaining at their indifference and neglect. The frequency and urgency of these letters must have impressed the members of this firm with their inability to meet these obligations and that their payment could not much longer be deferred. When they were compelled to pacify pressing creditors they apparently did so by adding to the already burdensome load of the defendant and increased their overdraft. When drafts came in they would *430hold them perhaps a “ couple of days, then they were either paid or returned.” Hotes given by the firm were falling due nearly every day. They were renewed, if possible, but if payment was exacted they were charged up to the firm account in the bank. These hre some of the persuasive facts which impel me to the conclusion .that Humphrey & Holdridge during the summer and fall of 1899 must have understood they were unable to pay their debts and that suspension of business was imminent. To be sure they had never had much ready capital, and always did a kiting fast and loose business, but the pressure of insistent creditors and the absence of funds had become too oppressive to warrant any sane man familiar with the circumstances in believing they could go on longer.
Many of the circumstances which have been recited are com vincing when we come to consider their effect upon the defendant. All their banking business Avas run through his bank. He knew Humphrey &. Holdridge had been buying lumber extensively of Willoughby & Hathaway, and the notes for these purchases had been negotiated by him until they aggregated $7,000. They became due, were unpaid and for a time were rdneAved. Finally drafts drawn on Willoughby & Hathaway and accepted by them were substituted for • the notes. The defendant must have known that the real debtors were Humphrey & Holdridge, and the change in the form of tliis large indebtedness and its continuance ought forcibly to have attracted the attention of 'any prudent man, The defendant knew that this overdraft Ayas constantly piling up. He knew that the draft of over $1,000, and on the "strength of which he had paid the sum it called for to Humphrey & Holdridge. had been lying unaccepted and dormant in his bank "for more than a year. He held their note of $3,000 overdue for several years and on which nonfe of the principal had been paid, and another originally of $2,000, but reduced somewhat, although no payments had been made on the principal since 1897. There was in his bank customers’ paper to a considerable amount which had been negotb ated by this firm upon its indorsement.. Between the time of the two transfers Humphrey & Holdridge apparently had collected from the accounts assigned in July about $2,500, and yet during the same time the overdraft had grown nearly $8,000, a potent fact showing that the collections Avere not applied in accordance with the *431terms of the assignment to reduce this indebtedness. Humphrey & Holdridge testify on the one hand that they did not realize they were insolvent and intended no preference by transferring the accounts, and the defendant on the other that he did not know they were in desperate straits and that he did not expect any preference. It is the circumstances, the undisputed facts, which are too convincing for me to credit the testimony of these parties, and in cases of this kind such circumstances must outweigh the protestations of innocence which are always made. To enable a transaction like this to stand would emasculate the Bankruptcy Law, the chief purpose of which is to secure equality of distribution of the assets of the bankrupt among his creditors. (Pirie v. Chicago Title & Trust Co., 182 U. S. 438 ; Crittenden v. Barton, 59 App. Div. 555.)
The defendant had allowed this claim to absorb a large portion of the assets of his bank, and permitted this indebtedness to increase and mount up to proportions wholly un warranted. The business of the firm was being conducted on the money of the depositors in the bank, and this is too flagrant a violation of prudent banking and ordinary business sagacity to be upheld simply because the participants in it vouch for-their honesty. Two facts are essential to bring this transaction within the condemnation of the Bankruptcy Law: Fi/rst. On the part of the insolvent debtors -an intent to give a preference to the defendant by the transfe: of these accounts. Second. On the part of the defendant “ reasonable cause to believe that it was intended thereby to give a preference.” (Nat. Bank. Law [30 U. S. Stat. at Large, 562], § 60, subd. b.) And both of these requirements have been fully satisfied in this case.
But passing the first ground of attack upon this transaction I think the transfer of these running accounts was fraudulent and void, and the facts upon which this conclusion is based are also sup-, ported by the undisputed evidence. When the assignment was made, the accounts were returned and were to be collected by the assignors. If this authority ended by this permission the transfer might be sustained, for the accounts in all probability could be collected more advantageously by Humphrey & Holdridge than by the assignee, and the natural place for the debtors to pay their demands was the jflace of business of the firm, but in addition to this authority Humphrey & Holdridge were to use the moneys *432collected in any way they saw fit. They had only one account at the bank of the defendant. Honeys collected from the assigned accounts as well as from those not assigned and the daily cash receipts were all placed in this common fund in this one account, or else were used by the firm at its place of business to meet its daily running expenses. Everything deposited was mingled together. This account was checked against by Humphrey & Holdridge to meet all demands as they arose; their personal expenses, the expenses of carrying on the business and debts of every kind were paid indiscriminately out of this fund or out of the moneys collected from these accounts. When drafts were made upon them through the bank, when notes became due in the bank or were forwarded for collection there and the interest and discount upon claims held by the defendant were all charged up to this ■ account. . Hany accounts were not assigned, and collections upon those were treated in the same way. If any of the assigned accounts were collected at the place of business of the firm and needed .there, such moneys were used. ’ In fine, there was no distinction between the assigned accounts, those not transferred and the moneys received from cash sales, either at the bank or at the place of business. In short, the written transfer was a fiction in so far as by it there was any endeavor to tie up the accounts to the defendant. The real ownership of the firm continued as visible and definite as before the assignment. This control and use of the avails of the accounts when collected was with the full knowledge and assent of the defendant. In describing the use of the proceeds of these accounts by the firm he testified: “ To my knowledge they used the assigned accounts in various ways. They went on collecting the accounts just as if they had not been assigned, and taking what they pleased of the money collected ; they collected the money and deposited'it, or bought produce with it. I understood they were doing that. * * * When they brought money in to deposit to their general account they .turned the cash in as so much cash regardless of whether it was my collection If they had a hundred dollars in money and some of it was from cash sales and some of it from collections of assigned accounts, it all went in indiscriminately. It was all tr'eated as. so much cash; all that came to.me.” And again, “ that was a general account in my bank that they deposited to. They had but one *433account, and upon that account they drew, all the checks they had occasion to draw on my bank for the payment of obligations to whomsoever they might owe.” And Mr. Humphrey gave a like recital of the way the business was prosecuted: “ We assigned some accounts to Mr. Holden October 2d, 1899, and after they were assigned we went on collecting them, carrying on the general business with the proceeds. On this account in his bank we made deposits from time to time. In those deposits were moneys that we received in our business, and also moneys we received from ■collections of assigned accounts, and we drew checks on the bank for use generally in our business. * * * The parties against whom the accounts were, were never notified that they were assigned. They were paid at our office and ourselves or our ■clerks received the money. Some of that money we deposited and some we used in our business.” The fraud which vitiates the transfer does not consist in the failure to deliver possession of the assigned accounts to the defendant, for dioses in action are not the goods and chattels covered by the statute condemning sales unaccompanied by delivery over of the property. (State Trust Co. v. Casino Co., 19 App. Div. 344; National Hudson River Bank v. Chaskin, 28 id. 311, 315.)
The vice here is that there was in fact no real transfer, no real vesting of title in the assignee. It was an arrangement whereby the title and authority of Humphrey & Holdridge were to be unrestricted as long as they were able to shunt along their business, but whenever the inevitable crash came, then by some sort of legerdemain the written assignment was to be stimulated into life to prefer the overdraft of the defendant. A transfer which at one time places no bar to the ownership of the assignor, and in another exigency is intended to be absolute, cannot be upheld against the creditors who are seeking an equal distribution of all the assets of the bankrupt assignors.
I am constrained, therefore, to dissent from a majority of my associates and vote for reversal of the judgment.
Adams, P. J, concurred upon the second ground stated in the opinion of Spring, J.