Britton v. Lorenz , 3 Daly 23 ( 1869 )

Daly, F. J.

The right of-a general assignee to bring such an action as this is expressly given by statute (Laws of New York, 1858, p. 506).

In such an action it is competent for the plaintiff to show that a bill of sale transferring the whole of the debtor’s property, though absolute upon its face, was, in reality, intended to operate as a general assignment for the benefit of creditors with preferences, which, under our statute, cannot be done except in the mode which the statute has provided (Laws of New York, 1860, p. 594; Fairchild v. Gwynne, 16 Abb. 23; Cook v. Kelly, 12 Id. 35; 1 Greenleaf’s Evidence, §§ 248, 279; 1 Smith’s Leading Cases, 154,168, 169, 170).

Where, as in this case, the statute is imperative in respect to every conveyance or assignment of the real or personal property of a debtor, made to an assignee in trust for creditors, that it shall be in writing and duly acknowledged in the manner provided by the statute, before the delivery of it to the assignee, every attempt to execute such a trust by another and different mode from that of the statute, is absolutely void, and no title will pass. The statute is entitled, “ An Act to secure to creditors a just division of the estates of debtors who convey to assignees for the benefit of creditors.” It was passed to prevent the enormous abuses which had arisen before its passage, by permitting debtors to assign voluntarily their property, orally, or in writing, to assignees, for the payment of their debts, giving preferences, without any check or safeguard to secure creditors against dishonest debtors acting in combination with unscrupulous assignees, to prevent their property from being applied upon judgments and executions to the satisfaction of their debts; such conveyances being largely resorted to as a cover, to defeat the creditor and secure the property, or its avails, ultimately and secretly, to the use and benefit of the debtor. Indeed, as all connected with the administration of justice before the passage of this statute knew, the instances were so .many and the abuse so general, as to become a reproach to the jurisprudence of the State, as contradistinguished from that of other States and other countries, and the undoubted purpose of this act was to afford some remedy by the various provisions requiring such a trust to be executed by an instrument in writing, duly acknowledged before a public officer, before it could take effect as a conveyance, and providing for the filing, with a judicial officer, within a given time, of a full inventory of all the debtor’s estate, and a true account in writing of all his creditors, with their places of residence and the amount respectively due to each; an affidavit by the debtor of the truth of the account of his creditors and of his property, and requiring the assignee to give a bond for the faithful discharge of his duty, in an amount to be fixed by the county judge, with sufficient sureties, to be approved by the officer; before the assignee could sell, dispose of, or convert the property to the purposes of the trust; with other provisions in this and in subsequent statutes (Laws of New York, 1867, vol. II, p. 2163), by which the assignee, after the lapse of a year, can be compelled to account before the judge in the same summary way in which executors and administrators are compelled to account before surrogates. One of the rules laid down by the judges in Heydon's Case, 3 Coke’s Rep. 7, for the interpretation of statutes is, what was the mischief and defect against which the law did not previously provide ? And where a statute is passed to remedy an existing abuse, and declares that a particular act shall be done in a certain way, it shows that no discretion was intended to be given ; that it cannot be done lawfully in any other way; the statute being imperative and not simply directory (2 Coke’s Institutes, 388; Co. Litt. 11, 42; Davidson v. Gill, 1 East, 64; Collins v. Blantern, 2 Wils. 347; Dwarris on Statutes, 693, 694, 697, 715; Tomlin’s Law Dict., Statute ii).

A bill of sale, absolute upon its face, is conclusive only as between the parties to it. It may be impeached by third parties, and declared void upon the ground of fraud, or for the reason that it was given for a purpose other and different from what appears upon the face of it, when the purpose intended to be effected is one that cannot be lawfully done in that way, either as being against the express provisions, or as contravening the general policy and intent, of a statute (Staines v. Wainwright, 6 Bing. N. C., 174; 1 Greenleaf on Evidence, §§ 279,248; 1 Smith’s Leading Cases, 168 to 171). An instrument shown to have been designed for such a purpose, may be avoided at the suit of a judgment creditor; and under the act of 1858, before referred to, an assignee, receiver, or other trustee of an insolvent estate, may for the benefit of creditors, or others interested in the estate held in trust, disaffirm and treat as void any act done, or transfer or agreement made, in fraud of the right of any one interested in the estate held by such assignee or trustee.

It is abundantly shown by the evidence not only that the. bill of sale was given, as the judge has found, with the intention that the conveyance should take effect and he carried out as a voluntary assignment for the benefit of creditors with preferences; but also that the defendants, after they got the property into their possession, attempted to avail themselves of the transfer, as if it were what it purported to be upon the face of the instrument, an absolute transfer of the property to' them. The whole transaction, therefore, being void, the plaintiff, as an assignee for the benefit of creditors, was entitled to receive the value of the property to be distributed as the effects of the debtor, under the trust in the assignments.

There was no objection to the witness Dickinson stating what occurred at his office, in his presence, between Scheuch and Crofts. If he stood in a confidential relation to anybody, it was to Scheuch ; and Scheuch stated publicly in court, that he was willing that the witness should state everything that occurred there. The rule which precludes a. professional adviser from disclosing what occurred between himself and his client, was meant for the client’s benefit. The great object of the rule, as Mr. Gbreenleaf has remarked, is, that the entire professional intercourse between attorney and client, whatever it may have consisted in, should be protected by profound secrecy (1 Greenleaf’s Evidence, § 240); and that the object designed in treating all such communications as privileged was the client’s protection only, is apparent in the reasons given for the rule by Lord Brougham, in Greenough v. Gaskell, (1 My. & K., 102, 103), and in Bolton v. The Corporation of Liverpool, (Id., 94, 95); and by Justice Duller, in his treatise upon the Law of Nisi Prius, p. 284, and afterward reiterated by him, in Wilson v. Rastell (4 T. R., 759), that “ it is the privilege of the client, and not of the counsel or attorney.” If the client is willing that it should be disclosed; if it is his interest, as it may be in a case like this, that it should be, there is no reason for enforcing the rule. Thus, in Merle v. Moore (Ry. & Moo., 390), Chief Justice Best, at nisi prius, allowed the attorney for a bankrupt to tell what was communicated to him by the bankrupt, to show that a deed which the attorney drew, and which the bankrupt executed, of all his property, was fraudulent—the bankrupt being present and consenting— upon the ground that the privilege was the privilege of the client, and that he might waive it; a case so nearly resembling this, upon the objection raised, that it may be regarded as in point.

The indebtedness of Scheuch to the house of Curtis & Co. in the month of April, was a proper inquiry; and the whole of the conversation, afterwards detailed ás taking place between himself and the defendant Hoffbaur, was a part of the res gestae, and a very important part; and the same remark applies to the objection to George Scheuch’s testifying to what occurred between himself and the defendant Lorenz, before the execution of the bill of sale, as to what it was best for the insolvent to do. .The statement which the witness produced, showing the extent of the insolvent’s indebtedness, which the witness thought it likely he received from one of the defendants, or which, at all events, lay upon the table, was properly received, being, as the judge said, a part of the res gestee.

I can see no possible objection to the question put to the witness, upon his cross-examination as to whether he was not mistaken as to the renewal of the lease ; and the appellants’ counsel, in his points, has not drawn our attention to any grounds for his objection. The question put to the defendant Lorenz: Had you any intention of taking a bill of sale in trust to pay, confidential ? was properly overruled. The inquiry was not what he had intended, but what was the actual agreement between the defendants and the insolvent, to be determined by his and their acts and declarations.

The evidence seems to be sufficient to show that the value found was not too great. George Scheuch testified that the stock, at its cash price, amounted to $21,400; and the judge has found that it, the check and the value of the lease, amounted to $18,850. Beyond this, I do not propose to go over the twenty-four other exceptions taken to the judge’s findings, except to say, in general terms, that the facts found, which are excepted to, are legitimate deductions from the evidence, and fully sustained by it; and that the conclusions of law upon the 'facts found, are in conformity with the view ‘of the law already expressed.

The judgment should be affirmed.

Barrett, J. It is quite immaterial whether the purposes sought to be subserved by the bill of sale in question were honest or fraudulent. In either case, the plaintiff could maintain an action for the property thus sought to be transferred. If honest, that is, if intended, by a secret trust, to operate as an assignment for the benefit of creditors, as the learned judge has found upon amply sufficient evidence, it was void, and no title passed; for the reason that the instrument was not acknowledged before delivery, as imperatively required by the Act of 1860 chap. 348; (Hardmann v. Bowen, 39 N. Y., 196; Cook v. Kelly, 12 Abb. P. R., 35; Fairchild v. Gwynne, 16 Abb. P. R., 23; Adams v. Houghton, 3 Abb. P. R. (N. S.), 46). Even if collusive, the general assignee, subsequently. created, is expressly authorized by statute to recover back the property for the benefit of the creditors (Laws of 1858, chap. 314). The effect of this act is to give such assignee the same standing in court as a judgment creditor or receiver in proceedings supplementary to execution. The act has evidently been overlooked by the appellant, and it is conclusive against his principal points.

The objection to the testimony of the witness Dickinson was properly overruled. He was merely employed to do a specific act,but was not consulted professionally; nor was there anything confidential in the conversation which he narrated.

The testimony of Charles W. Scheuch was also clearly admissible. The plaintiff, as the representative of the creditors, was not concluded by the bill of sale. He had a right to go behind the mere form, and to show the substance. But irrespective of his status, the testimony was proper, whether treated as practically inquiring into the consideration, or as proving a trust, or upon the principle which admits evidence to show that a deed, absolute on its face, was in fact intended as a mortgage. The objection comes, too, with bad grace from the defendants, who, having by their answer, planted themselves upon this bill of sale, as Iona fide purchasers, are thus convicted, by the finding based in part upon this evidence, of an attempt to evade the trust, and to secure Seheuch’s property for their own exclusive benefit.

The remaining objections are unimportant, and unworthy of special notice. No reason is given in their support, and they are clearly untenable.

The judgment should be affirmed.