Adams v. Davidson, 10 N.Y. 309 (1851)

A transfer of property is deemed fraudulent against creditors when the assignor fails to relinquish actual possession and control of the property to the assignee, and the assignor continues to operate the business as before the assignment for their own benefit.

Summary

This case addresses the validity of a property assignment challenged as fraudulent by creditors. Brown assigned his assets to Davidson. Adams, acting on behalf of creditor Rathbone, levied on the assigned goods, arguing the assignment was fraudulent. The court held the assignment fraudulent because Brown retained control over the property, continuing to operate his business as usual even after the assignment to Davidson, indicating an intent to defraud creditors. This retention of control invalidated the assignment, allowing the creditor’s levy to stand.

Facts

Brown made an assignment to Davidson. Davidson told a clerk to observe the transaction. Brown told his clerk, Griffin, about the assignment. Brown retained the store keys and allowed Brown and Griffin to continue selling goods as usual. Brown told his brother-in-law the assignment was to induce Townsend & Wendell to provide bail and would be voided if successful. When the sheriff arrived to levy, Griffin did not disclose the assignment and promised the sheriff the proceeds of sales. Davidson did not make an inventory until after the levy.

Procedural History

Adams (representing Rathbone, a creditor) brought suit against Davidson, challenging the assignment. The lower court found in favor of Adams, deeming the assignment fraudulent. Davidson appealed to the Supreme Court, which affirmed the lower court’s decision in part and reversed in part. The case then went to the Court of Appeals.

Issue(s)

Whether the assignment from Brown to Davidson was fraudulent against creditors, specifically, whether Brown retained sufficient control over the property after the assignment to render it invalid.

Holding

Yes, because Brown did not relinquish control of the assigned property, continuing to operate his business and sell goods as before, indicating an intent to defraud creditors.

Court’s Reasoning

The court focused on the lack of actual and continued change of possession. The court emphasized that simply taking the keys symbolically was insufficient when Brown continued to operate the business as usual. The court highlighted the failure of Griffin to disclose the assignment to the sheriff as evidence of Brown’s continued control. The court noted that if Davidson was acting in good faith, he would have ensured a clear change in possession and control. The court also noted the significance of Davidson not calling Griffin as a witness to rebut the inference of fraud. The court stated the evidence showed that “there was not an actual, and much less a continued, change of possession of the assigned property.” The Court also notes, “The case, therefore, stands burdened, not only with the legal fraud resulting from the omission to take and continue the assigned property in the actual possession of the assignee, but with positive fraud in permitting Brown to sell for his own use and benefit as before.” Finally, the court states the assignment was at least in part created to coerce a third party to provide security for Brown, with the intention to void the assignment if successful.