Opinion
Argued April 19, 1888
Decided June 5, 1888
Denis O'Brien for appellants.
Bradley Winslow for respondents.
There is a difficulty in maintaining the decision of the General Term which we are unable to overcome. The foundation of the plaintiff's right of action, treated as a creditor's bill, is fraud. If that be absent, he has no ground of complaint. The trial court did not assert its existence, and when requested to do so, first as matter of fact and next as matter of law, refused the request as to each. The General Term reversed the judgment, but since its order does not declare that such reversal was upon the facts, we must assume that it was for error in law. (Code Civil Pro., §§ 1337, 1338; Kane v. Cortesy, 100 N.Y. 132.) We cannot go to the opinion to ascertain. ( Van Tassel v. Wood, 76 N.Y. 614.) We are thus left to inquire what was the error of law involved in the referee's decision.
The respondent first claims that, upon the facts found, the purchase of the property by Staples was necessarily and inevitably with a fraudulent intent, and no other inference can possibly be drawn, whereby there followed the conclusion of fraud in law, which the referee, although requested, refused to find. The pivot on which the whole transaction swings is the affirmance of the Tiley judgment by stipulation. If that had not been done the sale which did occur would not have taken place. If that affirmance could have been honest, fair, done in good faith and without fraudulent intent, then the question whether it was so done is a question of fact, and not of law. It needs only a study of the situation to discover that the stipulation to affirm the judgment was not necessarily and inevitably fraudulent. Tiley had an honest debt for its full amount. No answer to it as a debt is pretended. He was entitled to his pay up to the full amount. He sought to enforce it as a lien on the hotel property and brought his action for that purpose. The hotel company defended upon technical grounds. These were, at least, debatable and certainly not meritorious. Tiley succeeded and obtained judgment and the company appealed, all the other parties submitting to the decision. Before the decision of the General Term the company stipulated to abandon its appeal and consented to an affirmance of the judgment. Beyond any question it may have acted honestly in so doing, and Staples might, without fraud, advise and urge that action. It is not fraudulent conduct to abandon an effort to deprive an honest creditor of the whole or some portion of his debt. Nor is one creditor hindered or delayed by ending an effort to hinder or delay another. At this time Tiley had sold his debt and his lien to Kennedy, Spaulding Co., without the knowledge of Staples. The lienor, oppressed by the delay, or fearful of the dangers of the contest, sold at a sacrifice. The firm had a right to buy, and buy cheap, for they bought a law suit with its contingencies. They took Tiley's place and had all his rights. They were entitled to every dollar of his debt, and defrauded nobody if they got it. Standing in that attitude they enforce their judgment by a public sale after due notice. Other creditors were at liberty to bid, and did bid. But it is said a fraud was practiced upon them by failing to disclose the stipulation of affirmance. The facts tend to dispel that idea. The judgment on the stipulation was entered on the 30th day of December, 1876, and became on that day a matter of record open to every observation. The sale did not take place until the thirteenth of the next March. For almost three months public notice by the record had been given of the fact of affirmance. There is no finding and no request to find that the plaintiffs were ignorant of this fact thus publicly disclosed, and which it was their duty to know. The fact of the reversal on the 29th day of December, 1876, was known to plaintiffs at the sale, for they declared the fact. If they had examined the records, as we may presume that they did, they knew that no order of reversal had been entered, and they saw that the assignees of Tiley were enforcing the judgment as affirmed. Before the sale, therefore, they knew all the facts and were in no manner blinded or deceived. They took no steps to open or set aside the sale, or to set aside the judgment of affirmance by coming in as parties and seeking to litigate the Tiley claim, but two years later begin this action seeking to restore the lien of their judgment upon the property. The purchasers bid up to the full amount of the Tiley judgment, and that amount was the full value of the property, for while it is found that such was the value there is not a word of proof or even a claim that it was worth a single dollar more. What happened then was this only: the assignees of Tiley took the property at its fair and full value in discharge of an honest debt. Assuredly there is no fraud in the result, for that is, that one creditor has collected his debt by taking the debtor's property at a full and fair valuation and by force of a preference to which he was lawfully entitled. These considerations show, not that there may not have been a fraudulent intent, but that the question is one of fact, of conflicting inferences, and not one in which a conclusion of fraud is inevitably to be drawn as a conclusion of law. For, if the title of Kennedy, Spaulding Co. was good, they were at liberty to sell it to whom they pleased and at such price as they could obtain and chose to accept, and no charge of fraud could be sustained. I do not see, therefore, how it is possible to sustain the reversal of the General Term upon the ground that the transaction was fraudulent in law. If Tiley had remained owner of the judgment, and it had been affirmed by stipulation, and he had bid the property in for the full amount of his judgment, which was its fair value, and then sold it at half-price to Staples, who would have been wronged, what creditor would have been defrauded? Does it alter the case that not he, but his assignee, did exactly that? If on a trial before a jury upon an issue of intent to defraud creditors these facts had all been proven, and the defendant asked to go to the jury upon the question, and the plaintiff asked that a verdict in his favor be ordered by the court, I think it very clear that the last request could not have been properly granted, and the question would have been one for the jury. That supposition tests the action of the General Term. The referee refused to find fraud, even as a fact, upon the conflict of inferences. The General Term might have reversed on the facts because they were of a contrary opinion, but did not do so, and stand upon the ground that there was fraud in law, and the facts admit of no other possible inference. In that we think they erred. The legislature has been averse to the rule, at one time adopted by the courts, that fraud in such cases was a question of law, and sought to end the controversy, which had raged almost bitterly, by explicitly enacting that in such cases the question of fraud should be one of fact. And while it may, nevertheless, be true that facts may be proven from which the inference of fraud is so necessary and inevitable that a verdict to the contrary would not be endured, and so a fraud as matter of law be established, yet this is not such a case and cannot properly be so treated.
But there is another aspect of the case presented by the facts which depends upon the relation in which Staples stood to the hotel corporation as one of its directors and its general manager, and which steers clear of the question of fraud. It is claimed that, by reason of that relation, his action was voidable at the suit of the corporation or its creditors, and he may be compelled to disgorge the profit which he has unlawfully made. Going back to the moment of time when Staples agreed that the judgment should be affirmed, it is pointed out that his duty to the corporation as manager and director was put in collision with his interest as an individual; that his duty was not to consent to an affirmance of the judgment while his personal interest was the other way; that his duty was on the sale to get the highest price possible for the property of the company while his interest was the reverse; and that a court of equity will not stop to inquire in such a case whether the trustee has acted honestly, but will never endure that he act at all under a temptation destructive of his duty, and will set his action aside or compel him to account for any profits he may have made.
But it is to be observed that this rule has its appropriate application where the trustee deals with his company, and so may be said to be acting on both sides or dealing with himself. In the present case Staples was not dealing with the corporation. He bought nothing of that and made no contract with it, but dealt wholly with third persons to whom he owed no duty, and with whom he was at perfect liberty to make the best bargain possible. He touched the corporation but at a single point, and that was in the stipulation of affirmance. It may be said of that action that his duty and his interest were, as it respects such stipulation, in collision. But the act was not his. It was the act of the corporation itself executed by its attorney in the action. The corporation assented. It does not complain. Apparently all four of the stockholders concurred, and no wrong was done them. Nobody complains or can complain unless it be the creditors. But Staples owed no duty to them to refuse or prevent the proposed affirmance or continue an unjust litigation for their benefit. He owed them the duty of paying the just debts of the company out of its property. That is what he was doing. He was arranging to satisfy the Tiley debt which was a prior lien. He owed them the duty of not wasting the corporate property. He was stopping the waste of an unjust defense and an expensive litigation. If it be said that part of Tiley's claim was not a debt of the corporation and the trustee was bound to resist it, the answer is we do not know that and cannot try that question over again. The four persons who owed such portion were the same four who became the corporation, and may have assumed in their corporate character, by agreement or by conduct, the duty of payment resting on them as individuals, or the lien may have clung to the building despite the change of title. But they did defend and were beaten. It is true there was a reversal by the General Term; but we do not know even the ground of that reversal, except as recited in the opinion below and by reference to the reports of the court.
Assuming the reversal to have been as stated, it is a true, if somewhat trite, observation that it is easy after the battle to tell how it should have been fought. Nobody knew beforehand that a reversal would be secured; and nobody knows now what the contingency of a new trial or an appeal to the court of last resort would have involved. Courts and judges sometimes differ, and it is not always easy to be sure who is right and who is wrong. The creditors of the corporation had no equity to require that the directors should persist in their appeal, and no shadow of wrong was done to them when the corporation defendant submitted to the judgment of the court already rendered and allowed an honest creditor to collect an honest debt. And so we discover no dealing between Staples and the company; no contract of his with the corporate body of which he was a member; no act of his own which the company could avoid as in fraud of his duty to it, but simply an act of the corporation itself, performed not by Staples but by its own chosen and authorized attorney, which it might equally have done if Staples had already received an actual assignment of the judgment; an act in which his participation as a stockholder assenting to it may be the subject of scrutiny and the basis for alleging an actual fraudulent intent, but involves no contract or dealing between himself and the company, or is voidable as such.
It is further contended that the sale on the Tiley judgment did not cut off the plaintiffs' judgment, because there was no lis pendens and they were not made parties to the foreclosure. If that be true, the intervention of equity was needless, and no basis for this action was established. The plaintiffs in that event have their lien and may enforce it. This suit assumes that it has been lost and asks to have it restored.
The order of the General Term should be reversed, and judgment on the report of the referee affirmed, with costs.
All concur.
Order reversed.