New York Ice Co. v. Cousins

Barrett, J.:

Practically the undisputed evidence shows that after the bill of sale by Almus M. Cousins to Richard Cousins on July 23,1896, the former remained in possession of the property for a week, conducted the' business and appropriated its proceeds to his own use. This raises a presumption of fraud in the sale, which becomes conclusive, unless, to quote the statute, “ it shall be made to appear on the part of the persons claiming under such sale or assignment that the same was made in good faith and without any intent to defraud such creditors or purchasers.” (2 R. S. 136, § 5.)

No evidence ivas given by the defendants to rebut this presumption, as the complaint was dismissed at the close of the plaintiff’s case. The learned trial judge distinctly ruled, immediately upon the plaintiff’s resting, that the burden was upon it to prove that the vendee was not a bona fide creditor of the judgment debtor, and the dismissal was upon that specific ground, or, to use the learned judge’s own language, for that “ particular reason.” This ruling was emphasized in the short decision which he subsequently made and signed. The presumption of fraud was entirely ignored in this decision; and the undisputed testimony, that there was no immediate delivery or change of possession, was held to be no evidence of an intent to hinder, delay and defraud creditors. The decision thus rested upon an erroneous view of the law which doubtless pervaded the consideration of the testimony and of the entire case. Indeed this must be so, for it is clear that the testimony adduced by the plaintiff did not rebut the presumption of fraud, and the learned judge nowhere found or intimated that this testimony sufficed to establish good faith and the absence of an intent to defraud. ' What he. clearly held was, that it did not affirmatively show bad faith and an intent to defraud. He apparently overlooked the presumption and thus reversed the burden of proof.

It appears, however, that the plaintiff called the vendor and vendee as witnesses, and the respondents now contend that thereby it performed for them the office of rebutting the statutory presumption. Their claim is that the testimony of these witnesses “ made it appear o'n their part” that the sale was in good faith and without an intent to defraud. Without considering whether this inversion of the order of proof contemplated by the statute is admissible, we think that, to say the least, the testimony in question should have been treated as though the facts elicited from these witnesses favorable to the defendants had been called out by themselves, while the unfavorable facts were in the nature of a cross-examination by the plaintiff. In discussing the rules governing the. examination of adverse witnesses, the Court of Appeals in Becker v. Koch (104 N. Y. 401) approved of Mr. Starkie’s doctrine (Starkie Ev. [9th ed.] *248) and summarized it as follows : “ What favorable facts the party calling him obtained from such a witness may be justly regarded as wrung from a reluctant and unwilling man, while those which are unfavorable may be treated by the jury with just that degree of belief which they may think is deserved, considering their nature and the other circumstances of the casé.”

Looking at the testimony of Almus M. Cousins (the vendor) and of Richard Cousins (the vendee) in the light afforded by this wholesome rule, we think it entirely clear that a prima facie case of fraud was still made' out when the plaintiff rested. As in Becker v. Koch (supra), the plaintiff here called the very men accused of the fraud as witnesses to prove it. These men proved beyond peradventure the primary fact which raised the presumption of.fraud. The. question then is, did they, by their further testimony, rebut that presumption and avert its statutory .conclusiveness ? Whether that farther testimony was elicited by the one side -or the other is of no consequence so far as this latter question is concerned. Once the presumption of fraud had arisen, the burden of proof was shifted, and any further testimony, tending to establish innocence was affirmative, and necessarily related to that burden.

The language of Judge Peckham in Becker v. Koch is again in point. At page 402, that learned judge observed : “ The defendant calls the very man he accuses of the fraud as a witness to prove it, and says, in effect, to the jury, that such evidence as the witness gives, which tends to show the perpetration of the fraud alleged,, is forced from him by the exigencies of the case and the surrounding facts, which cannot be denied ; while that which he gives that looks towards an explanation of the fraud, the jury, shall give such faith to as, under all the facts in the case, they may think it entitled to.”'

How, then, did the vendor and vendee in the present case make it appear that, notwithstanding the statutory presumption, the sale was made in good faith and without an intent to defraud. Solely by the bald statement, which is almost invariably forthcoming in this class of cases, that the bill of sale was given to satisfy and the mortgage to secure bona fide debts, due by the vendor Almus, to his three brothers, Richard, John and Harvey. A lump sum was testified to as due by him to each of these brothers, the totality being quite sufficient to exhaust every scrap of his property. This testimony is unsupported by a particle of corroborative evidence, while the facts and circumstances which these witnesses were corqpelled to give in detail point unerringly to its falsity.

The debtor Almus was in the ice business, and these brothers were in his employ, as drivers of his ice carts, their wages being but twelve dollars per week. Yet the pretense is that these brothers, although even their meagre wages were paid most irregularly — were, in fact, from time to time, largely in arrears — managed, in some undisclosed manner, to save and lend to their brother employer large sums of money, amounting in the aggregate to over §5,000. Where did all this money come from ? The answers of the witnesses were scarcely serious. Richard accounted for his share in part by this statement: “ I worked and earned the money from the time I was born.” There was also a vague suggestion that Richard had received some money from his father, but no substantial fact on that head was stated. In fact, nothing whatever, which could he analyzed or tested, was shown as to the sources of their means. The case is still worse as to data. Not a scrap, of paper was' produced in support of Almus’most improbable story. No entries of the loans appear in any of his books. No receipts were given,- no' memoranda made. Almus said that, at one time, he kept an account of the moneys that he owed in a book, but that the book was “ lost.” Apparently Richard kept no bank book while he claims to have .been making these loans, nor did John or Harvey. There is at all events no pretense that the loans were made by check; and no check was produced or mentioned. In 'fact, all the transactions were kept, so these people say, substantially in their heads. The only suggestion they make of anything approaching to a writing is that occasionally, when the indebtedness became so large or complex as to tax their memories, they summed up what was due and took a note from Almus for the lump sum. Here again, howevér, all investigation is baffled, for the moment the bill of sale was given all these notes were promptly destroyed.

Almus owed his concededly genuine creditors, at the time of these transfers, about $9,500. These creditors were pressing him, and when he found he could put them, off no longer he and his brothers got together and determined upon atransfer of the property. " They then put the matter in the hands of a lawyer, who prepared the necessary papers. They seem, however, to. ha-ye had no clear idea of the nature of these papers. They left it all to the lawyer, and simply gave him instructions to effectuate-their purpose in a legal manner. That purpose plainly was to place some kind of formal barrier between Almus’ creditors and his property. So little did Richard know of the very papers which were signed and delivered that he testified over and over again that he gave the mortgage to John and Harvey. It was only when the real fact, namely, that Almus gave the mortgage, was pointedly referred to by the defendants’ counsel, that Richard seemed to realize his mistake.. It was proved, too, beyond dispute, that after the alleged sale people who came to purchase the property from Richard were referred to Almus. Others were told that there was no mortgage upon the property, that in fact it was free and clear. Creditors were put off by Almus after the sale, just as they had been put off before,.with false promises of payment. The fact of the sale was concealed for days, while creditors were permitted to go on demanding their money. Both brothers continued to act as though Almus was still the owner and quite as though the creditors would soon be paid. The object, of course, was to allay suspicion and to gain time to secure what could be got out erf the business before the creditors commenced their inevitable attack. Thus we find throughout the usual indicia of fraud. As against these marked indicia, we have nothing save the bare statements of the debtor and his brother that the one owed the other money. Every fact and circumstance in the case tend' to falsify these statements. Every such fact and circumstance, too, tend to show that even if these debts really existed, still the intent was to hinder, delay and defraud Almus’ creditors, and that intent is sufficient to avoid the sale. (Billings v. Russell, 101 N. Y. 226.) The case against the bill of sale was, therefore, made out at least prima facie. But the case against the mortgage is in some respects even stronger. It may be said that it was proper for Richard to surrender to Almus the notes that he held, for the reason that the transaction as to him was a sale, and that thus the indebtedness was extinguished. In the case of the mortgage, however, no such view can well be taken. The mortgage was given to secure, not to extinguish, the indebtedness, and it is inconceivable, if the transaction was honest, that the mortgagees should have surrendered to the mortgagor the evidence of indebtedness upon which their security substantially rested. The surrender of these particular notes and their immediate destruction by fire, in view of the mortgagees’ knowledge of Almus’ insolvency and of the probability that the mortgage would be questioned by creditors, are certainly striking badges of fraud.

It seems to us, upon all the facts, that this is an extreme case for the exercise by this court of its power to review and reverse upon the facts — a power which it has at times been criticised for not exercising with sufficient frequency. (Smith v. Ætna Life Ins. Co., 49 N. Y. 211; Kaare v. Troy Steel & Iron Co., 139 id. 369, 376, 377.) It is true that question's of fact are primarily for the trial court, and that a trial court possesses a certain advantage over an appellate court by reason of its opportunity of seeing the witnesses. In some cases, however, this consideration is entitled to much less weight than in others. Where there is simply a question of veracity, without other means of arriving at the truth, the greatest weight should be accorded it. But there are other cases where the truth must be ascertained by a careful consideration of many facts and circumstances. In such cases the demeanor of the witnesses is not necessarily of controlling importance. Indeed, when the complaint in an equity action is dismissed immediately upon the plaintiff’s resting, an appellate court is frequently in a better position than the trial court to pass upon all questions of fact not specially affected by the demeanor of the witnesses. The appellate court can examine the printed record at leisure, carefully collate fact with fact, and thus often get a clearer view of the situation than could have been obtained upon the summary disposition of the case below. We.concede, of course, that the weight due to testimony by reason of a witness’ personality can only be judged by the trial court. Not so, however, of the force and effect of the attendant circumstances, which often speak more persuasively than words and which cannot be gainsaid because of a witness’ manner or expression of countenance. The solution of the questions'- of fact in this case in the main depends upon the consideration of facts and circumstances; not at all upon the personal atmosphere of the witnesses. W e think such consideration is so destructive of- the force of the defendants’’ testimony that it cannot reasonably be said that they have successfully met the. burden put ■ upon them by the statute. They may have looked the very embodiment of truth and honesty, but their acts and declarations belied them. For this court to refuse to reverse in such a case, would, in our judgment, be in effect to abnegate its functions as a court of review upon the facts.

There should .also be a reversal as to the defendant, the Consolidated Ice Company. The payment of a valuable consideration did not protect this company if it had previous notice of the fraudulent intent of its immediate grantor. (R. S. pt. 2, chap. 7, tit. 3, § 5 [2 R. S. 137].) It had such notice. The plaintiff’s manager, one Eddy, fully warned the company’s assistant secretary, Reeve, of the fraud about to be practiced, telling him, among other things, that the plaintiff believed that both the mortgage and the sale of the property were fraudulent transactions, and made in order that the Cousins might dispose of. the property without paying their just debts, especially to .the plaintiff. This was not an expression of opinion; it was a direct assertion of a fact, namely, of a fraudulent intent in the making of the bill of sale. It warned the company’s officers directly of this fact. If they did not then, as they readily might, satisfy themselves of the validity of their vendor’s title, they must bear the consequences. We think they had actual notice within the rule as laid down in Stearns v. Gage (79 N. Y. 102) and Parker v. Conner (93 id. 118).

We think, therefore, that the judgment should be reversed as to all the defendants and a new trial ordered, with costs to the appellant to abide the event.

Williams, J., concurred.