Bulger v. Rosa

Learned, P. J. This is an action of replevin, brought to recover personal property alleged to belong to plaintiff, and taken by the defendant by virtue of judgments and execution against John Sherlock and John Bulger. On the trial the court directed a verdict for the defendants, and denied a motion for a new trial, and the plaintiff appeals. John Sherlock and John Bulger were merchants under the firm name of Sherlock & Bulger. They had some real estate, their stock in trade, and book-accounts. By a bill of sale dated June 15, 1883, Sherlock conveyed all his undivided one-half interest in all the personal property, including book-accounts and choses in action of the firm, to John Bulger, subject to the payment in full of all the claims and demands “against the said firm of Sherlock & Bulger, which said claims and demands the said John Bulger does hereby assume and agree to pay.” By a deed of the same date Sherlock conveyed to John Bulger the real estate subject to the mortgage thereon, which John Bulger assumed to pay. On the 16th of June, 1883, John Bulger conveyed the real estate to plaintiff, subject to said mortgage, which plaintiff assumed. He also at the same time conveyed to plaintiff all the personal property which had belonged to the firm, including dioses in action; and the plaintiff took possession. June 18,1883, he began to carry on business. The defendant, by virtue of the aforesaid execution, levied on the 21st. The firm was insolvent, and so were each of the partners. The firm was indebted to plaintiff to an amount of about $1,700. John Bulger was also indebted to the plaintiff to an amount of about $1,300. These two amounts constituted the consideration for these transfers to plaintiff. The stock on hand was estimated as worth about $1,500; the equity in the real estate about $500, though it afterwards sold for $1,000.' There was subsequently collected from the book-accounts, $160. The plaintiff testifies substantially that Sherlock said he wanted to see the plaintiff paid, whether the others got their pay or not; that he would sell out the business to plaintiff that plaintiff might get his money. This remark might indicate that the transfer to John Bulger was made in order that he might secure plaintiff both what the firm owed plaintiff and what John owed plaintiff individually. Or it might indicate that the transfer was made that John might pay plaintiff only what the firm owed him. And as the plaintiff was not allowed to go to the jury he is entitled to the more favorable construction of this and of similar evidence. The jury might have found that the transfer to John was made only for the purpose and with the intent of enabling him to pay first what the firm owed plaintiff, and then what they owed other creditors. And the court refused to submit this question to the jury. If they had found that such was the intent, we cannot see that that transfer could have been held fraudulent. This seems to be settled by the reasoning of the court in Williams v. Whedon, 109 N. Y. 333, 16 N. E. Rep. 365; Emerson v. Senter, 118 U. S. 3, 6 Sup. Ct. Rep. 981; Crane v. Roosa, 40 Hun, 455. Several English cases are cited to us by the defendant upon this point. But it must be remembered that in England there is a bankrupt law, [40] and therefore preferences by insolvents are not lawful. With us it is different, and preferences are lawful, except as restricted by chapter 503, Laws 1887. And, as the transfer by Sherlock to John Bulger was expressly made subject to the payment of all claims and demands against ^the firm, which claims and demands John Bulger agreed to pay, we do not see that it purported to convey anything but Sherlock’s interest in the firm property after the debts were paid. The court refused to submit to the jury the question whether the sale by Sherlock was with intent to hinder creditors. If made in good faith, it passed the title to John Bulger. Stanton v. Westover, 101 N. Y. 265, 4 N. E. Rep. 529; Saunders v. Reilly, 105 N. Y. 18, 12 N. E. Rep. 170. It has been several times laid down that the right of creditors to have partnership property applied to partnership debts is derivative, and is a subrogation to the rights of the partner; that if the property has become the several property of a partner, or of a third person, the equity is extinguished. Case v. Beauregard, 99 U. S. 119; Fitzpatrick v. Flannagan, 106 U. S. 648, 1 Sup. Ct. Rep. 369. Hence, in Saunders v. Reilly, ut supra, it is said that, even if insolvent, all the members of a firm may sell the firm property to pay a joint debt for which they are jointly liable, outside the business of the firm, and the joint creditor will obtain a good title to the firm property. In the present case, as the transfer to John Bulger was made subject to the payment of the firm debts, it may be said that the equity of Sherlock was not extinguished, and that the creditors of the firm may be subrogated thereto. The defendant cites the case of Burhans v. Kelly, 2 N. Y. Supp. 175, to show that Sherlock’s act was fraudulent. But in that case the trial court found fraud as a fact. So, in Calkin v. Conner, 18 Wkly. Dig. 24, the trial court refused to submit the question of fraud to the jury. As to the conveyance to John Bulger, therefore, we do not think the court was justified in holding it fraudulent as matter of law. It can hardly be urged that, if John Bulger turned out this property to plaintiff in payment for what the firm owed Mm, the transfer would have been invalid. If the amount turned out were greater than the debt, this might indicate fraud, or a creditor might probably recover the excess. In the present case, if the jury had been allowed to pass on the question, as requested by the plaintiff, they might have found that the value of the property turned out to plaintiff was substantially equal to the debt owing him from the firm. There is evidence that the debt owing plaintiff from John Bulger individually was a part of the consideration. Of course, in equity, John Bulger had no right to pay his own debt with this firm property to the injury of firm creditors. But firm creditors could only be injured to the extent to which he used firm property in excess of the firm debt. If the property turned out to plaintiff was not in excess of the debt owing him by the firm, the firm creditors were not injured. The surrender by plaintiff of his claim against John Bulger did no harm to the creditors of the firm. The plaintiff might lawfully give up his claim against John Bulger, in order to induce him to pay the firm debt with the firm property; and the plaintiff had a right to have submitted to the jury the question whether the firm debts were a full and fair consideration for the property purchased. Another question may arise, and that is whether if the property transferred by John Bulger to plaintiff was in excess of the debt owing him from the firm the transfer was entirely void, or only void for the excess. Wilson v. Robertson, 21 N. Y. 587, was a case where an assignment by partners gave the first preference to individual debts, and this was held to be void. But that was on the ground that such preference gave a benefit to the individual partners out of firm assets before any firm creditors were paid. The provisions of the assignment must be followed, or else it must be set aside. The present is not that case. John Bulger, with assets of the firm, has paid a firm debt. With assets of the firm he has also (on this supposition) paid an [41] individual debt. It matters not that he did these two acts by one conveyance. The extent of the injury to the firm creditors (if any) is only the excess of the property transferred above the firm debt. No intentional fraud is proved; and in this state fraudulent intent is a question of fact, not of law. 2 liev. tit. 137, § 4. The right of the firm creditors, as above shown, is a derivative right coming from the right of Sherlock. Sherlock could insist only that the excess above what the firm owed the plaintiff had been applied contrary to the terms of the transfer made by Sherlock to John. Up to the amount of the firm debt the property was applied according to the terms of his transfer. The judgment should be reversed, new trial granted, costs to abide event. Ingalls, J., concurs.