Malkemesius v. Pauly

Daly, P. J. A case in the Appellate Division, reported since the argument of this appeal, is relied upon in support of this motion. The decision in question (First Rat. Bank v. Wallace, 4 App. Div. 382) holds that a general assignment for the benefit .of creditors made by • a copartnership is not vitiated by the fraud of one partner in diverting, without the knowledge of the others, funds of the' firm to the payment of his own debts, nor by his design, equally unknown to his copartners, to secrete its assets to his own use. His betrayal of [622] his trust does not impeach the good faith of the firm,, who were, in fact, defrauded by him, and who, when his fraud was discovered, made' the assignment in order to protect their creditors. But what would have been the decision of the court if the fraud of the copartner, instead of being directed against his. fellow-members in the firm,: had been in their interest; if the fraud consisted in concocting á false schedule of liabilities and making an assignment in order to-thus defraud their' creditors ? Upon such a state of facts the innocent members of the concern .would not . be permitted to reap the benefit of their copartner's fraud; and if it appeared that he had been able to effect it by their surrender, of the whole control of the business to him,' and that they made the assignment and schedules as he dictated, the court'would not have assisted the' attempted"fraud by, holding the assignment to be valid. The assignors in. this case, stand in that predicament and the fraud in this.case was-perpetrated by their managing agent for • their benefit, or, at least, for the benefit of the owners of the assigned assets, the assignors being nominally such owners, while the agent had the exclusive control and' management of the business, ■if not the exclusive interest in it. ' He was the husband of one of the-assignors; he had failed in business and was carrying on a concern nominally for his wife and another party, who knew nothing of. its circumstances and left it entirely to him. They executed the assignment at his .suggestion. It was an attempt to defraud the creditors of the business, and cannot be sustained on the ground that they wére.personally ignorant of the intention of the-agent. So far as the validity of the instrument is concerned, his intention- is to' be deemed their intention, as their .acts simply effectuated his fraudulent purposes. Motion should be denied. ' ■ ' : MóAdam and Bisohoff, JJ., concur. • • • i Motion denied.