Summary
In Bulger v. Rosa (119 N.Y. 459) the court said, per ANDREWS, J. (at p. 467): "one partner may transfer the partnership effects directly to a creditor of the firm in payment of a debt without the knowledge or consent of his co-partner."
Summary of this case from M. C. Creditors Corp. v. PrattOpinion
Argued January 29, 1890
Decided February 25, 1890
Nathaniel C. Moak for appellant.
Matthew Hale for respondent.
The trial judge directed a verdict for the defendant, and the General Term has granted a new trial on the ground that the question of fraud in the sale from John Bulger to the plaintiff, of the goods, personal property and real estate, which formerly belonged to the firm of Bulger Sherlock, should have been submitted to the jury. The general rule is well settled, that in a jury case the direction of a verdict is only justified where the evidence conclusively establishes the right of the party in whose favor the direction is given. The test of the right to direct a verdict is whether the court would be bound to set a verdict aside as against evidence, if rendered against the party in whose favor it was directed. If this would be the duty of the court, the judge need not await the verdict before acting, but in advance may rule the question as one of law. But as verdicts cannot be found on mere conjecture, neither will a shadow or possibility, nor a mere scintilla stand in the way of ruling the case in favor of the party who shows a substantial right, of which there is no substantial contradiction. ( Dwight v. Germania Life Ins. Co., 103 N.Y. 341; Bagley v. Bowe, 105 id. 171.) The statute relating to fraudulent transfers and conveyances, which declares that the question of fraudulent intent arising thereunder shall be deemed a question of fact and not of law (2 R.S. 137, § 4), does not, as now interpreted, interfere with the prerogative of the court to direct a verdict, provided the fraudulent intent is conclusively established on the face of the instrument of transfer, or by the uncontradicted verbal evidence. Edgell v. Hart, 9 N.Y. 213; Ford v. Williams, 24 id. 359.) The defendant's counsel has presented a very learned and able argument in support of the view that the uncontradicted evidence established that the transactions resulting in the transfer to the plaintiff of the property of the firm of Bulger Sherlock were fraudulent as against the firm creditors. The point here is, should this question have been submitted to the jury? The alleged fraud consists, as is claimed, in a scheme between the plaintiff and Bulger and Sherlock, by which Sherlock was to transfer his interest in the firm assets to his copartner John Bulger, so as to enable the latter to transfer them to the plaintiff in payment of debts held by the latter against the firm and also against John Bulger individually. It is undisputed that when these transactions took place both the firm and the individual members were insolvent, and that this was known to all the parties.
There can be no controversy as to the rule of law governing the relations between an insolvent firm and its creditors, and their mutual rights in respect of the firm property. The partnership as such has its own property and its own creditors, as distinct from the individual property of its members and their individual creditors. The firm creditors are preferentially entitled to be paid out of the firm assets. Whatever may be the true foundation of the equity, it is now an undisputed element in the security of the firm creditors. The insolvent firm cannot apply the firm assets in payment of the individual debts of the partners, nor can the equity of the firm creditors be defeated by an attempted conversion of the assets of the firm into the individual assets of one of the partners through a transfer by one partner of his interest therein to the other. In either of the cases supposed, they would remain, as to the firm creditors, firm assets, which could be followed and taken on execution by the firm creditors, until they had come to the hands of a bona fide purchaser, and where an individual creditor of one of the members of an insolvent firm, knowing of such insolvency, takes a transfer of firm property in payment of his individual debt, his act is not merely a violation of an equitable right of the firm creditors, but it constitutes a fraud under the statute of Elizabeth. The law regards it as a voluntary transfer made to hinder, delay and defraud the firm creditors, and as to them is void. These general principles are established by many cases, but it is sufficient to refer to a few of them. ( Wilson v. Robertson, 21 N.Y. 587; Menagh v. Whitwell, 52 id. 146; Ex parte Mayon, 4 DeG., J. S. 664.)
The case shows that Sherlock, one of the firm of Bulger Sherlock, on the 15th day of June, 1883, by instruments in writing, assigned, transferred and conveyed to his copartner, John Bulger, all of the firm assets, including the stock in the grocery, book accounts, horse, wagon and harness, and the lot and the store thereon, in which the firm business was conducted, and that on the next day (June sixteenth), John Bulger transferred and assigned the same property to the plaintiff, his brother. The plaintiff, at the time of the transfer to him, held debts against the firm to at least the amount of $1,750, and the validity of the debt is not disputed. He also held, as assignee of his mother, a debt against John Bulger, individually, of about $1,100. The value of the firm property transferred by Sherlock to John Bulger, and by the latter to the plaintiff, is the subject of some conflict and uncertainty in the evidence. There is evidence from which the jury would, we think, have been authorized to find that the value, above incumbrances, did not exceed the firm debt owing to the plaintiff. There was evidence given on the part of the defendant which would make the value considerably more. The bill of sale of the personal property from Sherlock to John Bulger states that it is "subject to the payment in full of all claims of every name and nature now in existence against said firm of Sherlock Bulger, which said claims and demands the said John Bulger does hereby agree and assume to pay." The bill of sale from John Bulger to the plaintiff was not produced, it having been burned in the burning of the store about two years after the transaction, with other papers of John Bulger. The plaintiff was examined as to the consideration of the transfer to him by John Bulger of the firm property, and he testified in substance that it was the cancellation of his debt against the firm and the surrender of John Bulger's individual notes of $1,100, given to his mother.
It is insisted that the transfer by Sherlock to John Bulger of his interest in the firm property, was itself fraudulent, first, because it was an attempt to change the character of the property from firm property to the individual property of John Bulger; and, second, because it was a part of the scheme to pay John Bulger's individual debt to the plaintiff out of the firm assets. Both of these claims may perhaps be true, but the alleged fraudulent intent on the part of Sherlock is not an inference of law from the evidence, although a jury might be justified in finding the fact. The bill of sale executed by Sherlock does not show on its face an intent to divert the property from the firm creditors. The transfer is expressly made subject to the firm debts, thereby preserving, instead of defeating the rights of the firm creditors. There is no doubt upon the extrinsic facts proved that Sherlock understood that John Bulger would immediately transfer the property to the plaintiff. The defendant's counsel insists that he knew it was to be turned out to pay his individual debt as well as the firm debt. The defendant's counsel on the trial pressed John Bulger to state the object of Sherlock, and the witness testified: "Well the principal object was owing to the fact that I had accused him on several different occasions as acting as though he wished to see Jerry (plaintiff) lose the money that he had invested; so finally he said he would sell out the whole concern to me, in order that I might pay Jerry. He stated further that he was satisfied, and wanted to pay Jerry, as he knew Jerry had loaned his hard-earned money." The jury might have found from this that Sherlock's object in transferring the property was, that it should be used to pay the firm debt to the plaintiff, and not the individual debt of John Bulger. It was for the jury to interpret the transaction in the light of all the circumstances. The subsequent transaction between John Bulger and the plaintiff, if it necessarily implies a transfer by the former to the latter of the firm property to pay John Bulger's individual debt, the transfer would be void. If, however, the jury might have believed that the firm debt held by the plaintiff was equal to, or substantially equal to, the value of the property transferred, and that the individual claims against John Bulger, held by the plaintiff, were given up as an inducement to John Bulger to pay the firm debt by a transfer of the property, the mere fact that the individual claims were named as a part of the consideration, would not, I think, be conclusive evidence of fraud, or necessarily subvert a transaction which, except for that incident, might be found to be valid. The firm, although insolvent, had a right to make preference among its creditors, and one partner may transfer the partnership effects directly to a creditor of the firm in payment of a debt without the knowledge or consent of his copartner. ( Mabbett v. White, 12 N.Y. 442.) The case upon the evidence is far from being a clear one for the plaintiff. But there is but little, if any, ground to charge him with designed fraud or moral turpitude. His debt is not disputed. The personal property on the sale by the defendant brought but $945. The facts did not, we think, conclusively establish a case from which fraud is imputed in law, and we concur in the opinion of the General Term that the verdict was erroneously directed.
The order should be affirmed and judgment absolute ordered for the plaintiff on the stipulation.
All concur.
Order affirmed and judgment accordingly.