author: HATCH, J.

text:
    Timothy Y. Brown, Resp’t, v. Joshua James et al., App’lts.

      (Supreme Court, Appellate Division, Second Department,

      Filed Feb’y 18, 1896.)

    1. Bills and notes—Bona fide holder.
    In order to constitute an endorsee of negotiable paper a holder for value, sufficient to exclude the equities of antecedent parties, it must not only have been valid between the endorser and endorsee, but the latter, in addition thereto, must have given value, parted with some right, or incurred some responsibility upon the faith of the paper, dt the time of th,e transfer.

      8. Same—-Burden of proof.
    Where proof of the fraudulent misreprentation has been given, the burden is upon plaintiff to establish that he became possessed of the note under such circumstances as authorized him to enforce it,
    8, Same—Conflicting evidence.
    Where the testimony which tends to defeat the note in plaintiff’s bands, and the testimony which tends to sustain it, come from interested parlies, a case is thus presented eminently for the jury and should be submitted to them for their determination.
    4. Appeal—Case.
    A certificate that the case on appeal contains all the evidence, is not necessary to authorize consideration of an exception to a rule of the court in directing a verdict.
    Appeal from a judgment entered on a verdict in favor of plaintiff, rendered by direction of the court,
    William 0. Kellog, for app’It; John F. Brennan, for resp’t.
   HATCH, J.

Defendant James was indebted to plaintiff for the balance of an open account, which had been some time due, upon which lie was threatening suit for collection. The claim was in the hands of plaintiff’s attorney, and James applied to him for an extension. Thereupon the attorney informed James that if lie would procure security they would not “push” him, but would let it stand. James then applied to the defendant Gibbons to indorse his note for a sum equaling the claim, stating to him, as an in■dueernent for his indorsement, that he wanted to use it to buy horses in Canada. Relying upon this representation, Gibbons indorsed the note and delivered it to James, and he immediately delivered it to the attorney. When the note fell due, it was not paid. A renewal note was executed, which is the one in suit. This constitutes the entire transaction. At the close of the' case, upon motion of plaintiff’s counsel, the court directed a verdict for the amount of the note, and defendant excepted.

It appears that James bought no horses, and a jury would have been authorized to find that he fraudulently misrepresented his intention in that regard, in order to procure the indorsement of the note. Bank v. Van Slyke, 49 Hun, 7; Hart v. Palmer, 12 Wend. 523. It is insisted, however, that plaintiff is a bona fide holder for .value, without notice of the misrepresentation of James, and, in consequence, is not affected thereby. It may be assumed that plaintiff had no notice of the circumstances surrounding the giving of the indorsement. But this would not be sufficient, alone, to entitle him to recover. In Insurance Co. v. Church, 81 N. Y. 218, it was held that in order to constitute an indorsee of negotiable paper a holder for value, of such paper, sufficient to exclude the equities of antecedent parties, it must not only have been valid between the indorser and indorsee, but the latter, in addition thereto, must have given value, parted with some right, or incurred some responsibility upon the faith of the paper, at the time of the transfer. Plaintiff seeks to avoid the force of this rule by claiming that he falls within it. In this regard, his claim is that there was a renewal note made by James, and indorsed by one Smith, upon which time of payment was extended, and the primary note canceled, which was the surrender of a right.- This claim is not supported by testimony. It does not appear that there was any extension of the note indorsed by Smith upon the faith of the note indorsed by Gibbons. Curran, who represented plaintiff's attorney, and proposed to James that he should get an indorsed note for the unpaid balance, states that James said something about a note indorsed by Smith, and that he had been to see Brown about is several times, and that he (James) would like to have that note straightened up. He was then asked: :‘Q. Do you know whether or not that note was extended ? . A. I heard it was extended.” It does not appear from this testimony that the pro-' sent note had any connection whatever with the Smith note, or that a part of its consideration was an extension of that note. On the contrary, all of Curran’s talk witli James related to the unpaid balance. If, however,- the Smith note had anything to do with it, Curran only knows what, he had heard, which availed nothing. The examination of plaintiff upon this subject is significant. He testified that there were two notes indorsed by Smith, and he was asked: “Q. What was the arrangement as to the extension of credit on that note, if he should come in, to cover this note here ?, A. I wouldn’t be sure about that. Q. Was that as Mr. Curran has stated'? Did you hear his statement of it? Do you recall what it was? . Was there an extension given on the Smith note? A. Yes.” It is quite evident that plaintiff had little, if any, knowledge that the Smith note had anything to do with the transaction, and an attempt was made to make Curran’s lack of knowledge a basis upon which plaintiff could found an extension. This palpably failed, and it was with difficulty that plaintiff was brought to testify to an extension. Bntwhen he did it was nowhere,made to appear that-the extension had any connection with the giving of the present note or its original. Upon this point, therefore, the evidence was insufficient It is further claimed that the amount of the debt was abated, as a consideration for the note. But Cur-ran does not state that he abated anything of the claim, and the amount of the note equaled the amount that he held for collection. Plaintiff states that James owed him more than the amount of the note. But he also states that this balance had been agreed upon about a year before any note was given. Ho abatement was made of any1 legal demand which plaintiff held against James. And finally it is claimed that the surrender of the primary note furnishes a good consideration, and constitutes a parting with value legally sufficient. It may be answered that the original note was never surrendered, and remained in plaintiff’s possession at the time of the trial. He states that he offered it to James, but that he did nxot take it, and Gibbons never had an opportunity. However this may be, it is well settled that, if the original note be illegal, the renewal thereof is open to the same defenses, unless the illegality be cured or waived. 1 Daniel, Neg. Inst. (4th Ed.) § 205, p. 229; Bank v Lewis, 75 N. Y. 516. When proof of the fraudulent misrepresentation had been given, the burden was upon plaintiff to establish that he became possessed of the note under such circumstances as authorized him to enforce it. Bank v. Green, 43 N. Y. 298; Canajoharie Nat. Bank v. Diefendorf, 123 N. Y. 191; 33 St. Rep. 389. The testimony which tended to defeat the note .in plaintiff’s hands, and the testimony which tended to sustain it., came from interested parties, and thus presented a ease eminently for the jury, and it should have been submitted to them for their determination. Joy v. Diefendorf, 130 N. Y. 6; 40 St. Rep. 491. A certificate that the case contained all the evidence was not essential to present the exception taken to the ruling of the court. Halpin v. Phenix Insurance Co., 118 N. Y. 165; 28 St. Rep. 788; Winter v. Crosstown St. Railroad Co., 8 Misc. Rep. 362; 58 St. Rep. 598.

The judgment should be reversed, and a new trial ordered; costs to abide the event.

All concur.


source: Caselaw Access Project

author: PER CURIAM.

license: Public Domain

text:
    A. F. Engelhardt, Company, App’lt, v. Benjamin Benjamin et al., Resp’ts.

      (Supreme Court, Appellate Division, Second Department,

      Filed Feb'ry 18, 1896.)

    Arrest—Fraud.
    An application for an order of arrest under subdivision 4, § 549 of the Code, cannot be made before the existence of a complaint in the action.
    Appeal from an order, vacating an order of arrest of defendant.
    Howard A. Sperry, for app’lt; Wilder & Anderson, for resp’ts.
   PER CURIAM.

The question whether an application for an order of arrest under subdivision 4, § 549, Code Civ. Proc., can be made before the existence of a complaint in the action, has been the suojeet of conflicting decisions. In Hall v. Conger, 1 How. Prac. (N. S.) 89, it was held by the special term of the suprerne court that a complaint was unnecessary. In Lawrence v. Foxwell, 49 N. Y. Supr. Ct. 278, the reverse rule was declared. We agree with the later decision; The Code gives the right to the remedy under this subdivision: “Where it is alleged in the complaint that the defendant was guilty of a fraud.” It is difficult to see how the court can learn what is alleged in the complaint, when there is no complaint. Justice Andrews, in Hall v. Conger, has, in our opinion, been misled by a consideration of the provis: ions of section 558, as to vacating an order of arrest when the complaint filed fails to show a sufficient cause of action under section 549. He construed that section as contemplating that the complaint might not he issued or filed until after the order of arrest had been granted. But this provision of the section was in the Code as origi nail enacted, while subdivision 4 was not added to section 549 till 1887. The provisions of section 558, therefore, cannot influence the construction to be given to subdivision 4.

The order appealed from should be affirmed, with $10 costs and disbursements.


text:
    Charles A. Simmons, Resp’t, v. Poughkeepsie and Eastern Railway Company, App’lt.

      (Supreme Court, Appellate Division, Second Department,

      Filed Feb. 18, 1896.)
    1. Negligence—Railkoads—Stock.
    Testimony that the employes of a railroad company used the gate through -which plaintiff's horse escaped to the railroad track is not sufficient to render the company liable for injuries to the horse while on the track in the absence of proof when it was open or who opened it.
    2. Same—Cake.
    A railroad company is liable for reckless, wanton or malicious conduct of its agents in running down animals trespassing bn the track.
    Action by Charles A. Simmons against the Poughkeepsie & Eastern Railway Company. From a judgment entered on a verdict in favor of plaintiff, and from an order denying ,a new trial, defendant appeals. Reversed.
    Frank B, Lown, for app’lt; A. M. & Gf. Card, for resp’t
   HATCH, J.

This action was brought to recover damages for negligence in producing the death of a horse, which had strayed upon defendant’s tracks, and was there run down by a train operated by defendant. The recovery is sought to be sustained upon two theories: First, that defendant was guilty of negligence in opening a gate leading from plaintiff’s premises to defendant’s tracks; second, that defendant was guilty of negligence in not acting with ordinary care and prudence after it discovered that the horse was upon its tracks. The case was submitted to the jury by the learned court upon both theories, and resulted in a verdict for the plaintiff.

Substantial obstacles stand in the way of supporting the verdict thus rendered. The case established no more than these facts: Plaintiff’s farm lay on each side of the railroad track, which ran north and south through it. A crossing was maintained over the tracks, and provision made for gates in the fence on either side. On the east side was a barn, where the horse was fed and kept during the winter. This side was separated from the tracks by a fence, with a gate therein, erected and maintained by the defendant. On the west side there was an opening for a gate, but none had been put up, respecting which there was dispute as to whether defendant had discharged its duty in this regard. Plaintiff testified : That the horse was fed on the east side, at the barn. That at the time of the accident the gate on this side was open. Who opened it, or when it was opened, there is no proof, and plaintiff stated that he did not know how the gate came to be open. He fed the horses, had no men working for him, and did not notice about the gate this morning. The fence had been built something over a year, and the gate had been used by defendant’s men, who went through it, sometimes,' to the barn, for shelter from storms, and to eat their dinner. But plaintiff was not able to state that he had seen any of defendant’s employes go through the gate within a month before the accident, or that he saw them then, or that the gate had been closed within that time. And he would not testify tiiat it was not open more days prior to the accident than it was closed ; his statement in this regard being: “I don’t know anything about .it. I have to feed my horses on the other side of the barn.” The horse escaped from the east side to the west side of the track, and started to recrose. When the train came, it was cut off, and ran up the track a distance of about 400 feet, where it caught in a culvert, and was struck by the train. The court submitted to the jury the question whether defendant was guilty of negligence which led to the gate being open on the east side, and refused to charge that there was no proof that the east gate was opened by the defendant. An exception to this refusal presents this question.

As we have seen, there was no proof that defendant opened the gate, and, consequently, no basis for charging it with negligence in this regard. So far as the case shows, defendant had discharged its obligation by building a suitable fence, and there was no proof that the fence and gate erected were not in all respects sufficient 'The case is therefore brought within the decision in Diamond Brick Co. v. New York Cent. & H. R. R. Co., 58 Hun, 396; 34 St. Rep. 637. The theory of the submission was error, and defendant was entitled to the charge requested. The proximate cause of the accident was leaving the gate open on the east side, and for this it was not shown that defendant was responsible. This view renders unnecessary of consideration the obligation of defendant respecting the opening on the west side.

If we could see our way clear to upholding the recovery upon the first theory, there is a fatal obstacle in the second. The measure of defendant’s obligation in this regard was defined by the court to be usual and ordinary care. Such is not the rule. On the contrary, assuming that defendant was not responsible for the open gate through which the horse strayed, it could only be made liable by the reckless, wanton, or malicious conduct of its agents in running the horse down. Boyle v. Railroad Co., 39 Hun, 171; id. 115 N. Y. 636; 23 St. Rep. 731. The facts of the present case, in this regard, are in all respects weaker than were presented in the case cited, where a recovery based on this ground was refused. Tins point was presented by the motion for a nonsuit,— not exactly and with precision, yet sufficient to raise it.

It follows that the judgment and order appealed from should be reversed, and a new trial ordered, with costs to abide the event

All concur.


author: CULLEN, J.

text:
    In the Matter of the Application of John Quinn for a Writ of Habeas Corpus.

      (Supreme Court, Appellate Division, Second Department,

      Filed Feb’ry 18, 1896.)

    1. Appeal—Haiíeas corpus.
    An appeal from a final order discharging a prisoner on habeas corpus cannol be maintained by the officer having- him in custody.

      2. Former adjudication—Habeas corpus.
    Usually a decision on habeas corpus does not create an estoppel, even upon renewals of the writ, and never operates as a former adjudication in other litigations.
    Appeal from an order discharging relator from custody.
    Foster L. Backus, for motion ; George Hoadly, opposed.
   CULLEN, J.

It seems to be clear that at common law a writ error did not lie to review a decision on habeas corpus. Hurd, Hab. Corp. 553; opinion of Kent, C. J., in Yates v. People, 6 Johns. 237. Still, very early in the history of this state it was held that a prisoner might bring up for review, by a writ of error, an adverse decision on habeas corpus, despite the English rule to the contrary. Yates v. People, supra. We can find no case prior to the Eevised Statutes where a writ of error was allowed on the application of the people. By the Eevised Statutes (volume 2, p. 573), the attorney general was authorized to prosecute such a writ in the name of the people. Now, by section 2059, Code Civ. Proa, an appeal from a final order discharging a prisoner committed on a criminal accusation may be taken in the name of the people, either by the attorney general or by the district attorney. We do not say that this section is exclusive in all case, and that there might not arise a case wherein an appeal could not be prosecuted by the custodian of the discharged prisoner. But, in ordinary criminal cases, we think an appeal should not be maintained in opposition to the prosecuting authorities of the people. The fact that the appellant was a party to the writ, and by the Code is denominated the “ defendant,” did not give him the right to appeal if he bad no interest in the subject-matter. We think he had not. The case, therefore, falls within the principle of People ex rel. Breslin v. Lawrence, 107 N. Y. 607; 13 St. Rep. 108. It is to be distinguished from that of People ex rel. Burnham v. Jones, 110 N. Y. 509; 18 St. Rep. 540, where it was held that the land commissioners might appeal from an adverse decision on a writ of certiorari. In that case it was held that the judgment on certiorari prevented the land commissions from discharging their duties, and that this fact gave them sufficient interest to justify an appeal. This language is probably broad enough in terms to cover the case of the present appellant, but there is a vital distinction between the two cases. In the ease cited, the land commissioners were the only authorities upon which the public duty as to the matter in hand rested. But the ultimate duty of the conviction and punishment of criminals does not devolve upon peace officers, jailers, or sheriffs. The conduct of public prosecutions in the administration of criminal justice is vested in prosecuting officers, the district attorney, and the attorney general, and a prosecution should not be maintained in opposition to their action. The appellant would not be embarrassed in a future action for false imprisonment by the decision on a habeas corpus. That decision would not bind him. In fact, it is settled law that with the exception of a narrow class of eases, such as the custody of infants, a decision on habeas corpus does not create an estoppel, even upon renewals of the writ, and never operated as a former adjudication in other litigations. People v. Brady, 56 N. Y. 182.

Motion to dismiss appeal granted.


author: FOLLETT, J.

text:
    People ex rel. Michael H. McGovern, Resp’t, v. Board of Trustees of Village of Penn Yan, App’lt.

      (Supreme Court, Appellate Division, Fourth Department,

      Filed February 7, 1896.)
    1. Municipal cobpobations—Claims—Allowance.
    Under chapter 661 of 1893, power is conferred upon the board of trustees of the village of Penn Tan to audit and allow all claims against the village incurred by the hoard of health, except the compensation of the health officer, as such. So held, in case of the claim of a physician for services rendered otherwise than as health officer, on the employment of the board of health, though it appeared that such physician was health officer at the time and the hoard of health had approved his claim.
    2. Same.
    The power of the hoard of trustees to audit the claim of the relator confers authority upon them to determine whether the claim was just and legal in whole or in part.
    3. Same—Mandamus.
    Where the trustees have audited the claim and fixed an amount which they deemed to he reasonable, a peremptory writ of mandamus ought not to he granted compelling them to pay the claim as made out by relator at a larger amount.
    Appeal from an order, granting a peremptory writ of mandamus to compel the trustees of the village of Penn Yan to pay the claim of relator against the village.
    The village of Penn Yanwasincorpbrated pursuant to chapter 119 of the Laws of 1889. In 1894 there was a board of health of said village appointed, pursuant to chapter 661 of the Laws of 1893, which, on the 24th of March, 1894, appointed the relator health officer for the then ensuing year; and at a meeting of the board, held April 26, 1894, the relator being present, “it was moved and carried that the compensation of health officer be $1 per visit for ordinary cases; but, in cases of smallpox, diphtheria and scarlet fever, it is not to exceed $4.00.” June 17, 1894, smallpox broke out in a dwelling, in said village, occupied by four families. The relator avers, in his affidavit, “that under the employment and by the direction of the board of health of said village of Penn Yan, deponent treated the case as a physician, and had the sole and exclusive charge of the same." August 7,1894, the relator made out the following bill against the village:
    “Penn Yan, N. Y., Aug. 7, 1894.
    “Village of Penn Yan, to' M. II. McGovern, Physician and Surgeon. Dr.
    “For services as health officer, treatment of smallpox patients, moving and burying the same, from June 17th until July 29th, inc., at $25 per day, 43 days. .... .$1,075.”

      The relator meeting the president and secretary of the board of health procured the following indorsement to be entered on his bill:
    “The foregoing bill is correct and allowed.
    “Frank Dains, Pres. Board of Health.
    “ C. N. McAdams, Sec’y.”
    The bill, however, was never presented to or audited by the board of health. On the same day, August 7, 1894, the bill was presented to the board of trustees of the village, and was filed with its clerk. After hearing the relator, the trustees, November 9, 1894. audited and allowed the bill at $600. November 15,1894, the relator presented a bill for $1,075 to the board of health, which passed the following resolution: “It was moved and carried that the bill be paid.” Thereafter the village raised, by tax, the sum of $600, which was tendered to and refused by -the relator. On January 15, 1895, the relator verified the following bill, and on the 18th of that month inclosed it in a letter to the trustees of the village, stating that he wished to withdraw his prior bill, and present the following bill instead:
    “Village of Penn Yan to M. H. McGovern, Dr.
    “1894. To services as a physician, upon the employment of the board of health of said village, in the treatment and care of smallpox patients in said village, from and including June 17th, to and including July 29th 1894, at the price of $25 per day......................... $1,075
    “Yates County—ss.: M. H. McGovern, being duly sworn, says: That he is a physician and surgeon, residing in the village of Penn Yan, in said county; that the services above mentioned have been rendered by this deponent, as above set forth, upon the employment and under the direction of the board of health of said village; that the account as above rendered is correct, and that no part thereof has been paid; that, at a meeting of the board of health of said village of Penn Yan, duly had, after the rendition of said services, the amount of the claim of deponent, as herein set forth, was allowed and fixed by the said board of health as the amount of the compensation which should be paid to this deponent for- his services in attending the smallpox patients and cases in said village, under said employment of said board of health.
    “M. H. McGovern.
    “Sworn to before me this 15th day of January,'1895.
    “Benjamin L. Hoyt, Notary Public.”
    No action being taken by the trustees on this second bill, the relator began these proceedings on the 10th of April, 1895, and a peremptory writ of mandamus was issued directing the trustees to pay to the relator full amount of his bill.
    Calvin J. Huson, for app’lts; M. A. Leary, for resp’t
   FOLLETT, J.

The relator having elected to take a peremp tory, instead oE an alternative, writ of mandamus, all the statements of fact contained in the defendants’ opposing affidavits must be taken as true; and among other facts, it is stated that the relator’s services were not reasonably worth more than the sum of $600, allowed by the trustees. It is provided by section 20 of chap. 661 of the Laws of 1893 (the PublicHealth Law), that every village board of health shall have power to appoint a competent physician, not a member of the board, to be the health officer of the village. By section 21 it is provided.

“Every such local board shall prescribe the duties and powers of the local health officer, who shall be its chief executive officer, and direct him in the performance of his duties and fix his compensation.”

Shortly after the appointment of the relator to the position of health officer, his compensation forattendance upon cases of smallpox was fixed by the board at a meeting at which he was present. The bill which he presents for bis services is not made out pursuant to the rate of compensation then fixed; but he makes an independent claim for his services, not as health officer, but as a physician for the services which he rendered in this case. The board of health is given no power to fix the compensation of any person for services to be rendered, except the services of its health officer; and when the relator enters upon the discharge of duties other than those imposed upon him as health officer, his compensation is to be fixed and allowed under other sections of the statute.

By section 1 of title 5 of chapter 119 of the Laws of 1889 (the charter of the village of Pen Yan), it is provided:

“The trustees shall have the auditing of all accounts and claims against the village, and no account or claim shall be paid unless allowed by them or after judgment obtained thereon. * * * The claimant may be examined on oath by the trastees in relation to said claim and the items thereof. Nothing herein shall be construed as preventing the trustees from disallowing any account or claim in whole or in part, when so made out and verified, or from requiring other or further evidence of the correctness or reasonableness thereof.”

Section 30 of article 2 of the public health law (chapter 661, Laws 1893) provides:

“All expenses incurred by any local board of health, in the performance of the duties imposed upon it, or its members, by Taw, shall be charged upon the municipality and shall be audited, levied, collected and paid in the same manner as the other charges of or upon the muncipality are audited, levied, collected and paid.” '

By the sections above quoted the power is conferred upon the board of trustees of the village of Pen Yan to audit and allow all claims against the village incurred by the board of health, except the compensation- of the health officer as such. The relator in this jase malees no claim, in the bill presented, and which he seeks to> have the defendants compulsively compelled to pay, for his services as health officer. His claim is that he acted solely in the capacity of a physician. Nowhere in his papers does he assert a claim in his official capacity. That he has elected to make a distinction between his claim as a physician and as health officer is further emphasized by the fact that he presented a bill for services from April 1, 1894, to March 20, 1895, as health officer, made out in items, pursuant to the rate of compensation fixed by the board of health.

The power of the board of trustees to audit the claim of the relator confers authority upon them to determine whether the. claim was just and legal, in whole or in part. People ex rel. Dinsmore v. Gilroy, 82 Hun, 500; 64 St. Rep. 480; affirmed, 145 N. Y. 596; 65 St. Rep. 867. We are of the opinion' that the board of trustees of the village of Penn Yan was solely authorized to audit the claim of the relator, and that, they having done so, and fixed an amount which they deemed to be reasonable, a peremptory writ of mandamus ought not to have been granted compelling them to pay the claim as made out by the relator. The order should be reversed, with costs.

Order reversed, with costs and disbursements; and writ dismissed, with $50 costs in the court below.

All concur.


author: RUMSEY, J.

text:
    Sophia Gruenstein, Resp’t, v. Christian Biersack et al., App’lts.

      (Supreme Court, Appellate Division, First Department,

      Filed Feb. 21, 1896)

    1. Pleading—Answer—Frivolous.
    An answer can be said to be frivolous, only when it is so clearly bad as to require no argument to show its character, and which would he said to be manifestly defective so as to be indicative of bad faith, upon a mere •
    inspection.
    3. Same.
    Unless it appeal’s, by inspection of the pleading, that it raises no issue upon any fact which the plaintiff must prove, it is not frivolous, however objectionable it may be in other respects.
    3.' Same.
    An answer in an action to foreclose a mortgage, which denies allegations of the complaint that there was a default and that the plaintiff had elected to declare the whole principal due, was held’not to be frivolous.

      i. Same—Denial.
    Where a failure to pay an installment of a mortgage which fell due previously is alleged, not merely as a failure to pay, but as one of the facts upon which the plaintiff bases his claim that a condition subsequent has not been performed and the whole debt has become due, the fact of nonpayment is put in issue by a denial in the answer.
    Appeal from an order that plaintiff have judgment on account of the frivolousness of the answer.

      E, E. Hassey, for app’lt; W. B. Marx, for resp’t.
   RUMSEY, J.

The action was brought to foreclose a mort gage. Biersack is the mortgagor, and made the bond; and judgment for deficiency is asked against him: The mortgage was dated December 12, 1894, to secure $3,000, in installments of $300, the first of which was due March 1, 1895, and the same amount each six months thereafter. It was further agreed that the whole principal sums should become due, at the option of Gruenstein, on default being made in the payment of any installment, or after default in the payment of interest for thirty days. The complaint, in its seventh paragraph, alleged that:

“The defendants have failed to comply with the condition of said bond or mortgage by omitting to pay an installment,'on account, of the principal, amounting to $300, which became due and payable on the 1st day of September, 1895, and that no part thereof has been paid. That the plaintiff has elected, and now elects, to deem the whole of the said principal sum of said bond and mortgage remaining unpaid to be immediately due and payable,and that there is now justly due and payable to the plaintiff, on said bond and mortgage, the principal s.um of $2,700, with interest from March 1, 1895.”

The answer of Biersack admitted each allegation of the complaint except the seventh paragraph. He says he has no knowledge or information sufficient to form a belief as to that portion of the seventh paragraph quoted above to and including the words “ immediately due and payable,” repeating the whole allegation, and he denies the remainder of the paragraph. The learned justice at special term held that these denials were frivolous, and ordered judgment for the plaintiff. Biersack appeals.

The denial in this form is allowed by the Code, and, whatever might be the weight to be attached to it upon a motion to strike it out as sham, the mere form is of no importance upon this motion. Sheldon v. Heaton, 78 Hun, 50; 60 St. Rep. 818. An answer can be said to be frivolous only when it is so clearly bad as to require no argument to show its character, and which would be said to be manifestly defective, so as to be indicative of bad faith, upon a mere inspection. Strong v. Sproul, 53 N. Y. 497. Unless it appeal’s, by inspection of the pleading,- that it raises no issue upon any fact which the plaintiff must prove, it is not frivolous, however objectionable it may be in other respects. The plaintiff here seeks to recover the whole amount of her debt, and to have a personal judgment against Biersack for-it, if the mortgaged property will'not, upon the sale, bring enough to pay it. The fact that the mortgage is all due is not established by merely producing it. The plaintiff must prove, in addition, that an installment is not paid, and that she elects to consider it all due. Her allegation that it is so is not that of a mere conclusion of law, but of a fact. Allen v. Patterson, 7 N. Y. 476. This fact is put in issue by the answer.

But it is said that part payment is an affirmative defense, and eannot be shown under a denial. That is true. McKyring v. Bull, 16 N. Y. 297. lithe suit were brought simply to foreclose for the failure to pay the installment which fell due" September 1st, and the relief asked were only for that .installment, it might be that the defendant, to raise that question, would be compelled to plead that he had paid it. But that failure is alleged here, not merely as a failure to pay, but as one of the facts'upon which he bases his claim that a condition subsequent has not been performed, and the whole debt has become clue. Considered as such a fact, an essential one in the chain, the plaintiff must prove it. When that fact stands in such a relation to the plaintiff’s case, the fact of nonpayment is put in issue by a denial. Knapp v. Roche, 94 N. Y. 329. The answer is, therefore, not’frivolous, and the motion for judgment should have been denied.

The order must be reversed, with $10 costs and disbursements, and the motion denied, with $10 costs.

All concur.


author: VAN BRUNT, P. J. INGRABAHAM, J.

text:
    Peter Johnson, in Behalf of Himself and All Other Judgment Creditors Who Might Come In, Resp't, v. H. H. Rapalyea et al., App’lts.

      (Supreme Court, Appellate Division, First Department,

      Filed Febr’y 14, 1896.)

    1. Assignment of creditors—Preference.
    In order to reach and scale d.own alleged unlawful preference, created by transactions separate and apart from the assignment, but claimed, as matter of law and fact, to constitute a part thereof, it is necessary to prove an intent on the part of the assignors to execute a general assignment, and a knowledge of that intent on the part of the creditor at the time he receives his security which is the subject of attack.
    2. Same.
    If the transaction is capable of two inferences, one in favor of its integrity and the other to the contrary, the inference in favor of the position that no fraud upon the law was attempted must be the one that should prevail.
    3. Same.
    The fact that a creditor, when taking security, knows the debtor to be in a failing condition does not render his security a preference in case of an assignment by the debtor.
    4. Same.
    A party, who takes security from a debtor, knowing that he is about to assign, can only hold such security to an amount which will bring the , preference within one-third of the-assigned estate after the statutory deductions.
    6. Same.
    A creditor, preferred by security on a general assignment, becomes, after such security is exhausted, a general creditor as to the remainder due him, and may share as such in the remaining two-thirds of the assigned estate.

      Appeal from a judgment in favor of plaintiff,
    O. E. Miller, for app’lts; Treadwell Cleveland, for resp’t.
   VAN BRUNT, P. J.

This action was brought by the plaintiff, as a judgment creditor of the firm of Horace II. Eapalvea & Co., composed of the defendants Horace H. Eapalyea, Prank Nicker-son, and John S. Provost, on behalf of himself and all judgment creditors, similarly situated, who might come in and contribute to the expenses of the action, to set aside an assignment made by said Eapalyea & Co., and certain mortgages given and judgments suffered by them, as being fraudulent and void, and of no effect as against plaintiff and such other judgment creditors, and also to have the preferences sought to be created in and by said assignment, mortgages, and judgments, so far as they exceeded one-third ' in value of the estate sought to be assigned, declared to be invalid and of no effect, as against the plaintiff and such other creditors as aforesaid.

The complaint alleged the copartnership of the firm of Eapalyea & Go.; that the defendant John 0. “Provost was the father of the defendant John S. Provost; that the defendants Prince W. Nickerson and Charles W. Nickerson were copartners, doing business under the firm name of P. W. Nickerson & Co.; and that the defendant Prince W. Nickerson was the father, and the defendant Charles W. Nickerson was the brother, of the defendant Frank Nickerson, who was one of the members of the firm of Eapalyea & Co.' The complaint further alleged the obtaining of a judgment by the plaintiff, against the defendants composing the firm of Eapalyea & Co., on the 9th of July, 1889, the issuing of an execution, and its return unsatisfied; and, further, that on the 16th of January, 1890, the defendant, Frank Nickerson, made and executed, under the firm name of Eapalyea & Co., a certain chattel mortgage and bill of sale to P. W. Nickerson & Go., of a large amount of property belonging to the firm, to secure payment of a large indebtedness of the firm of Eapalyea & Co., to the firm of P. W. Nickerson & Co., in the amount of upward of $42,000 ; and that said Frank Nickerson made and executed such chattel mortgage in the name of said firm of Eapalyea & Co., without the privity, consent, or authority of either of the other members of the firm. The complaint further alleged that said mortgages and hills of sale were voluntary conveyances, and were utterly without any consideration to support the same. The complaint further alleged that, on the 21st of January, 1890, the defendant Frank Nickerson made and executed, in the name of said firm, a certain other chattel mortgage and bill of sale to the defendant John C. Provost, the father of the defendant John S. Provost, of a large amount of property, to secure the payment of a large indebtedness of Eapalyea & Co. to Provost, in the sum of upward of $22,000, and that said mortgage and hill of sale were voluntary conveyances, and utterly without consideration to support the same. The complaint further alleged that, on the 22d of January, 1890, said firm of Eapalyea & Oo. permitted the defendant John C. Provost to obtain two judgments by default against them upon an alleged partnership liability of said firm;' and that, on the 23d of January, the said firm of Eapalyea & Go., being insolvent, aad unable to pay their partnership debts,, duly executed an assignment for the benefit of creditors to the defendants John D. Kurtz, Crook, and Elilm B. Frost of ail their property, with preferences, such assignment being expressly made subject to the lien of the chattel mnrt-' gage made by the defendants to the firm of P. W. Nickerson & Go., 1 and also subject to the lien of the chattel mortgage made by the defendants to the defendant John G. Provost. It further alleged that said mortgages, bills of sale, and assignment were not made in good faith, but, together with the judgments, all constituted and were to be treated as one and the same transaction and plan to hinder, delay, and defraud the plaintiff and other creditors of the firm of Eapalyea & Go.; that the value of the assigned estate attempted to be conveyed by said assignment and mortgages and bills of sale, after deducting the charges for wages and salaries, and the expenses of executing the trust of said assignment, was less than $100,000; that the amount of the preferences made and created in and by said assignment, mortgages, and bills of sale was upward of $80,000, and exceeds by many thousands of dollars the value of said assigned estate; and that said instruments and judgments and said preferences were fraudulent, illegal, and void, as against the plaintiff and the other creditors of Eapalyea & Go. The complaint then further alleges that the defendant Samuel D Coykendall claimed to be the purchaser and assignee, from the mortgagees therein named, of said mortgages hereinbefore referred to, and that the assignees in said assignment have been requested, on behalf of the creditors of the concern, to commence an action, . as such assignees, against the owners and holders of such mortgages, bills of sale, and judgments, for the purpose of invalidating the same, and obtaining a judicial declaration that said mortgages, bills of sale, and judgments were intended to, and did, create an unlawful preference, as against the other creditors of said firm of Eapalyea & Go., and that, as such, they were fraudulent and void; but that, although thereunto duly requested, said assignees distinctly and finally refused to commence such an action, but, on the contrary, expressly stated that it was their purpose and intention to recognize said mortgages, bills of sale, and judgments as debts of said firm, and that it was their intention to pay the same out of the assets of said firm. And the complaint further alleged that, in March, 1890, the firm of P. W. Nickerson & Oo. made an assignment to the defendants Caleb W. Knevals and Elihu B. Frost. The defendants answered, admitting the allegations in regard to copartnership, the execution of the various instruments stated in the complaint, and the recovery of the judgments, but denied that they were without consideration, or made with any fraudulent intent, or that the mortgages were executed and judgments obtained in contemplation of an assignment by the firm oi Eapalyea & Go.

Upon the trial of this action the court held that the execution of the mortgages, the suffering of the judgments, and the execution of the assignment were all one transaction, and created invalid preferences in excess of the amount of one-third of the value of the assigned estate, and that such preferences most be reduced and scaled down to conform to the statutory limit of one-third in value of the assigned estate, after making the statutory deduction, which amount of one-third in value of the assigned estate was alone applicable to the payment of said preferences, and that an accounting be had, as in the decree provided. The court did not find that either of the instruments or judgments in question was fraudulént in fact, and therefore void. From the interlocutory judgment entered upon this decision, this appeal is taken.

It is conceded, upon the part of the respondent, that, in order to reach and scale down alleged unlawful preferences created by transactions separate and apart from the assignment, but claimed, as matter of law and fact, to constitute a part thereof, it is necessary to prove an intent on the part of the assignors to execute a general assignment, and a knowledge of that intent on the part of the creditor at the time he receives the security which is the subject of attack. The claim urged upon the part of the appellants is that there is no evidence which justified the court in finding that the execution of these mortgages, the suffering of the judgments, and the execution of the general assignment were one and the same transaction, or that, at the time the mortgagees received their securities, and the actions were commenced which resulted in the judgments, they had no reason to know or believe that 'their debtors would shortly thereafter make an assignment. For the determination of this question, it will be necessary to consider briefly the testimony on this point. We must first bear in mind the chronological order of events, and then consider the relations of the parties, and what was done, and what inferences must be drawn therefrom. And it seems to me that, if the transaction is capable of two inferences, one in favor of its integrity, and the other to the contrary, the inference in favor of the position that no fraud upon the law was attempted must be the one that should prevail. This is certainly the rule in regard to fraud in fact (Morris v. Talcott, 96 N. Y. 100), and I can see no reason why it should not prevail in respect to fraud upon the law.

The evidence showed that, from the spring of 1887 until the filing of said general assignment by said firm on January 24, 1890, the firm of Rapalyea& Co. had been doing business in the cities of New York and Long Island City. Their capital, when the partnership was formed, consisted of $10,000 in cash and $10,000 in buildings, material and merchandise. This latter was transferred to the firm by John C. Provost, as the' contribution of his son John S. Provost; and the $10,000 in cash was furnished by Prince W. Nickerson, as a loan to his son Frank Nickerson, and as the contribution of said Frank Nicker-son to the capital of the firm of Rapalyea & Co. The defendants Prince W. Nickerson and Charles W. Nickerson were, at the times of the various transactions mentioned, and until they executed their general assignment on the 17th of March, 1890, copartners,, doing business under the firm name of P. W. Nicker-son & Co. Frank Nickerson was the financial manager of the firm of Rapalyea & Co. John 0. Provost and the firm of P. W. Nickerson & Co. were in the habit of aiding the firm of Rapalyea & Co. with loans, and for a considerable time prior to their failure the firm of Rapalyea & Co. were largely indebted to the said John C. Provost and P. W. Nickerson & Co., and without this accommodation Rapalyea & Co. would not have been able to have continued their business; certainly, not upon the scale on which it was carried on. In fact, the defendant Prince W. Nickerson testified that he had been carrying them for three years. On the 2d of October, 1889, the defendant John 0. Provost began an action against the firm of Rapalyea & Co. for the sum of $5,-375.37, upon certain checks, drafts and notes which said John C. Provost held, and which had not been paid, by the service of a summons, with notice, upon the defendant John S. Provost. On the 16th of December following said John C. Provost commenced another action against Rapalyea & Co. to recover, judgment for the sum of $8,625, with interest from the 15th of July, 1889, upon certain promissory notes held by him which were unpaid, by the service of a summons and notice upon the defendant John S. Provost. On the 20th of December, 1889, the defendant Rap- . alyea admitted due service of the summons above mentioned, and appeared m person in the action, waiving all further service of papers upon him. The defendants did not answer, and no judgments were entered in these actions until the 22d of January, when judgment rolls were filed in the office of the clerk of Queens county at four o’clock on that day. Some time prior to the 16th of January, 1890, the firm of P. W. Nicker-son & Co. had been in the habit of having discounted at their bank, to a considerable amount, the notes of Rapalyea & Co. which they held. At or about this time the president of the bank declined to make any further discounts unless Nickerson & Co. had some security from Rapalyea & Co. for the large amount which was owing to them; and on said 16th day of January, Frank Nickerson, without the knowledge of his partners, executed a chattel mortgage to his father to secure the sum of $42,000, or thereabouts, which was filed in the office of the clerk of Queens county on the following day. This mortgage was prepared and executed at the house of Mr. Frost, who was the counsel for Nickerson & Co. and Rapalyea & Co., on the night of the 16th of January; all the Nickersons, Mr. Frost and his son, and Nickerson’s bookkeeper being present There was some testimony tending to show that the subject of this mortgage had been under discussion for three or four days prior to its actual execution. At and prior to this time, negotiations had been going on for the sale of an interest in the firm of Rapalyea & Co. to the defendant John C. Provost, and a meeting was had at the office of one Andrew J. Provost, in reference to that matter, on the 20th or 21st of January, 1890, and there were present at that interview John C. Provost, John S. Provost, Frank Nickerson, one Jones, and Eapalyea. The conversation at this time was with reference to the purchase by John C. Provost of Frank Nickerson’s interest, and. after it had proceeded to a certain point Frank Nickerson asked them to adjourn to the office of Mr. Calvin Frost, the attorney who had drawn the mortgage. Mr. Frank Nickerson then stated, in Frost’s presence, that John C. Provost proposed buying out his interest. Upon hearing this Mr. Frost stated that this would be impossible under the circumstances, and then said that Frank Nickerson had given to his father and brother a chattel mortgage. This was the first intimation that the other members of the firm of Eapalyea & Co. had of the existence of the mortgage. Upon the discovery of this chattel mortgage, John 0. Provost asked Frank Nickerson what he was going to do to protect him. Nickerson replied that he would give him a mortgage, the same as he had his father and brother. That mortgage was prepared about the same time, as Mr. Eapalyea thought, by Mr. Andrew J. Provost, on or about the same day. The suggestion about the chattel mortgage to John 0. Provost was made late in the interview. The defendant Eapalyea swore that the necessity of making an assignment was not discussed at that interview; that upon the next day they had another interview at Mr. Frost’s office, when the circumstances were fully discussed, and it was finally determined that, for the protection of their creditors, it would be best for them to make an assignment. The witness further stated that he thought Mr. Frost suggested the necessity of a general assignment,—that he could see nothing better for them to do. And the witness thought that, ' with that mortgage outstanding, it was absolutely necessary to make an assignment. Upon further examination of this witness, he stated that it was possible that all the transactions which had spread over a period of two or three days, might have taken place within two days, the first interview on one day, the second interview on the following day, and the assignment executed on that day. Executions were issued on the morning of the 23d of January upon the Provost judgments, and the assignment of Eapalyea & Co. was executed on that day, and duly filed on the 24th of January, 1890.

From the foregoing facts it undoubtedly appears that Nicker son & Co., Eapalyea & Co., and John C. Provost knew that, if the support which the firm of Eapalyea & Go. had been receiving from Nickerson & Co. and John C. Provost was withdrawn, and the overdue claims held by Nickerson & Co. and John C. Provost should be pressed for payment, the firm was insolvent, and that it would be unable to meet its liabilities, and that this had been the condition of the firm for a long period of time. It was the undoubted intention of Nickerson & Co. and John C. Provost, in the commencement of the suits and the obtaining of the mortgages in question, to get some security for the advances which they had been making to the firm of Rapalyea & Co. And it was undoubtedly Provost’s intention, in the commencement of the suits in October and December, not to enter judgments upon these suits until some necessity arose for his protection, and it was a great surprise to him when, on the 20th or 21st of January, he learned the fact that Nickerson & Co. had stolen a march upon him, and secured a mortgage from Frank Nickerson for $42,000 upon the assets of the firm of Rapalyea & Co. We must necessarily conclude that the firm of Nickerson & Go. were influenced by their knowledge of the condition of Rapalyea & Co. in attempting to get security for the apiount of their claim against said firm, and that the mortgage was not entirely the result of an effort to please the officer's of the-bank which was discounting the obligations of Rapalyea & Co. for the firm of Nickerson & Co. But it does not seem to me that Nickerson & Co., at the time of accepting this mortgage, either knew or believed that the firm of Rapalyea & Co., in a few days thereafter, would make an assignment containing preferences, or that, at the time of the giving of that mortgage, it was the intention of the firm of Rapalyea & Co., or of any one of its members, to make such an assignment, and that the necessity of such action in the immediate future was not present to the minds of the parties who participated in that transaction. In order to invalidate the security which was received by Nickerson & Co., it is not only necessary to show insolvency upon the part of the mortgagors, but also that the mortgage was made in anticipation of the making of an assignment, and that the party receiving the mortgage knew that that was the intention of the mortgagors. In respect to this mortgage to Nickerson & Co., it seems to me that the case is barren of evidence from which such deduction must be drawn. I do not know that it is an inevitable conclusion that the simple fact of knowledge that a firm must fail necessitates also knowledge of the fact that such firm will make an assignment, as the court may, perhaps, take judicial notice of the fact that firms do fail, and do not make assignments^ It therefore seems to me, upon a consideration of the evidence on this question, that no sufficient foundation was laid for the conclusion of the learned court below that the mortgage to Nickerson & Co. was part and parcel of the scheme and plan which resulted in the making of the assignment executed on the 22d of January following.

In respect to the judgments obtained by John C. Provost, there does not seem to be any ground for prohibiting a creditor from bringing an action upon a claim which is due. And ,1 know of no penalty which he incurs by his failure to enter a judgment as soon as he is entitled to do so, nor of any penalty which any party may incur by reason of the failure to defend an action to which no defense exists. And, unless some such penalty can be imposed, it is difficult to see how these judgments, which were not entered by Provost until after he knew that Rapalyea & Co. were going to make an assignment, can be attacked. The consent of Rapalyea & Co. was not necessary to the entry of these judgments. A party has the right to avail himself of the ordinary processes of she law for securing a lien apon his debtor’s property; and as the bringing of the suits was not part and parcel of the scheme and plan winch resulted in the assignment, 1 can see no ground upon which Provost can be deprived of the lien which he has thus acquired.

In respect to the mortgage which was executed to John 0. Provost, under the circumstances stated, I think that the conclusion must necessarily be drawn that it was executed at a time when all the parties knew that Bapalyea & Co. would make the assignment which was executed on the 22d of January,. 1890. It appears that that mortgage to Provost was suggested when he learned of the mortgage which Nickerson.& Co. had received, and that Bapalyea & Co. seemed to have at once discussed the question of making an assignment. It is true that Mr. Bapalyea, states it to have been the next day, but it seems to me that the fair inference to be drawn is that that question was discussed at the interview had upon the day upon which it was decided to make an assignment. Provost was familiar with all that was going on, and undoubtedly knew that the assignment was to follow. This being the condition of affairs, he would seem to be within the rule that a party taking' security from a debtor, knowing that this debtor is about to assign, can only hold such security to an amount which will bring the preferences within one-third of the assigned estate after the statutory deductions.

It follows, therefore, that the judgment must be modified, dismissing the complaint as to P. W. Nickerson & Co., and holding valid the judgments obtained by John S. Provost, and scaling down the mortgage to John 0. Provost and the preferences contained in the assignment; and the provision prohibiting the preferred creditors from participating in any part of the assigned estate must also be modified, as such preferred creditors become general creditors in respect to that portion of their claim for which they had not received payment.

Judgment ordered accordingly, without costs to either party.

BITMSEY, PATTEESON, and O’BBIEN, JJ., concur.

INGRABAHAM, J.

(dissenting).—It is a little difficult, from an examination of the complaint, to determine upon just what theory this action was brought. It would seem that it was framed with the idea of including alternative forms of relief; and when we consider the conflict that there had been between the several courts at the time this complaint was drawn, and the uncertainty as to just what rules would govern where relief was asked because of a violation of Act 1887, c. 503, it is clear that the pleader had in view this uncertainty, and intended to state the facts, and then to ask for such relief as the facts alleged would warrant. From the demand for judgment, it would appear that the relief to which the plaintiff supposes himself to be entitled was that the assign-men.t itself, and the judgments and chattel mortgages described in the complaint, should be set aside as fraudulent and void, as against the plaintiff and other creditors. Such an action would be based upon fraud, and the usual rules applying to actions for fraud, both as to the admission of evidence and the nature of the proof necessary to sustain such causes of action, would have to be observed. Before the case came on for trial, however, it had been finally settled by the court of appeals that the proper remedy in such a case was, not that the assignment and other instruments by which a violation of the provisions of the act in question was attempted should be set aside, but that the court could give effect to tliat act by treating the instruments complained of as a part of the assignment, and as an attempt to create a preference prohibited by the act referred to and scale down such preference to an amount allowed by the statute. The case was tried upon that theory, and judgment was awarded granting the plaintiff such relief.

The complaint clearly alleges facts sufficient to sustain an action of this character, and the only question that we have to determine is whether or not, upon the evidence in the case, and the facts found by the court below, the judgment was authorized. In the opinion of the Presiding Justice, he seems to assume that this is an action based upon a fraud upon the law, and applies the rule that if a transaction is capable of two inferences, one in favor of its integrity and the other to the contrary, the inference that no fraud was attempted is the one that must prevail; but I do not think this action is one based upon fraud. The act in question, which is claimed to have been violated by the defendants, is an amendment to the act in relation to the assignment of the estate of debtors for the benefit of creditors. By this act, section 30 of the assignment act is amended so as to provide that, “in all general assignments of the estates of debtors for the benefit of creditors hereafter made, any preference created therein "x" * * shall not be valid except to the amount of one-third in value of the assigned estate left after deducting” certain wages or salaries of employes, and the costs and expenses of executing such trust. The court below found that two chattel mortgages, two bills of sale, and two judgments in favor of various defendants were and are a part of. the same transaction with the general assignment for the benefit of the creditors of the firm of H. H. Rapalyea & Co., and that such chattel mortgages and bills of sale and judgments were invalid preferences in excess of the amount of one-third in value of the assigned estate, and directed judgment by which that preference was reduced and scaled down to conform to such statutory limits, of one-third in value of the assigned estate left after making the statutory deductions as aforesaid; and an accounting was ordered before a referee to determine the amount of the estate of the defendants’ assignees,—the final judgment to be reserved until the coming in of the referee’s report.

Is an action to obtain such a judgment an action based upon fraud, or to which the rules before stated as applicable to actions to obtain relief because of fraud are applicable ‘i In a case where the preferences in excess of that allowed by the act in question were contained in the general assignment itself, and the question was whether or not such preferences should be paid in full, or should be limited to one-third of the assigned estate, the sole question to be determined would be the amount of the assigned estate and whether or not the debts preferred exceed one-third of that amount after making the proper deductions. No fraud needed to be alleged or proved to entitle an assignee, or a creditor seeking to enforce the provisions of the statute, to maintain such an action. Whether or not the assignor and the creditor fraudulently created the preference, or innocently created it under a mistake of fact, would not be at all material. What the court would be bound to do would be to prevent either the assignor from paying, or the creditor from receiving, from the assigned estate a greater amount of such estate than the law allowed; and that would be so without considering the intent with which the preference was created. In a case in which a debtor and a preferred creditor had evaded the statute by using separate instruments to create the preference, where both such instruments and the general assignment were to be treated as one instrument, I can see no reason why a different rule should prevail. The acts and intentions of the assignor and the preferred creditor might then be material, in order to determine whether or not the instruments used to create the preference were to be considered a part of the general assignment, so that the preference created would be considered to be a preference created by the general assignment, and thus within the prohibition of the statute. But, even then, the question of the fraudulent intent would be immaterial, and the liability of the defendants would be the same,whether or not they knew of the statute, and intended to violate it. The right of a creditor to ask the interference of the court would depend upon whether or not the assignor and the preferred creditor did, by means of these two instruments which bore such relation to each other that they must be deemed to be but one instrument, attain a preference greater than that allowed by the statute.

In determining this question, therefore, it seems to me that it should be viewed simply as one from which the court is to determi tie —First, whether these mortgages, bills of sale, and judgments were executed before, but in contemplation of, the execution of the general assignment; and second, whether, if so, the preference thereby created exceeded one-third of the assigned estate. Both of those propositions being found, it becomes the duty of the assignee, and of the court, in an action by him or in his behalf, in aid of the assignment for the benefit of creditors", to provide that the preferred creditors should be paid not more than one-third of the assigned estate. Berger v. Varrelmann, 127 N. Y. 281; 88 St. Rep. 813; Spelman v. Freedman, 130 N. Y. 421; 42 St. Rep. 531. In Maass v. Falk, 146 N. Y. 39; 65 St. Rep. 762; Gray, J., in delivering the opinion of the court, says:

“The prohibition of the act of 1887 against the creation of preferences, except to the amount of one-third in value of the assigned estate, cannot be evaded by resort to instrumentalities which, however independent, are merely part of a plan through which certain creditors secure a preference in payment, and the distribution of the debtor’s assets as intended by the statute is prevented. Such a scheme between a debtor and some of his creditors would be as intolerable an evasion of the statute as would be a transaction where the particular instrumentality resorted to between the parties to secure the undue preference was a transfer of property, made independently, but in contemplation of a general assignment.”

It seems to me that a proper consideration of what was decided in each of these cases makes reasonably clear the rules which should govern in disposing of attempted violations of this act of 1887; that is, that where a debtor is insolvent, and intends to apply all of his property to the payment of his debts, either by a general assignment, or by instruments which, taken together, are parts of a plan through which all, the debtor’s assets are distributed among his creditors, but one-third of the assets can be devoted to the preferred creditors, and the remaining two-thirds must be distributed among the general creditors of the estate, the purpose of the statute is to prevent any preference, other than for wages or salaries of employes, beyond one-third of the assigned estate, and if that amount is exceeded, the penalty is, not the annihilation of the assignment, but the reduction of the preference to the prescribed limit. Manning v. Beck, 129 N. Y. 1; 41 St. Rep. 199.

We have, then, the question to determine, is there evidence here to sustain the finding that these assignors executed these mortgages and bills of sale, and allowed these judgments, and executed the general assignment,as a part of a plan or scheme by which all of their assets were to be devoted to the payment of their debts, but giving to the favored few a preference in excess of that allowed by statute ? The court below has found that such was the intention of the assignors and of the favored creditors. Was there evidence to support that finding? In determining this question, I know of no principle which requires us to hold that any particular method of proof is necessary. When we come to inquire as to the intent with which the act is done, or as to the knowledge of the persons concerned in an act, it is not required that we should have evidence of any particular communication made to or by the parties 'whose intent or knowledge we are inquiring about. The court must judge of such knowledge or intent from the acts of the parties themselves, from the circumstances surrounding the transaction in which they were engaged, from the object sought to be accomplished; and, looking at all the testimony, the question is whether there is a fair inference, from the facts, that such intent existed, or that such knowledge was present. Nor do I think that a case is presented like that where a fraudulent act has to be proved, and where the court is bound to presume innocence where the evidence is capable of two constructions. What is here to be determined is whether this evidence fairly justified the finding of the court; and, if it did, that finding should not be disturbed.

As I understand the rule settled by the authorities referred to, to justify the court, in finding that the separate instruments are part of the general assignment it must be shown by the evidence that they were made with the inteht of both parties to the agreement that they should be used to secure to the creditor an excessive preference when a general assignment was made. There must be proved such facts as would justify the inference that it was contemplated by both the debtor and the creditor that a general assignment would be necessary and would be made; that the security given or the judgment obtained would be used, not as a mere giving of security to enable a creditor to obtain his money from his debtor, but to' obtain a preference when such assignment was made. Now, it is obvious that in nearly all cases there can be no direct proof of what the debtor and creditor, had in mind when the instrument giving the security was executed. The knowledge existing at the time, and the intent with which the security was made and accepted, must, in the great majority of cases, be proved by the circumstances existing at the time of the transaction, and the acts and relations of the parties to it. Nor does it follow that, when the security is either given by a firm or to a firm, all members of the firm must be shown to have had the knowledge and intent referred to. If one partner, representing the debtor firm, executes the instrument, and another partner, representing the creditor firm, receives it, .with such knowledge and intent, that is, of course, sufficient to charge both firms. Bearing this in mind, a short examination of the condition of affairs and the circumstances surrounding the giving of these chattel mortgages and bills of sale and the obtaining of these judgments, with the use that, the creditors made of them after they were obtained, entirely justified, I think, the finding of the court below.

As the Nickerson mortgage was first in point of time, it will be well to consider that mortgage first. And, first, let us see just what knowledge of the condition of this debtor firm Nickerson had at tins time. It is clear that the real condition of Eapalyea & Go., the amount of its capital, and the business that it was doing were well known to the Nickersons. Of the members of the firm of Nickerson & Go., one was the father and the other the brother of a member of the firm of Eapalyea & Go. The father had contributed to the firm of Eapalyea & Go. all of the cash that went into that firm, as the contribution of his son to 'the capital stock of Eapalyea & Go. He had been in the habit of making advances to the firm, and had known, for months past, that its notes had been protested for nonpayment, that its checks had been returned from the bank as not good, and that it had been in urgent need of money. P .W. Nickerson, the father, had been present, on or about the 1st of January, when a statement of the firm’s condition had been prepared, and had taken part in making un that statement; and the fair inference from the evidence is that P. W. Nickerson was fully cognizant of these financial difficulties of the firm of Eapalyea & Co., must have known its exact condition, and was in constant communication with his son, who was a member of that firm, and who transacted the financial business of the firm, in regard to its affairs. And, viewed in the light of subsequent events, it quite conclusively appears that, on the 1st day of January, Rapalyea & Co., if they had been forced into liquidation,, would have been insolvent. Prior to this time it appears that the son, who was a member of the firm of Rapalyea & Co., had been endeavoring to sell out his interest in the firm to Mr. John C. Provost, who was the father of another member of the firm of Rapalyea & Co., and negotiations for such sale were then pending. Nickerson & Co. had at that time a large number of past-due notes of Rapalyea & Co., which the latter were unable to pay, and was a creditor of the firm in a considerable amount. P. W. Nickerson had "been advised by the cashier of his bank to obtain security from Rapalyea & Co., and about the 16th of January he asked his son for such security. The son made no objection to giving the security asked for, and then it was that the Nickersons, the father and two sons, met together in. the evening, at the house of Mr. Frost, who was the attorney of Nickerson & Co., and the chattel mortgage in question was prepared. No time was lost; no risk run. It was written out that night, a part of it by Mr.- Frost and parts by the others present; was executed by Nickerson, as a member of the firm of Rapalyea & Co., that night; and was acknowledged before Mr. Frost’s son, who was subsequently one of the assignees. The main part of the debt secured by this chattel mortgage was due and owing at the time, and as to such debt the mortgage was payable upon demand.

The question is, what was the intent and understanding between this father and son at the time this mortgage was given? The action of the parties to it, subsequently, is quite material. The mortgage was taken the next day, and filed in the proper office in Queens county, where the property was situated; but all knowledge of it was withheld.from the other members of the firm of Rapalyea & Co., and, although the mortgage was presently due, no attempt was made to enforce it, or to collect any of the obligations to secure which it .was given-, some of which had been for several months due. No disclosure was made to any one of the fact that this mortgage was given. It was a secret agreement between father and son to secure the father at all hazards for a debt that was presently due and enforceable, studiously kept from the knowledge of the other members of the firm of Rapalyea & Co., and all other persons interested, while the negotiations to sell the son’s interest in the business to Provost continued. What was the object of obtaining this security, and what was the intent with which it was given by the debtor and accepted by the creditor? Mr. Hnviland, an apparently disinterested witness, testified that, just after the failure, he met P. W. Nickerson, and spoke of the failure of Rapaljrea & Co., and P. W. Nickerson said:

“Yes, it was too bad the boys had to go under. They had a good business there, but when I found they had to go under, I told them they must protect me.”

Do not all the acts of the parties show that this was true?. I think we are entitled to assume that P. W. Nickerson & Co. had knowledge of the system, established in this state, by which debtors who are engaged in business, and who have become insolvent, make assignments for tlie benefit of creditors, and that such assignments are the only method here of preventing the property of a firm from being appropriated to the first creditors who might get judgment against the firm; that assignments are the common and almost universal method by which insolvent firms wind up their business, and are carefully regulated by statute. And, viewing the facts thus collated, can there be any serious doubt but that both parties to this mortgage clearly recognized the fact that, unless help came in some unexpected way, an assignment would be necessary, and that this mortgage and bill of. sale were given for the purpose of use in the event of such assignment being executed, to prefer the father and brother over the other creditors of the firm? Upon no other theory can we explain the silence of all parties in regard to this instrument. The studious care to conceal its existence from the other members of the firm of Rapalyea & Go., and the continued negotiations for the selling out of Nickerson’s interest in the firm to Provost, and the fact that Nickerson continued to advance small sums of money to the debtors after this security was given, to enable them to keep going until it could be ascertained whether or not Provost would buy, are corroborative of the inference that this was the intent and understanding with which the instrument was given. But for the statute above named, and of which Nickerson swears he had no knowledge, this chattel mortgage would have given Nickerson & Go. a preference that would have enabled them to realize upon their debt notwithstanding the assignment, and made them independent of the assignee.

We are also entitled, I think, to consider the effect upon this firm upon the giving of this mortgage. The moment it was known to the other members of the firm, it was at once conceded by'them all, as well as by Mr. Frost, Nickerson’s attorney, that there could be but one thing done, and that was at once to make an assignment. It was recognized by them all that it would be impossible, for the firm to continue business with that chattel mortgage in existence, as soon as the fact of its existence was known; and, although Mr. Frank Nickerson, who liad executed that chattel mortgage, was present at the time, he did not dissent at all from that conclusion. Can any other inference than the one above indicated be drawn from these circumstances? Both the debtor and creditors swore that no reference was made to an assignment, Assuming that to be true, I do not think it is controlling. The parties might both have well understood wliat would be necessary, unless relief were forthcoming, without expressly using the word “assignment.” But the inference seems plain Sat this mortgage was given and received with the clear intention of using it, when it became necessary for the debtors to assign, as a means of preferring the creditor’s claim. And the mere fact that the assignment was made six or seven days later does not preclude the existence of- the intention, at the time it was given, that it should be used, in connection with an ment subsequently to be made, for the purpose of preferring the creditor. It may be that, but for Mr. Frost’s integrity, Nickerson would have got the $10,000 from Mr. Provost for his interest in the firm without disclosing the existence of the chattel mortgage, and thus the Nickersons would not only have got back the money that they had advanced, but the money that they had contributed to the capital of this insolvent firm, leaving the other members of the firm and Mr. Provost to suffer when the crash came. The scheme seems to me to be perfectly apparent upon its face, and was notva mere honest attempt of a creditor to obtain security for the repayment of his debt, but was clearly one for obtaining a preference for this creditor in case Provost should refuse to buy, and an assignment became necessary.,

The remaining question to be determined is as to whether or not the judgment and chattel mortgage and bill of sale obtained by Provost were obtained with a like intent and understanding. It seems to me clear that they were. It appears that, on the 2d of October, Provost, who also had a son a member of this firm of Rapalyea & Go., caused a summons to be served upon his son as a member of that firm. No complaint was served with the summons, and, after its service, it was allowed to sleep without the slightest eEort'being made to enter judgment, or to enfore it, for mouths. The notice at the foot of the summons was that judgment would be entered against the defendant for the sum of $5,375.37, with interest from the date of the summons; but that is the only evidence we have as to what claim it was intended to enforce by the action thus commenced. No complaint was prepared. Nothing was done. Upon the affidavit of service was indorsed an admission of service by the defendant Rapalyea, who appeared in person in the action, and waived the service of all further papers therein, dated on December 20,1889. Another summons by John C. Provost against the same firm, dated December 16,-1889, contained the same admission of service by Horace H. Rapalyea, as defendant, in person, with the same waiver, and dated the same day. With that summons there is no affidavit of service. On the 22d of January, 1890, the complaint in these two actions was verified, and it was on this day that the interview took place at which the existence of this chattel mortgage to Nickerson was revealed, and from which time it seems to have been conceded by all that this firm could not continue business. The judgment roll in these two actions was filed in the clerk’s office of Queens county on January 22, 1890, at four o’clock in the aftern oon, and on the next morning the defendant Rapalyea, one of the judgment debtors against whom this judgment was obtained, took the execution upon these two judgments to the sheriff of Queens county, giving the sheriff explicit direction upon what to levy, and that the levy should be made at once. The sheriff made such levy, and immediately afterwards, and upon the same day, the assignment was executed, and was filed the following day. It is conceded that Provost had the right to commence this action against the defendants, and to enter judgment against the defendants for the amount that was due; and, but for the levy that was obtained upon the execution issued under it, no question could arise. It is settled that, where a judgment and a levy underan execution upon it are used as instrumentalities by which a preference is to be obtained, in violation of the statute, it will be treated as a part of the assignment, and as though the preference that was obtained was included in the assignment itself. Berger v. Varrelmann, 127 N. Y. 284; 38 St. Rep. 813; Central Nat. Bank v. Seligman, 138 N. Y. 444; 53 St. Rep. 14. After the service of the summons in these two actions, nothing was done. No attempt was made to enter judgment. The complaints were not even prepared until after the disclosure of the existence of this chattel mortgage, when it is perfectly clear that all parties understood that the firm must make an assignment. The judgments were then prepared, and the judgment roll at once filed. One of the debtors himself took the execution to the sheriff, with directions as to its levy, so that the lien could be obtained upon the property of the debtors immediately before the assignment should be filed, and the assignment was kept off the file until such levy could be made; for, although the assignment was executed on January 23d, it was-not filed until four p. m„ of the 24th. There can be no doubt that this levy was made under this execution with the intent and for the purpose of getting a lien upon the debtors’ property that would give the judgment creditor a preference, and, under the authority of the cases above cited, it must be held to be a preference given under the assignment

As to the chattel mortgage and bills of sale given to Provost, which were dated the 21st of January, 1890, it is conceded by the parties that they were given after the disclosure of the fact of the chattel mortgage to Nickerson, and when it was clear that an assignment would have to be made; and it is clear that it was given for the purpose of allowing Provost- to obtain a preference. It seems to me, therefore, that, unless we are to abrogate the provisions of this statute, and destroy the purpose for which it was passed, we must hold these chattel mortgages, bills of sale, and judgments as preferences within the assignment, and that the court was right in decreeing that but one-third of the debtors’ estate can be paid to the creditors who have thus directly obtained a preference. I think the provision of the judgment by which tliese preferred creditors have no right to claim any portion of the remaining two-thirds of the estate on account of their claims was clearly right The statute directly provides that but one-third of the assigned estate shall be paid to the preferred creditors, and it necessarily follows that the remaining two-thirds of the estate are to be paid to the unsecured creditors. To allow the preferred creditors to receive one-tliird of the estate upon their demands, and then to have a portion of the remaining two-thirds applied to the payment of their claim, would enable them to receive more than one-third of the assigned estate. The provision of the j udgment, however, that requires creditors coming in to prove their debts before the referee should contribute to the expense of this action, is entirely unauthorized. The general cred'tors of the assignors are entitled to have two-thirds of the assigned estate devoted to the payment of their claims against the assignors, and the court has no power to compel them to pay the plaintiff’s counsel fees in this action before they can be entitled to share in the debtor’s property. The question of costs of the action is reserved until the final judgment, and it would there be proper for the court, in its discretion, to require the defendants to pay the costs of the action, or to order the costs to be paid out of the assigned estate. As this action was brought for the benefit of all the creditors, and as the judgment will result in the addition of considerable property to be applied to the payment of the general creditors, it would not be beyond the power of the court below, either in the final judgment, or in an independent proceeding, to order the expenses of this action paid by the assignee out of the assigned estate. But it would be manifestly improper to compel each creditor, before he asks for what is legally his own, to pay a sum of money to the plaintiff. Just what disposition the court will ultimately make as to the costs of the action, or as to the expenses, must rest in the discretion of the court, upon the final judgment, or upon an application for such costs.

I think, therefore, that the judgment should be modified by striking out all provisions limiting the right of the creditors to prove their claims before the referee to those who had contributed to the costs and expenses of this action, and also the clause" that compels them to pay any portion of such costs and expenses before they are allowed to receive any portion of the assigned estate,' and, as so modified, the judgment should be affirmed, with costs to the respondent against the appellants.