Summary
In Booth v. Bunce (33 N.Y. 139, 156), which was not in equity, but an action at law, the obligation of a creditor was enforced against corporate assets as opposed to the claims of a creditor of the corporation, and the court said: "It is insisted that this corporation, being regularly organized, and the defendants their bona fide creditors, their corporate existence cannot be called in question, collaterally, and thus destroy the defendants' claim against them; * * *. This argument is not sound as applicable to a case of fraud.
Summary of this case from Cregg v. Electri-Craft Corp.Opinion
June Term, 1865
A. Thompson, for the appellants.
R.W. Van Pelt, for the respondent.
This case may be regarded as a contest between bona fide creditors to secure their respective claims, in part or in the whole, from certain personal property, to wit, a steam engine, and the question first to be determined is in whom was the title to the property at the time it was levied upon and taken by the defendants. It is conceded that the title to the engine in question, at the time of the plaintiff's levy upon it by his execution, was either in Montgomery and Lund, then lately composing the firm of Montgomery Co., or in the corporation called "The New York Steam Saw-mill and Machine Company." The plaintiff claims the title to have been in the former, the defendants claim it to have been in the latter. This, it will be seen, became the material issue to be tried at the circuit. The organization of this company, in due form of law, was duly proved, and there was no evidence of its legal dissolution. The bed-plate and cylinder of this engine was transferred by Montgomery and Lund to this corporation, and its completion as an engine was subsequent to that time. The debt upon which the defendants' judgment was obtained was contracted by this corporation in the ordinary course of their business, and their judgment was against the corporation, and their execution was against the property of the corporation. The property, when so levied upon by the defendants, was in the possession of the plaintiff, who claimed to have made title to it under a judgment and execution, levy and sale thereunder, against William Montgomery and William Garrabrant. William Montgomery Co., before January, 1855, was composed of said Montgomery and Garrabrant, and one Isaac Reeve. Montgomery and Garrabrant purchased out Reeve's interest, and gave him the notes upon which plaintiff's judgment was obtained in payment for Reeve's interest in the firm, Montgomery and Garrabrant continuing the firm of Montgomery Co. Subsequently, Garrabrant sold out to Montgomery, and George D. Lund purchased an interest in Montgomery's business, and it was still continued to be carried on in the name of Montgomery Co. Subsequently still, the Steam Saw-mill and Machine Company was organized, and Montgomery Co. transferred their business and assets to this corporation, and Montgomery was its president and principal executive, financial and managing agent. The plaintiff claims that the organization and conducting of this corporation was a fraudulent device of Montgomery Co. to hinder, delay and defraud their creditors, and that, as to the plaintiff, the said organization, and acts of user under it, were nullities, being fraudulent and void. On the trial the plaintiff offered evidence tending to prove this fraudulent device. The evidence was sufficient in strength to make it proper to have it submitted to the jury; and the learned judge charged the jury that they had to determine but one question, and that was, that if this corporation was fairly organized, and the sale of the property to them by Montgomery and Lund was also fair and done without fraudulent intent, the defendants were entitled to recover; if, on the contrary, the company was organized to defraud the creditors of Montgomery and Lund, and the property was transferred to them by Montgomery and Lund in furtherance of that fraudulent purpose, the plaintiff was entitled to recover. This charge, I think, was entirely sound; no exception was made to it by either party. The jury found their verdict for the plaintiff. This, it appears to me, is conclusive upon this feature of the case. It is insisted that this corporation, being regularly organized, and the defendants their bona fide creditors, their corporate existence cannot be called in question, collaterally, and thus destroy the defendants' claim against them; that only the people of the State have a right to raise the question of their corporate rights. This argument is not sound as applicable to a case of fraud. As we have had occasion to repeat in another case, "it is a principle as old as the law of morals, and which has been engrafted into the law of equity and justice, that good faith is the basis of all dealing, and that every description of contract, and every transfer or conveyance of property, by what means soever it be done, is vitiated by fraud. Whether the contract be oral or in writing; whether executed by the parties with all the solemnities of deeds by seal and acknowledgement; whether in form of the judgment of a court, stamped with judicial sanction, or carried out by the device of a corporation organized with all the forms and requirements demanded by the statute in that regard, if it be contaminated with the vice of fraud the law declares it to be a nullity. Deeds, obligations, contracts, judgments, and even corporate bodies may be the instruments through which parties may obtain the most unrighteous advantages. All such devices and instruments have been resorted to to cover up fraud, but whenever the law is invoked all such instruments are declared nullities; they are a perfect dead letter; the law looks upon them as if they had never been executed. They can never be justified or sanctified by any new shape or cover, by forms or recitals, by covenants or sanctions which the ingenuity, or skill, or genius of the rogue may devise." The effect of this finding of the jury is that this corporation was a device resorted to by Montgomery and Lund to hinder, delay and defraud their creditors. As between the plaintiff and Montgomery and Lund the plaintiff had a right to disregard the corporation as a void thing, and resort to the property of Montgomery to satisfy his demand. Had the defendants, as bona fide creditors of this corporation (which was a valid corporation as to them), obtained a lien by a prior levy under their judgment, it would have presented a different question. Their equities were, doubtless, equal to the plaintiff's — it was so held when last before it was in this court — but the plaintiff was prior in time with his lien. " Qui prior in tempore, potior est in jure."
So, too, it is urged that if the transfer by Montgomery and Lund to the corporation was fraudulent, and the corporation void as to the plaintiff, then the partnership interest of Lund revived, and the plaintiff could only sell Montgomery's interest in the engine, which was three-fourths. This is, doubtless, true, but if true it cannot help the defendants. They are not the creditors of Lund but of the corporation. They could not take Lund's interest in this engine upon an execution against the "Saw-mill and Machine Company." The plaintiff had a right to take the engine upon his levy if it was the property of Montgomery and Lund, and is accountable to Lund only for his interest in it, or to his creditors in a proper form of action. Lund is not a party to this action — he was not a party to the defendants' judgment — and the defendants are not in a situation to defeat the plaintiff's action upon his rights.
Another point urged why the plaintiff should have been nonsuited is, that the engine in question was not in existence when Montgomery and Lund transferred their assets to the corporation. The undisputed evidence is, that the bed-plate and cylinder were in existence and were transferred among the assets. These were worth, at that time, $50 or $60. While the corporation as such was being carried on, about $15 of work was added to the engine; and after Montgomery commenced again in his own name, he completed it. It was therefore the subject of levy, upon execution, by a creditor of Montgomery, upon the facts as found by the jury. So, too, it is urged that the plaintiff's claim was against the firm of "Montgomery Co.," as represented by "Montgomery and Garrabrant," and not against "Montgomery Co.," as represented by "Montgomery and Lund," who made the transfer to the corporation. This also appears to be true as a matter of fact; but the finding of the jury still is, in effect, that Montgomery and Lund made the transfer, to hinder, delay and defraud their creditors; that Montgomery's interest in the engine, consequently, was always the subject of levy by his creditors, and the same answer again returns. Neither Lund nor Garrabrant are parties here to complain, and the defendants are not in condition to defend the rights of those persons.
The history of this case shows, that besides four trials at circuit, and four reviews in the Supreme Court, it has been twice before in this court. On the last review of it in this court, the learned judge who wrote the only opinion that we have seen, among other things, said: "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." The defendant's counsel asked the judge, at the last trial, so to modify his charge, as to adopt the language above cited from the opinion written in this court. His honor refused so to charge or modify, and the defendant excepted. In this refusal, the learned judge, at the circuit, was clearly right. The facts upon the last trial were not only changed, so that the charge as requested would have been for that reason inappropriate, but the proposition of the learned judge, who wrote the opinion from which the citation is made, was not adopted by this court as law, and the case was sent down for a new trial upon one, and an entirely different proposition from that above cited.
We have thus disposed of all the points raised in the case, but that of an exception taken to the ruling of the judge, on the admission of evidence upon a question put to the witness, Reeve, the payee in the note upon which the plaintiff's judgment was obtained. The question was, "State what representations Montgomery made to you, when you were about to become a partner, about the solvency of the firm?" To this there was a general, but no specific objection, and the objection was overruled, and the defendant excepted. Was the admission of this evidence proper for any purpose? Reeve was one of the first copartners of Montgomery. He had purchased an interest in the business, as was claimed, upon Montgomery's representations of his solvency, and of the success of the business. To prove Montgomery's condition of past, continued and present insolvency, and the various expedients resorted to by him to obtain means from others, from time to time, to sustain him in business, for the purpose of establishing a fraud, or a succession of frauds, connected with, and culminating in the fraud which was then the main issue to be tried, I think the admission of this evidence was not error. While fraud is to be proved, and not inferred, it may be proved by circumstances, and by a train of connected circumstances leading to the main result. Upon the whole case, I am not able to see any error that requires it to be sent back for a new trial. I think the judgment should be affirmed.. Judgment affirmed.