Bienenstok v. Ammidown. BIENENSTOK v. AMMIDOWN. N. Y. Superior Court, Tria! Term; May, 1894. 1. Fraud.] If a purchaser, who is insolvent, conceals the fact from the vendor and thus obtains the goods without intending to pay for them, it is a fraud for which the sale may be rescinded. 2. The same.] One who receives a check or money in payment of an indebtedness with knowledge that the check or money was . the proceeds of goods obtained by fraud, is liable therefor to the person whose property was fraudulently disposed of. 3. Partnership.] Where a member of defendant's firm, acting as president of a corporation, pledged goods of which the corporation had obtained possession under a sale void as to plaintiff for fraud, and shortly afterwards deposited the check given for the advances on the goods to the firm's credit in payment of a prior indebtedness of the corporation to the firm,—held, that the firm, in taking advantage of the act of its member in bringing the check into the firm, was impressed with such member's knowledge as to the source from which it came, though such knowledge was not acquired in the course of his agency as a member; and that the firm could not claim that the money or check vested in it because it had applied it to an indebtedness in good faith and without notice. 4. The same.] Nor, in such a case, can the firm claim that good faith was shown from the circumstance that the proceeds so received by it were all again advanced by the firm to the corporation, so that the firm had received no benefit, where it not only had constructive notice, but the innocent member had knowledge of the corporation's insolvency and of facts sufficient to put him upon inquiry. Trial by the court without a jury. The action was brought by Siegfried Bienenstok, and others, against Edward H. Ammidown, and another, to reach the proceeds of goods which had been obtained from plaintiffs by fraud, and which had come into the hands of defendants. The further facts are fully stated in the opinion. Bienenstok 7. Ammidown. Blumenstiel & Hirsch, for plaintiffs. MacFarland & Parkin, for defendant Smith. MCADAM, J.-The plaintiffs, wool dealers at St. Louis, Mo., in September, 1890, sold to a corporation known as the Rittenhouse Manufacturing Company, located at Passaic, New Jersey, a quantity of wool, aggregating in value about $34.888.17. The transaction on the part of the Rittenhouse Company was conducted by Mr. Gardner, its manager, through a firm of wool brokers, known as Salter Brothers. Mr. Ammidown, one of the defendants, was president of the Rittenhouse Manufacturing Company, and at the same time senior member of the firm of Ammidown & Smith, composed of the defendants. Ammidown owned about ninety per cent. of the stock of the Rittenhouse Company, and had an interest to the extent of sixty per cent. in the firm of Ammidown & Smith. About the time the wool reached Passaic, Mr. Ammidown told Gardner that the wool must be sent to New York and placed in warehouses; that times were hard, ready money tight and difficult to get; that the notes of the corporation could not be sold, and that he would have to borrow money on the wool for present use. For these reasons the wool was not taken from the cars, but brought to New York, divided into three parcels, stored, and warehouse certificates procured in the name of the Rittenhouse Manufacturing Company. These three warehouse receipts were thereupon taken to the Bank of America and two other similar institutions, where the notes of the Rittenhouse Company, guaranteed by Ammidown and secured by these warehouse receipts, were discounted. The proceeds of the Bank of America discount, amounting to $9,200, were represented in a check drawn by that bank, indorsed first by Ammidown, then by his firm of Ammidown & Smith, and passed to their credit in their bank. VOL. XXXI.—26 Bienenstok v. Ammidown. Plaintiffs claim that their property was obtained by the Rittenhouse Manufacturing Company by means of a fraud, to which Ammidown was a party, and that, in consequence, they have the right to follow the proceeds of the $9 200 draft, representing part of their property, into the hands of the defendants. That the property was obtained by fraud may be safely inferred from the evidence. The Rittenhouse Company, at the time it bought the wool, was a corporation created by the laws of New Jersey, having a capital of $200,000. Three months before the wool was purchased, the books of the corporation showed a deficiency of $329,000, and on December 2, 1890, it was behind to the extent of $555,000; so that it was hopelessly insolvent, without the slightest prospect of continuing business or of meeting its obligations. The wools purchased from the plaintiffs were evidently bought with the pre-conceived design not to pay for them. The circumstances overcome every presumption of innocence. The embarrassed condition of the Rittenhouse Company and of Ammidown and the use they made of the plaintiffs' wools, show that the intention of paying for them was never for a moment entertained. Indeed, payment therefor was impossible. In Durell v. Haley (1 Paige, 492), Chancellor Walworth said: "If a purchaser who is insolvent conceals the fact from the vendor, and thus obtains goods without intending to pay for them, it is a fraud, and the property is not changed in the hands of the vendee." The same doctrine is asserted in Ash . Putnam (1 Hill, 302); Buckley v. Artcher (21 Barb. 585); Morrison v. Garner (7 Abb. Pr. 425); Devoe v. Brandt (53 N. Y. 462); Johnson v. Monell (2 Abb. Ct. App. Dec. 470; 2 Keyes, 655); Wright v. Brown (67 N. Y. 1; Anonymous, Id. 598). It is sufficient if the intent exist at the time the goods are received, though subsequent to the sale (Whitten v. Fitzwater, 129 N. Y. 626). The combination of events is to be considered in determining the question (see Beardsley Bienenstok v. Ammidown. v. Duntley, 69 N. Y. 581; Hedges v. Payne, 63 Hun, 630; Abegg v. Schwab, 31 Id. 139; 9 N. Y. Supp. 631; White v. Benjamin, 3 Misc. 505, 506). It is not necessary for the evidence to show beyond a reasonable doubt that a party is guilty of fraud; nothing more is required than that the evidence shall be sufficient to satisfy the conscience of a common man, although the evidence does not amount to absolute certainty (Bigelow on Fraud, 474, 475). It The Rittenhouse Company and Ammidown knew that the plaintiffs were supplying the wool, believing that it was to be used at the company's mills; that it was needed there, and that they were doing, and likely to continue to do, a prosperous and paying business; and all intimation to the contrary was carefully suppressed. must have been known that if the plaintiffs had the faintest idea of the hopeless insolvency of the Rittenhouse Company, or of Amidown, they would not have parted with over $34,000 of their property, particularly if it had been suspected that, instead of using the wools at their mills for manufacturing purposes, in the usual course of business, the vendees intended, as soon as they received the wools, to put them in storage with the sole object of raising their value in money for the benefit of others-a course which destroyed all possibility of payment to the vendors. If the plan which was carried out successfully was not preconceived, the result and consequences to the vendors were just the same, and as between them and the vendees the former might have rescinded the sale and reclaimed their property (Nichols v. Michael, 23 N. Y. 264. 266. Vide cases before cited). A bona fide purchaser from a fraudulent vendee will be protected, however (Ball v. Shell, 21 Wend. 222; Mowrey v. Walsh, 8 Cow. 238; Keyser v. Harbeck, 3 Duer, 373; Fassett v. Smith, 23 N. Y. 252; Paddon v. Taylor, 44 Id. 371). But it devolves upon the latter to establish that he is a bona fide purchaser, and that he has parted Bienenstok v. Ammidown. with value without notice of the fraudulent title of the person from whom he got the property (Porter v. Parks, 49 N. Y. 566; Stevens v. Brennan, 79 Id. 254; Dows v. Kidder, 84 Id. 121; Meacham v. Collignon, 7 Daly, 402; Mather v. Freelove, 3 State Rep. 424). A transfer as security for or in payment of a precedent debt will not make the transferee a bona fide purchaser within the rule (Stevens v. Brennan, and other cases, supra). Wherever the property of another has been wrongfully misapplied, or a trust fund has been wrongfully converted. into another species of property, if its identity can be traced, it will be held in its new form liable to the rights of the original owner (2 Story's Eq., §§ 1258, 1265). Equity impresses a trust upon it in favor of the one. equitably entitled to the same against anyone receiving the fund, but a purchaser in good faith and without notice (2 Pom. Eq., §§ 1048, 1053; Perry on Trusts, § 166). The product or substitute for the original thing still follows the nature of the thing itself, so long as it can be ascertained to be such, and the right only ceases when the means of ascertainment fail (Taylor v. Plumer, 3 Maul & S. 562; Matter of Cavin v. Gleason, 105 N. Y. 256; Farmers & Mechanics' National Bank v. King, 57 Pa. St. 202; National Bank v. Ins. Co., 104 U. S. 69; Ferris v. Van Vechten, 73 N. Y. 113). Where the property has been converted into money such proceeds may (with certain limitations hereinafter referred to) be followed just the same as the goods might have been (Dows v. Kidder, 84 N. Y. 121; Van Alen v. American National Bank, 52 Id. 1; Holmes . Gilman, 138 Id. 369; 30 Abb. N. C. 212). The Bank of America, in good faith and without notice, advanced upon the warehouse receipts $9,200, and to that extent acquired a valid lien thereon, and the question is whether the defendants herein acquired, as against the plaintiffs, any right to retain the proceeds, which went into their hands in the form of a check drawn by the bank, which was indorsed, first by Ammidown, next by his firm, |