Opinion
Argued October 16, 1900
Decided October 30, 1900
Frank J. Hone for appellant.
George F. Yeoman for respondent.
The appellant claims that the character of the financial transactions between Feiock and the bank was such as to negative the inference of an honest intention upon Feiock's part to pay for the goods which he had purchased of the plaintiffs and that, therefore, they were entitled, for the fraud practiced, to rescind the sale and to repossess themselves of the goods sold, as they had not passed into the possession of a bona fide purchaser. It is conceded that Feiock's insolvency, alone, furnished no inference of an intention not to pay for the goods. The testimony was that he did intend to pay; but it is argued that the circumstances were such, and that the nature of the insolvency was so affected by his relations to the bank, as to furnish the legal conclusion that the intention and reasonable expectation of the ability to pay did not exist. No case is cited in support of the plaintiffs' position and I do not think that any can be found in the books. I do not think it can find support in any legal principle. Feiock was under no obligation to communicate to persons dealing with him the extent and nature of his transactions with others. The presumption was that, having procured the capital upon which to carry on his business, he would use it in the discharge of his current obligations, with the reasonable expectation that the business would prove profitable enough to satisfy, eventually, what indebtedness had been incurred. Whether in the procuring of his capital his conduct was fraudulent; whether his schemes rendered him amenable to legal punishment were not matters, of which it could be predicated that they evidenced an intention on his part not to pay for goods purchased in the conduct of the business. His purpose was to continue his business. It might be abortive, or liable to defeat by reason of his fraud in raising moneys for capital; but not only there might be, but there would be, the clear intention to pay for goods purchased. The indebtedness to the bank was a fact. How it arose, or whatever Feiock's conduct towards it, they were matters between themselves; the disclosure of which he was not bound to volunteer to others with whom he might have dealings. It is an untenable proposition, in my opinion, that the guilt of Feiock's conduct in his transactions with the bank made his subsequent purchases from the plaintiffs voidable at their election. Without their inquiry, it was immaterial, so far as they were concerned, how he had procured the capital with which he was carrying on the business.
The proposition is clear that the bank was a bona fide purchaser of the whisky. If there was any fraud in the transaction of this purchase by Feiock from the plaintiffs, the bank had no knowledge of it. At the time of taking the demand note, upon which judgment was recovered for the amount of the existing indebtedness to the bank, the latter gave up to Feiock the good notes which it held, as well as the forged notes, and at the execution sale it bought in the property which had been levied upon. Under these circumstances, the bank became the purchaser and holder in good faith of the whisky in question, within the rules of law.
It is further claimed by the plaintiffs that the use by Feiock of the firm name and style of "B. Feiock Co." was unlawful and had the effect of making the transaction of sale between them voidable at their election. This contention has reference to the statute, which makes it a misdemeanor for a person who transacts business to use the designation " Company," or " Co.," when no actual partner or partners are represented thereby. (Penal Code, section 363.) I think this contention is, also, quite untenable. If we might assume that the violation by Feiock of the statute disabled him from enforcing the performance of any executory contract, that was not this case. This was an executed agreement and it is inconceivable that, in such a case, the statute should have any operation. It is a highly penal one and deserves a strict construction. ( Gay v. Seibold, 97 N.Y. 472. ) It was a measure intended to be in the interests of the commercial community and had its foundation in public policy. It simply made it a misdemeanor to do what was therein specified and that is all. To extend its operation as far as the plaintiffs would have it, would be to give a construction to it which would permit of its injurious operation upon persons whose dealings with the guilty party have been in good faith. Such a construction would be foreign to the purpose of the enactment; contrary to public policy and without support in legal principles.
For these reasons I think that the judgment should be affirmed, with costs.
The appellant's counsel states that insolvency alone is not urged as evidence of intention not to pay, for a man may be insolvent, that is, he may owe more than he has assets to pay, and yet honestly expect to tide over and finally make up the deficiency.
We here have insolvency, coupled with a condition of affairs that is unique in the history of business.
Feiock was transacting business on the proceeds of forged paper and renewals of the same which he had discounted at the defendant bank.
When it was discovered that certain of this paper was forged, the bank compelled Feiock to give his demand note for the full amount of his indebtedness, and at once commenced suit on the note, taking judgment under an offer, and appropriated by sale all the assets of the debtor except certain notes turned over to his wife.
Feiock's indebtedness to the bank was about $25,000. This amount was represented by some $20,000 of forged paper which Feiock destroyed when it was taken up and $4,600 in notes, said to have been genuine, turned over to his wife.
It is conceded that the basis on which Feiock transacted his business was the proceeds of these felonies and that he could only hope to continue in trade so long as he was not discovered.
It also appears that this is the second time he had been compelled to close out business by reason of similar methods, carried on with another Rochester bank.
The defendant bank discovered these forgeries about the 10th of June, 1896, the plaintiffs sold their goods to Feiock in the months of March and May, 1896, and they were taken under the bank's levy.
It is now urged that Feiock, doing business under these conditions, could purchase goods, having an honest intention to pay for them, and that the transaction is free from fraud.
It was stated by counsel on the argument that no case could be found in the books holding that such a purchase of goods was fraudulent.
The statement may be true, as it is quite probable that this is the first time the court has been confronted by such a proposition.
We are of opinion that a man conducting business, the sole basis of which is the floating of forged paper and its renewals in his bank, is in a situation where he cannot entertain the honest intention to pay his debts, and that all his purchases of goods are fraudulent.
PARKER, Ch. J., MARTIN, CULLEN and WERNER, JJ., concur with GRAY, J., for affirmance.
BARTLETT and VANN, JJ., dissent in memorandum.
Judgment affirmed.