Pritz v. Jones

Clarke, J.: Appeals from two interlocutory-judgments overruling the defendants’ démurrers to the complaint. The complaint alleged that plaintiffs recovered a judgment against — 645 — defendant Belford for the sum of $1,119.37 on November 10,1905, winch was immediately docketed and execution issued thereon to the sheriff, who returned the same unsatisfied on November twenty-third ; that on October 18, 1905, and for a long period prior thereto defendant Belford had a saloon and café in the city of New York and was engaged in the liquor business. That Belford had a lease of said saloon from Hay 1, 1905, to Hay 1, 1906, and -the right to renew said lease from year to year so long as he purchased beer from defendant Doelger. That the building and fixtures were owned by Doelger, who rented them to Belford. That Doelger, though the owner of the premises, required Belford to assume a mortgage of $10,000 thereon, which mortgage was wholly fictitious and without consideration; that throughout the year 1905, and prior to that time, Belford had been a hard drinker, and that in July or August, 1905, he received a severe blow upon the head which seriously injured his brain and deranged his mind, and “ by reason of the aforesaid injury and the aforesaid drinking, at no time since the date of said injury has said Belford been in fit condition to transact any business or to intelligently pass upon any business proposition or to enter into contracts.” ■ That on October 17, 1905, defendant Doelger notified Belford that he must sell out and vacate forthwith, and that Doelger refused to-accept another tenant who had made Belford an offer of $3,500 for the place. That- on the next day a stranger called upon Belford, and having given the latter several drinks of'whisky and rendered him totally unfit to discuss or consider any business propositions or to understand his acts, offered him $50 cash if he would sell his place, equipment, business and good will for $1,950, and that Belford accepted the proposition and signed. a contract embodying its terms. That thereupon the stranger notified Belford that he was acting as agent in the matter for defendants Jones and Horan, and that the transaction would be closed at the office of the defendant Doelger, where said Belford would receive $1,900, and sign a bill of sale. That continuously after signing this contract Belford steadily drank alcoholic beverages, and that at no time between the signing of the Contract and October 21, 1905, was he able to comprehend the nature of his acts, or the effect thereof, which fact was apparent and well known to every person with — 646 — whom he came in contact. That' on October 20, 1905, Belfordcalled - at the office of Doelger, and a representative of the latter then notified him that he owed, said Doelger the sum of $1,197, and thereupon gave to Belford Doelger’s check for $703, the difference between the amount of the alleged indebtedness, and the price agreed upon in the contract. That Belford thereupon spent part of the proceeds of said cheólc and paid certain loans with the balance; that on the night of October 20,1905, in -the presence of a representative. of the defendant Doelger, defendants Jones and Moran took possession of said premises. ;. ; ■ That throughout these negotiations Belford was indebted to an amount exceeding $3,000,. in addition to the claims of the defendant Doelger, ánd the claims for borrowed money, paid with the proceeds of the check. That it was well known to all of the defendants that Belford was so indebted, and that the transaction in question would leave him totally insolvent, and- that Belford’s creditors would be deprived thereby of all means'of collecting their debts'. That “ the place,' location, equipment, business .and good will of said Belford were at the time of said transaction, worth at least the sum of $3,000j as was well known to defendants.”' That the sale by Belford was a sale of Belford’s stock of merchandise in bulk and otherwise than in the ordinary course of trade, and that said Belford-, Jones and Moran did not at least five days before said sale make a full inventory of said property transferred, nor did they'make inquiry of Belford as to the pames and places of residence of each of his creditors, arid obtain from him a written answer to said inquiries, nor did they notify each of Belford’s creditors of the sale. The complaint prayed that the transaction in question be'declared fraudulent and void as against plaintiffs; that said transaction be set aside and a receiver appointed; 'that the mortgage of" $10,000 be. canceled, or, in the alternative, that the transaction be declared fraudulent and void, and that defendants Doelger,. Jones and Moran be compelled to pay to plaintiffs the value of the assets transferred and the profits of conducting the business from the time of the alleged sale, or, in case the relief so prayed for could not be granted, then that defendants Doelger, Jones and Moran pay to-plaintiffs, as creditors of Belford, the sum of $1,950. — 647 — 1. Appellant Doelger contends that the complaint states no ¡cause of action against him. This contention is well founded." The utmost that can be inferred from the complaint is that Doelger probably furnished to Jones and Moran, upon some terms not disclosed the money with which the latter paid Belford for the transfer of the business. It is not alleged that Doelger has qr ever had in his possession any of the property of Belford so transferred. Assuming for the moment that the complaint alleges Belford’s incompetency, the mere fact that while incompetent he has paid to Doelger a debt owing to him is not a ground for setting aside the transaction. An incompetent may pay his just debts as well as one who is competent. I fail to see how plaintiff is entitled to cancellation of the $10,000 mortgage which it is alleged Doelger caused Belford to assume. This mortgage does not appear to be a lien upon anything which was ever owned by Belford or transferred by him. The complaint states that the building and fixtures were owned by Doelger and that the mortgage was “ upon said premises.” There is nothing to show that Doelger is attempting to enforce any claim for $10,000 or any other sum as secured by said mortgage. 2. Appellants contend that the complaint states no cause of action against Jones and Moran for a transfer fraudulent as against creditors. Deduced to its ultimate analysis in this-regard, the complaint alleges .that Jones and Moran, knowing that Belford was insolvent, bought from him a business worth $3,000 for $1,950, the result being tlmt beyond the purchase price Belford would have nothing with which to pay creditors to whom he owed $5,000, In order to set aside a transfer upon the ground that it was intended thereby to hinder and defraud creditors, it must appear that such intention existed upon the part, both of the transferor and transferee. There is in this complaint no allegation of an intent to hinder, delay or defraud creditors on the part of Belford, the transferor, nor that Jones and Moran, the transferees, purchased with intent to assist Belford in perpetrating a fraud upon his creditors. Indeed it is not alleged that the plaintiffs were creditors at the time of the transaction complained of. While the allegation of fraudulent intent is not an absolute necessity where facts clearly showing such intent are set forth, plaintiff cannot ask a court to — 648 — impute a fraudulent intent when lie makes no assertion thereof,.and. the .facts stated do not compel the inference. Fraud must be shown.. It is usually deduced from facts which naturally' and logically indicate its existence. The circumstances relied upon must be. such:as - fairly and reasonably lead to the conclusion of a fraudulent intent and fairly and reasonably exclude any other hypothesis. (Shultz v. Hoagland, 85 N. Y. 464; Lopez v. Campbell, 163 id. 340.) Belford, although insolvent, had a right to sell liis property provided lie did so in good faith and without fraudulent intent, although the effect of sale was to place the property beyond the reach of his ■ creditors. There is nothing to show the existence of. a fraudulent intent as to his creditors. For a business only alleged to be worth $3,000, the value thereof, as must be apparent, mostly consisting of the good' will, defendants paid $1,950 so far as appears- before Belford became-indebted to the plaintiffs." Belford did not retain pos- : session of the property after the transfer.. Fo credit was extended upon an apparent possession which did not in reality exist. There ■ was no colorable assignment under which Belford remained the. real ‘ owner. It is affirmatively alleged that Jones and Horan took pos-, session of the premises at once. It is. also alleged that Belford .' applied almost all "of tlie purchase price received by him to the payment of his debts. We think as between subsequent creditors and Jones and Moran,, nothing is shown to" warrant setting aside the transfer to them as fraudulent.- There is nothing alleged which shows any intent on their part .to hinder, defraud or delay these plaintiffs. This action, is not in the' bankruptcy court, and no presumptions growing out of the provisions of the bankruptcy statute áre.to be indulged: in. . 3- Can the judgment creditors maintain the action to set aside the transfer, not upon the ground that it was fraudulent as against . . creditors, but as standing in the shoes of Belford to recover property - wrongfully obtained from him? .The first suggestion is that he was incompetent to make a contract. It seems to be .established that -the.contracts of an insane person are voidable by the- insane person himself, if he should thereafter recover his reason, .or by a committee duly appointed of. his estate, or, after his death, by his.' privies in blood or in estate. .These judgment creditors claim such an interest in his estate as to entitle them to bring suit* / — 649 — Without passing upon that question, about which there' may be some doubt, it is sufficient to say that the allegations of the complaint are not sufficient to establish the insanity of Belford. It is nowhere alleged that Belford was insane at the time of the transaction in question, or that he was of unsound mind, or that lie was wholly incompetent to comprehend the nature of the transaction. All that is alleged is that Belford was not in fit condition to transact any business, and was unable to understand his acts or the effect thereof. In Aldrich v. Bailey (132 N. Y. 87) it was held that in an action to set aside a deed on the ground of the insanity of the grantor, the complaint should allege that the grantor was “ wholly and absolutely incompetent to comprehend and understand the nature of the transaction.” It not being here alleged that he was insane, or of unsound mind, or “ wholly, absolutely and completely incompetent to understand and comprehend the nature of the transaction complained of,” the complaint is insufficient." 4. There remains to be considered whether the complaint states a cause of action upon the ground of -a fraud perpetrated upon Belford by procuring his intoxication and so.rendering him incompetent to 'Understand the effect of what he was doing. The equitable relief, if any, to which a party is entitled who lias been induced by fraud to make a conveyance is a rescission of the contract. Upon this'branch of the case plaintiffs are to be considered as standing in the shoes of the defendant Belford, and the rule which would govern him, if he in his own. name was seeking a rescission, must govern them: The facts alleged show that defendant Belford has a right of action in equity to set aside the transaction in question on the ground of fraud. This right is a property right. When the defendants Jones and Moran fraudulently obtained title to the saloon property they became constructive trustees of this property for defendant Belford, "and he has the same interest in this property as any other cestui que trust has in the property held by his trustee as such. This right is an equitable asset belonging to defendant upon which his judgment creditors have a right to realize by proceeding in equity. That the equitable assets of the judgment, debtor may — 650 — be reached by the judgment creditor by an action in equity is settled law in this State. In First National Bank v. Shuler (153 N. Y. 171) the court said: “ The rule is well settled in this State that the plaintiff in a creditor’s action acquires by the commencement of the suit a lien upon the dioses in action and equitable assets of the debtor which entitles him, in the successful event of the action, to priority of payment thereout in preference to other creditors.” In Edmeston v. Lyde (1 Paige, 637) the court said: “ The debts, dioses in action and other equitable rights of the defendants may he assigned or. sold under the decree of this court so as to vest an equb table interest in the purchaser which will be protected both here and at law. * * . * The principle being established that every species of property belonging to a debtor may be reached and applied to. the satisfaction of his debts, the powers of this court are perfectly adequate to carry that principle into full effect.” The right in question is a chose in action- which may be reached by a judgment creditor. In Hudson v. Plets (11 Paige, 180) the court held that- a right of action for trespass' quare clausum fregit could be reached by a judgment creditor, and said : “ The right to an action for an injury to the property of the judgment debtor before the filing of the complainant’s bill whereby the property to which the creditor was entitled to resort for the payment of his debt is . destroyed or diminished in value, appears to be such a thing in action as may properly be reached, and applied to the payment of the complainant’s debt under a creditor’s bill.” That case was cited and approved in Reilly v. Sicilian Asphalt Paving Co. (170 N. Y. 44). It seems to me that that case is analogous to" the one at bar. I can see no difference in principle between a' legal and an .equitable right of action for an injury to property, and if one can be reached in equity by a judgment creditor it seems to me that the other should. But the complaint does not. allege a precedent return of the consideration paid of an offer to return. There is no doubt but that, plaintiff must submit to a deduction of the amount actually paid by defendants for the property in question from the proceeds of a sale thereof, or if there' be no. sale he must pay this amount to defendants before he can have the property; for he who. asks equity must do. equity, and it has always — 651 — been the law that upon the rescission of a contract on account of fraud the vendor must return to the vendee the amount paid by the latter. (Allerton v. Allerton, 50 N. Y. 670.) Certain cases decided by the Court of Appeals, in distinguishing between an action at law upon a rescission and one in equity for a rescission, have held that in the latter action “ it is sufficient ” -for the plaintiff to offer in his complaint to restore to the defendant' what he has received, and that atender of the same before suit brought is not necessary. (Gould v. Cayuga County Nat. Bank, 86 N. Y. 75 ; Berry v. A. C. Ins. Co., 132 id. 55 ; Vail v. Reynolds, 118 id. 302.) An offer to return the consideration has been held unnecessary when the judgment prayed for allowed a deduction of the same from the amount of the.recovery. (Allerton v. Allerton, 50 N. Y. 670; Harris v. Equitable Life Assurance Society, 64 id. 196, 200.) These cases would seem to indicate that when the judgment prayed for does not allow a deduction of the consideration paid by the defendant there must be an offer in the complaint to return the consideration, and without such an offer the complaint is insufficient. In the complaint before us there is no such offer; indeed one of the prayers is that defendants pay to plaintiffs .what they have already paid under the contract. Is this omission fatal ? Hay v. Hay (13 Hun, 315) is a case directly in point. It. was there held that in an action to set aside a contract on the ground of fraud it was not necessary to offer in the complaint to return the consideration received by plaintiff. The court said: “ A plaintiff who seeks equity must do equity. Therefore, if he asks the court to decree a rescission of his contract with a defendant for the fraud of the latter the court will not grant him the relief unless he restores whatever he has received from the latter, and which rightfully belongs to him. That condition will he imposed whether there be an offer to restore in the complaint or not. Ibis, however, a condition of granting relief, not of instibabing a suit.- . It is only when .relief against an illegal contract -is sought, and a statute requires that an offer to do equity must be made in the complaint, that such an offer is necessary.- We think, therefore, that an offer to restore is not a necessary ingredient of the causé' of action, and that a demurrer will not lie for the omission to insert such an offer in the — 652 — complaint.” That case was followed in Winterson v. Hitchings (9 Misc. Rep. 322). Kley v. Healy (149 N. Y. 346) would seem to sustain the decision in Hay v. Hay (supra). It was there held that a judgment for plaintiff in an action to set aside a contract on the ground of fraud should be reversed for the reason that the plaintiff • had not offered to restore the defendant to the’ position which he occupied" at the time when the contract was made, “ and the, court in its decree has- not provided for such restoration as a Conditioii of awarding the relief demanded.” In Halpin v. Mutual Brewing Co. (20 App. Div. 590) it was said: “ The proper course in' equity in cases where the plaintiff seeks the rescission of a contract under which he has received property is-to offer in the complaint to restore it to the defendant,-but such an offer is not indispensable. The court in its decree may provide for restitution ás a condition of granting the desired relief.” (Citing Kley v. Healy, supra.) Even though it is the rule .that a complaint in an action of this kind should contain an offer -to return the consideration received by plaintiff, it seems to me that this case can be • brought'within the exception to that rule which makes such .an offer unnecessary where the relief prayed for allows defendant to retain the amount of his consideration. " . This complaint contains a prayer for general relief, and it is a rule • of equity"" pleading that where plaintiff mistakes the relief to which he is entitled in liis special- prayer, “ the: court may yet afford him the relief to which he has a right, under the prayer of general relief, provided it is such relief as is agreeable to the case made by the bill.” (Story Eq. Pl. [10th ed.] § 40; Thompson v. Heywood, 124 Mass. 401.) This being the case, the prayer .for general relief may be considered as a prayer for the value of the property in question. minus what has already been paid. by defendants... With such a prayer it has been held that an" offer to return the consideration is unnecessary. Upon this view of the cause, of action, the complaint as against Jones and Moran is sufficient. 5. The complaint is also sought to be sustained as for a cause of action upon a sale in bulk of Belford’s stock of merchandise otherwise than in the ordinary course of trade in the regular and usual prosecution of his business without compliance with the pro — 653 — visions of the so-called sale in bulk statute, being chapter 569 of the Laws of 1904 (amdg. Laws of 1902, chap. 528). We do not think-that the facts bring this transaction within the provisions of said statute. 6. There were two decisions filed upon the two demurrers interposed, and upon such decisions two separate 'judgments were entered. . We find ño provisions of law authorizing such practice. There should have been but one decision and one judgment determining the questions raised by the several demurrers. Each demurrant could, thereafter, have appealed from so much of the judgment as affected him. The practice followed was anomalous and should not be encouraged. The judgment overruling the demurrer Of Doelger should be reversed, with costs and disbursements to the appellant, with leave, however, to the respondents upon payment thereof within twenty-days to make and serve an amended . complaint. The judgment overruling the demurrer of Jones and Moran should be affirmed, with costs and disbursements to respondents. Patterson, P. J., and Houghton, J., concurred; McLaughlin, J., concurred in result.