Carter v. Carter

63 N.J. Eq. 726 | New York Court of Chancery | 1902

Stevenson, Y. 0.

The first question to be determined is whether these infants have an encumbrance to the extent of $3,000 upon the property described in the bill of complaint, now owned by their mother, Mrs. Carter, which is a valid encumbrance as against her.

If the assignment made by Miss Man to Mr. Carter, on March 10th, in which Mr. Carter is described as trustee for the two infants, could operate as a transfer to him of the property which it purported to convey, I think it is clear that a valid trust was created for the benefit of these infants. The settlement was voluntary, but whether it undertook to vest property which belonged to Mr. Carter or to Mrs. Carter, I do not think there can be any doubt that all parties to the transaction, including particularly Mr. and Mrs. Carter, intended, in good faith, that the assignment should operate as a conveyance of property to Mr. Carter, as trustee for the two infants. Whether, in case it was an efficient conveyance, it was void as against creditors of Mr. or Mrs. Carter, is not at present under consideration. We are dealing, in the first place, with the narrow question whether the instrument operated to create a trust valid as between the infants and the donor or donors who created the trust. I find nothing in the testimony to impeach the validity of this voluntary settlement, in the form of a trust, as between the donor or donors on the one hand and the beneficiaries on the other, provided the forms employed to accomplish the intended result, in fact, operated so as to make a transfer of the property intended to be conveyed.

There is no pretence that either Mr. or Mrs. Carter procured the assignment of this mortgage to Mr. Carter apparently in trust to Ms children for any reason of convenience, similar, for instance, to those which induce savings bank depositors sometimes to open accounts nominally in their names as trustees for other persons, when, in fact, no trust is intended, and the beneficial, as well as the legal, interest in the account is intended to be retained. The mere fact that Mr. Carter retained the power to commit a breach of Ms trust, by collecting the money and appropriating the same to Ms own use, does not affect the fact that, as between himself and his children, the trust was absolutely established.

The donative purpose on the part of both Mr. and Mrs. Carter, in endeavoring to transfer this mortgage to their two children, is proved beyond doubt. The instrument declares the trust and is, in form, a legal conveyance. It created a valid trust if the property which it described, in fact, existed. Viney v. Abbott, 109 Mass. 300; Green v. Tulane, 7 Dick. Ch. Rep. 169, 171; Dunn v. Houghton, 51 Atl. Rep. 71, and cases cited.

Our first inquiry, therefore, is reduced to this—whether the assignment from Miss Man to the complainant, as trustee, operated as a legal conveyance of the mortgage interest which it purported to convey.

It is plain that the settlement which Mr. or Mrs. Carter, or both of them, endeavored'to make for the benefit of their children was a voluntary settlement. The general rule is well settled that a gift, to be operative, must be completed; the donative purpose, however, fully expressed, is insufficient. Two main elements enter into every such donation as the one now under consideration, viz., (1) the donative purpose—i. e., the intention to effect a transfer of property to the donee for Ms use and benefit, and (2) the use of means recognized by the law as efficient for the accomplishment of this donative purpose. It is a general rule that equity will not aid in carrying out an incomplete gift. Until the donor has actually effected his gift, he may change Ms mind. How far an uncompleted gift is enforceable after the death of the donor, as a quasi contract, where the donative purpose was not charged and the object of the donation is the support of children, need not be discussed in this case. .See Landon v. Hutton, 5 Dick. Ch. Rep. 500.

All the parties to the attempted voluntary settlement are alive and before the court in this cause. The point, therefore, to be determined is simply whether, with this distinct donative purpose on the part of Mr. and Mrs. Carter, they used means which the law recognized as efficient to execute that donative purpose. If they did, then we must go further, and inquire whether this donation is also valid as against these judgment creditors, Messrs. Rolston & Bass.

A correct analysis of the situation, I think, will make it appear that the legal efficiency of this instrument of assignment to effect a voluntary transfer-of property must be viewed very differently, according as we deem Mr. Carter or Mrs. Carter to have been the donor. If Mr. Carter was the donor, the mortgage, at the time of the settlement, represented an outstanding valid encumbrance upon Mrs. Carter’s land, and was owned by him in equity, and could be conveyed, under his direction, by such an assignment as Miss Man executed.

If Mrs. Carter was the donor, there was no mortgage in existence for her to transfer, or procure to be transferred by Miss Man; it was necessary that Mrs. Carter should create, or cause to be created or recreated, an interest, to the extent of $3,000, in the lands which she then owned free and clear of any mortgage debt, and cause such interest to be vested in Mr. Carter, as trustee, by virtue of the assignment from Miss Man.

If Mrs. Carter was the donor, the donation consisted in what has been called the. “revival” of a mortgage. The mortgage so supposed to have been revived was one to which Mrs. Carter was never a party and which she had never assumed; the debt secured by it had been knowingly paid, without any feature of fraud or mistake, and the bond, which the mortgage was given to secure, not only had been discharged, but remained discharged, and is not supposed to have been revived. Mrs. Carter no doubt could enter into a valid contract subjecting her land to an encumbrance-equal to, and defined by, any prior encumbrance thereon. How she could make a gift, by procuring the former holder of this paid mortgage to execute an assignment' of the same to the donee, is difficult to perceive.

Whether Mrs. Carter may be charged with representations to Miss Man upon which she (Miss Man) assigned the mortgage and covenanted in her assignment that $3,000 and interest were due thereon, and whether any estoppel against Mrs. Carter, and ultimately in favor of these children, would arise from those facts, might be a question if all the evidence which plainly would throw light upon the subject has been produced.

But I do not think it is necessary to decide the question whether, in case Mrs. Carter must be regarded as the intending donor, she succeeded in effecting a legal donation, in trust fox her children, of an interest in her land to the extent of $3,000, because the testimony satisfies me that Mrs. Carter was not the donor, intending or actual, inasmuch as she never was the owner of the subject-matter of the gift; that this whole voluntary settlement for the benefit of these children was the gift of their father, the complainant, and consisted of a transfer of property which belonged to him in equity and which he controlled.

I do not find, from the evidence, that the mortgage which Miss Man held for $3,000 was ever paid so as to extinguish it. The amount undoubtedly was paid, but by a person who was not bound to pay it—by a stranger acting solely with intent to make a donation to the person who was, as he thought, about to acquire the land upon which the mortgage was an encumbrance. Mr. Carter bought the land and undertook to discharge the mortgage as one transaction. He procured a deed from Mrs. Pentz to his wife; he procured the mortgage, with a warrant for its satisfaction, from Miss Man, and paid to each of these parties a full consideration. He undoubtedly assumed that his wife would accept the gift or gifts which he was putting himself in a position to make to her. Mrs. Carter could accept the papers and thus ratify the acts of her husband, and such ratification would, according to the familiar principle, relate to the date of the delivery of the papers to Mr. Carter. But there is no contract of agency proved in this case which binds Mrs. Carter by the acts of her husband in receiving this deed from Mrs. Pentz and paying the $3,000 to Miss Man and accepting a discharge of the mortgage.

Moreover, inasmuch as we are dealing with a pure gift,’ it would seem that Mr. Carter, before delivering the papers to his wife or reporting the transaction to her, before his wife could, in any way, ratify what he had done, had the right to procure the other two parties to unite with him in undoing all that had been done, by exchanging back the things which they, severally had received from each other. But whether there was this locus penitentiae for Mr. Carter or not—assuming that he had completed the necessary legal form of a gift, on his part, by what was, or took the place of, a delivery—still the gift was incomplete, because it was not accepted. Mrs. Carter not only did not accept, but she expressly rejected the. offered gift, and so threw it back upon her husband’s hands.

To constitute a valid gift, there must be the assent of both parties, lip Am. & Eng. Encycl. L. (2d ed.) 1027 and cases cited in note 8.

The necessary acceptance—i. e., the reception of the thing offered, with assent to the donative purpose of the donor—may often be presumed, but such a presumption is founded, not only •on the beneficial character of the gift, but also on either the absence of dissent to the gift or the presence of incapacity to assent or dissent. The proposed donee in this case was sui juris, and, in the exercise of her liberty, saw fit to decline the offered donation. She refused to accept both the deed and the discharge of the mortgage, and the donor and donee agreed that the deed only should be accepted.

The result was that, under a familiar equitable principle, often applied where encumbrances are paid by mistake, the party so paying, who has been disappointed in his expectation under which he paid, is subrogated to the holder of the encumbrance, and holds the same for his own protection.

The fact that the bond of Mr. and Mrs. Pentz had been discharged is a matter, it seems to me, of no consequence, further than this, that they might justly claim that Mr. Carter, after paying out his money knowingly and intentionally for the discharge of the mortgage debt, could not reinstate that debt, as against them, so as to hold them secondarily liable for the same, merely because he had been disappointed in regard to the subsequent conduct of his wife, or had changed his own mind in regard to what he wanted to do in respect of the mortgage. Mr. Carter might be held, as against the Pentzs, to have taken the risk of his donative purpose not being carried out as he then intended. But, however that may be, upon the plainest and simplest principles of equity applicable to such eases, Mr. Carter’s subrogation to the rights of Miss Man would be complete as against Mrs._ Carter. Mrs. Carter, with the advice and consent of her husband, it is true, but nevertheless, in the exercise of her own rights, declined to accept the discharge of this indebtedness from her land, or, speaking more accurately, declined to accept a conveyance of the land discharged of this mortgage, and, by accepting a conveyance of the land subject to the mortgage, she made her husband, in equity, the owner of the mortgage lien, the amount of which he had paid to Miss Man.

It follows, I think, that when Mr. Carter and Mrs. Carter united, through the agency of Mr. Kyte, in procuring a transfer of the mortgage, as an existing encumbrance, to a trustee for the benefit of these infant children, the thing that was done, in effect, was a voluntary settlement, in trust, of an existing property right, an existing encumbrance which Mr. Carter had upon the land which then belonged to his wife.

While, in equity, Mr. Carter was entitled to be subrogated to Miss Man as holder of the mortgage, his legal title required an assignment from her. When he accepted the assignment, with a covenant of the amount due to himself, as trustee for the two infants—an assignment under seal, intended to be recorded, and which was afterwards placed on record—the declaration of the trust was complete.

The second question to be determined is whether, notwithstanding that this mortgage encumbrance of the infants is valid as against Mrs. Carter, it must be held fraudulent or void as against the judgment of Messrs. Eolston & Bass.

Although the answer and cross-bill of Messrs. Eolston & Bass do not charge that the assignment was made with intent to defraud existing or future creditors of Mr. Carter, that point was strongly urged in the argument. The evidence, in my opinion, not only fails to prove any such charge of fraud, but seems almost to disprove it. But if, upon any theory, this transfer could be held fraudulent as against Mr. Carter’s creditors, no advantage of that fact could be taken in this suit. These defendants appear as creditors of Mrs. Carter, with a judgment which they hold against her property. If the assignment was fraudulent as to Mr. Carter’s creditors, so also was the conveyance of the land to Mrs. Carter. The complaint of these judgment creditors is not that Mr. Carter stripped himself of his property, by a voluntary conveyance, and so rendered any claim of theirs again» t him of less value. Their complaint is that he did not make a larger voluntary conveyance to his wife, so that they, as her creditors, might be more beneficial than they were by the smaller gift, which they do not wish to disturb. ■

The application made at the argument for leave to amend the cross-bill so as to set up a judgment recovered by the defendants against Mr. Carter, and allege that the assignment was void as to his creditors, comes too late, and would apparently involve the trial, not of alternative, but inconsistent claims. The bill would be made to join two distinct causes of action—a proceeding to collect a judgment against Mrs. Carter out of her property, and a proceeding to collect a judgment against Mr. Carter out of his property. The two proceedings would seem to be based on contradictory theories of the ownership of the property in dispute.

If Messrs. Rolston & Bass have a judgment against Mr. Carter, they must pursue any remedies which they may have to' collect it in a separate suit.

The charge that the assignment to these children was fraudulent as to these defendants, as creditors of Mrs. Carter, is equally without merit. This charge is disposed of by the proposition that the assignment was not a conveyance of any property of Mrs. Carter’s; it was a transfer of Mr. Carter’s property, which Mrs. Carter had declined to receive as a gift.

If, however, we must treat Mrs. Carter as the owner of property in February and March, 1899, and this assignment of the mortgage as a voluntary transfer of an interest in her property to her children, I see no proof of actual or constructive fraud in the transaction. Mrs. Carter was acquiring property, by gift, of substantial value. She owed no debts, and did not contemplate owing any debts. No reason is suggested, if this assignment is to be treated as her donation, why she had not a perfect' right to make it for the benefit of her children as against' all the world. The fact that, weeks later, her husband saw fit to take more of his profits from his business and start her in a .speculative' business, which finally resulted in this indebtedness to these defendants and the judgment which they hold, cannot, in any way, color the donation which she made.

It was also argued that the evidence showed that Mr. Carter .secured the division of his gift, refrained from canceling the mortgage for the benefit of his wife, and procured the assignment of that mortgage to his infant children, for the purpose of “protecting the title,” or “protecting the property,” and that this fact, in-some way, made the withholding of the benefaction from Mrs. Carter fraudulent as against her creditors. But Mr. Carter had a perfect right, when he gave his wife the equity in the land, to give his children the mortgage, so as to prevent this mortgage interest from being subject to transfer by Mrs. Carter in any way, or subject to claims of any creditors which .she might afterwards have. ' Eor a man to give a part of his property so as to put it beyond the-reach of his present or contemplated creditors, is one thing; for a man to refrain from giving property to one man, and instead thereof to give it to another, so as to avoid the possibility that the creditors of the former may absorb it, is a very different thing.

There is one more claim of Messrs.-Eolston & Bass which is set up distinctly in the answer, is supported by some evidence and calls for some consideration.

This claim, as pleaded, is that Mr. Carter, for the purpose of obtaining further credit to his wife, represented to the defendants that his wife was the owner of the premises in question free of encumbrance, and that, on January 11th, 1900, he produced the mortgage, assured the defendants that it had been paid, and wrote a .certificate of cancellation upon it and delivered it, so endorsed for cancellation, to the defendants, and that thereupon they extended further credit to Mrs. Carter, upon the faith of the assurance of Mrs. Carter that the premises were free of encumbrance and that the mortgage had been satisfied, and further, upon the faith of the endorsement of the receipt on the mortgage.

It is hardly necessary to deal with the charge of fraud in any representation that Mr. Carter made to the effect that the property was unencumbered. The proofs show that the only foundation for this charge is that the defendants knew of Mr. Carter’s purpose to make a gift of the house free and clear, and undoubtedly supposed that that purpose had been carried out exactly as intended. Mr. Carter never, at any time, made any statements in regard to this matter as the basis of any credit. The defendants merely found themselves, in January, 1900, in this position: that they had given credit, or were maintaining a credit to a person who, they then discovered, had not received, by way of gift, certain property which they understood, long before the account was opened, some one had intended to give, and which they supposed had been given. The credit originally was given to Mrs. Carter on April 13th, 1899, on the strength of $2,000 in collateral donated by Mr. Carter to his wife and deposited with the brokers as security. There is no pretence that, when the account was opened, or at any time afterwards, Messrs. Rolston & Bass made any inquiry, either of Mr. Carter or Mrs. Carter, in regard to her property. If they saw fit to assume that Mr. Carter’s original donative purpose had been carried out, they took the risk of being mistaken.

That the cancellation of this mortgage by Carter, the trustee, for the purpose of increasing the property of his wife, and thus obtaining a larger or further credit for her, was illegal, does not seem to require argument. Such a destruction of his trust property would be a gross breach of trust, of which the defendants certainly could not take advantage. If Mr. Carter had held $3,000 in money as trustee for his children, and had proposed to Messrs. Rolston & Bass to pay off a mortgage on his wife’s land with the money, in order to enable them to give her further credit, the situation would not be materially different.

But the point which calls for consideration is this: It is charged that Mr. Carter, on January 11th, represented that the mortgage had been paid and offered to cancel it, and thereupon the defendants took possession of the mortgage, which Mr. Carter then and there receipted for cancellation, and gave further credit to Mrs. Carter, from which further credit they suffered loss. Conceding that the trustee had no power to cancel the mortgage, to destroy the trust property for the benefit of his wife and her creditors, the claim is not that he canceled the mortgage, but that he represented that the mortgage had been canceled or had been paid. Undoubtedly Mr. Carter had power to collect the mortgage, and the mortgage was overdue. Assuming that a trustee, in this situation, can bind himself and his cestuis que trust by representing that a trust mortgage has been paid, and producing it and receipting it for cancellation, we have a case of estoppel, which can be invoked only so far as someone has been injured. In order to establish this estoppel, it must appear, not that Mr. Carter canceled the mortgage, or promised to cancel the mortgage, or declared his willingness or ability to cancel the mortgage, but that he represented to these defendants that the trust mortgage had been paid—i. e., that he had received cash or property in lawful satisfaction of this mortgage for $3,000; and it must further appear that the defendants believed this representation, and had a right to believe it, and acted upon it, to their loss. These things being true, the mortgage is deemed canceled, but only to the extent necessary to indemnify the defendants against their loss. This is the familiar law of estoppel.

It is proved that Mr. Carter endeavored to explain to Mr. Hooley the whole transaction which resulted in the assignment to the children, and Mr. Hooley had ample opportunity to learn the facts. He had notice of the facts. The assignment, with its covenant of amount due, was exhibited and delivered to him. Mr. Carter probably stated that the mortgage debt had been paid to Miss Man. He may have said that the mortgage had, at that time, been canceled or discharged. Mr. Hooley cannot complain of any such truthful statement, when the other facts were submitted to him. When very skillfully cross-examined, Mr. Carter, in answer to the leading question whether he did not tell Mr. Hooley that the mortgage “had been paid,” answered, “Yes,” and being further questioned, said that he did not mean “paid at the beginning.” The witness seemed to be speaking of the interview of Janizary 10th, but I think that this is a mistake, which further questioning would have corrected. The defendants’ answer and cross-bill distinctly allege that Mr. Hooley distinctly testifies that the representation complained of was made on January 11th. My conclusion is that whatever was said by Mr. Carter as to the payment, or, as Mr. Hooley testifies, the cancellation of the mortgage, related either to the original payment to Miss Man (which, in view of the facts, of which Mr. Hooley had notice, was an immaterial matter), or to the unlawful cancellation which Mr. Carter offered and attempted to effect.

It is hardly credible that Mr. Carter, on January 11th, would have represented that he had been paid the mortgage debt which was due him as trustee, or if he did so represent, that Mr. Hooley would have believed, or would have had a right to believe, such a statement. The mortgage, in fact, was uncanceled and in the possession of the trustee mortgagee. It had been recently recorded. The owner of the mortgaged land, who, apparently, was the only person interested in procuring the payment of the mortgage, was practically insolvent, as was also her husband, as Mr. Hooley well knew. Moreover, the trustee was vindicating himself against charges and complaints of his creditor which impeached the fairness of the mortgage as it then stood before them. Mr. Hooley, according to his own testimony, with the papers before hiizz, made no inquiry as to the time or manner of this payment. He would not naturally have been ready to accept the bare statement of the trustee that the mortgage had been paid, if, indeed, he had a right to accept such statement without any inquiry on his part. The mortgage, after being receipted, was not delivered to Mr. Hooley in order that it might be canceled of record, but was to be kept by Mr. Hooley in his safe. The parties do not seem to have contemplated the cancellation of the record, unless the interests of the defendants require such cancellation. Subject to the protection which the possession of the receipted mortgage gave to the defendants’ claim against Mrs. Carter, both parties apparently contemplated the continuance of the mortgage as a lien, and Mr. Carter testilied, and Ms testimony is not in any way contradicted, that Mr. Hooley assured him that Mrs. Carter would not be further troubled about the mortgage.

Upon Mr. Hooley’s meagre testimony, the safe conclusion is that any statement of Mr. Carter about the cancellation of the mortgage related to the original discharge by Miss Man, or to the discharge which Mr. Carter undertook to effect, and that Mr. Hooley retained the receipted mortgage—the .record remaining uncanceled—only for the benefit of his firm, well knowing that the mortgage had not been paid to the trustee; and therefore ■was to be preserved, unless the interests of his firm required its ■cancellation.

I shall not deal in detail with the testimony as to the other necessary elements of an estoppel. It does not satisfy me that, in reliance upon the alleged payment of the mortgage debt to the trustee (rather than an unlawful cancellation of the mortgage by the trustee), the defendants gave further credit to Mrs. Carter—refrained from closing her account by sale of her stocks. Most stock brokers, under the circumstances, would have been .guided solely by their own interests in selling or keeping the securities which were pledged for Mrs. Carter’s account. Mr. Hooley does not say that, upon the strength of the statement that the mortgage had been paid, the sale was delayed. His statement is that if the mortgage had not been delivered to Mm he thinks the account would have been closed right up, for the purpose of showing that the defendants felt that Mr. Carter was looking out for himself, and that they proposed to look out for themselves. This is not proof that the sale was delayed in reliance upon the false statement that the mortgage had been paid to the trustee; it may be some evidence that the sale was delayed in reliance upon the unauthorized cancellation of the mortgage by Mr. Carter.

Nor is it, perhaps, entirely plain that, by delaying the sale, a greater loss was incurred. Mr. Hooley states, in substance, that the market value of the securities declined after January 11th, 1900, and consequently they sold for less money. This testimony is a general conclusion of the witness based upon his recollection of the market. The exact facts, apparently, were obtainable, and the witness might have come prepared to give definite evidence, not only of the loss, but of the amount thereof. When asked to state the difference between what the account would have realized if closed in January and the amount actually received, Mr. Hooley stated that it was impossible for him to do so, because he did not have “any recollection of the prices in January,” and he could not, on the stand, “guess at” the difference.

With the burden of proof upon the defendants, in my judgment they fail to establish an estoppel for the benefit of their alleged additional loss on Mrs. Carter’s account incurred by reason of a decline in value of the securities after January 11th, 1900.

The decree will establish the complainant’s mortgage as an encumbrance prior to the defendants’ judgment.

Case Details

Case Name: Carter v. Carter

Court Name: New York Court of Chancery

Date Published: Sep 26, 1902

Citation: 63 N.J. Eq. 726