Mason v. Somers

| New York Court of Chancery | Feb 19, 1900

Grey, V. C.

The complainant contends that the proofs in this case show that the defendant Alfred Somers made a fraudulent conveyance of his real estate to his son, for the purpose of avoiding the payment of his debts, and insists that the deed for that reason is void under the statute of frauds.

The counsel for the defendant Alfred Somers contends that in order to sustain the complainant’s claim he must have been in the position of a creditor of Alfred, at the time the latter made the conveyance to his son; that in the transaction as to the note, Alfred was merely an accommodation maker for the benefit of William Somers, who got all the money; that for this reason the complainant, who was second endorser ou the note, was not, when the deed was made, a creditor of Alfred Somers. He cites Severs v. Dodson, 8 Dick. Ch. Rep. 634, as authority for the proposition stated.

That case declares simply a rule of evidence that a conveyance will not be presumed to be void solely because it is voluntary, except in favor of debts existing when it was made; and further that an accommodation endorser of a note does not become a debtor to the holder, in the' sense prescribed by the statute of frauds, so as to raise the presumption of fraud, until the note is dishonored.

The principle decided is applicable in the present case, but not for the reason alleged by the defendant. It is not because Alfred Somers was an accommodation maker, nor because William Somers, the payee, got the proceeds of the discounting of the note, that the complainant was not a creditor of Alfred Somers. For if the complainant had himself discounted, or purchased and paid for Alfred’s note, he would have been his creditor, whether Alfred got the avails or not.

The complainant in the case now before me, at the inception of the note, had no interest in it; he gave nothing for it; he did not discount it or purchase it; all he did was to lend his name as second endorser to aid in procuring it to be discounted. Ho recovery could have been had upon it by the complainant if it had remained in his hands when he endorsed it, and had come to be due and had been dishonored. He was not, because of this note, at that time, in any sense a creditor of Alfred Somers. The note had no efficacy whatever until the bank gave it life by discounting it. Then the parties for the first time became answerable according to the order of their liability, but it was to the bank which furnished the money, and not to the complainant, who at this stage of the transaction was simply an accommodation endorser of the note held by the bank, with only a possibility that he might ever become a creditor of Alfred Somers. This status of the complainant toward Alfred’s note continued from June 30th, 1896, when the note was made, to September 30th, 1896, when it was renewed, and during all the subsequent renewals until he took up the paper. Meanwhile, the alleged fraudulent conveyance was made on July 23d, 1896, by Alfred Somers to his son.

The principle propounded in Severs v. Dodson, ubi supra, precludes the complainant from being considered in the class of creditors as against whom a voluntary conveyance by their debtor will be presumed to be void. It declares that such a presumption will not be raised with respect to a mere responsibility because it may, on the happening of some contingency, come to be an indebtedness, as in case of a warranty of title, or a suretyship on a bond. In this case the complainant, when the note was made and up to the time that he paid it, had but a possibility that he might become a creditor of Alfred Somers, in respect to the note, by paying it as second endorser to some one who was the holder. This, when done, did make the complainant an actual creditor of Alfred Somers, who made the note, and of William Somers, the prior endorser. But this situation did not arise until the note had been last renewed on December 30th, 1896, and was paid by the complainant about March 30th, 1897, more than eight months after the deed had been made by Alfred to his son.

The complainant not being a creditor of Alfred Somers on July 23d, 1896, the time of the making of the challenged conveyance, it 'follows that it will not be presumed that the conveyanee in question, even if voluntary, was fraudulent as to the complainant, so as to be void under the statute of frauds. •

The result is that the complainant cannot maintain a right to relief by simply showing that there was a conveyance which was voluntary, or for a grossly inadequate consideration, and then invoke the presumption that it was fraudulent as to him as a creditor. He must go beyond this and prove that when the defendant made the questioned conveyance it was with a fraudulent purpose to defeat or hinder his creditors. If he is able to show such a condition of-affairs, the same case (Severs v. Dodson, 8 Dick. Ch. Rep. 637) declares that “ a contingent liability as that of an accommodation creditor will lay a ground for a proceeding under the statute to set aside any transfer of property made in fraud of the holder of the claim.” The complainant asserts that this purpose is shown by the evidence.

It appears that while the negotiations for the loan were pending, the defendants Alfred Somers and. William Somers were anxious that the proposed note of Alfred Somers should be so accredited that it could readily be discounted. They wanted the complainant, for a consideration, to lend his name as endorser, and, to induce him to do this, the complainant testifies, and William Somers supports him, that the defendant Alfred Somers stated to the complainant his ownership of the very lands which he afterwards conveyed to his son, as an inducement to the complainant to give him credit by endorsing his note. Alfred Somers made a gwasi-denial of this testimony by attempting to show that he had no conversation with the complainant in June, when the note was first made; that it was in September that he first saw the complainant, and that he then had none of the real estate referred to in the conversation.

The denial of the defendant was not given in such a way as to be impressive of its truth. The conversation narrated would naturally, under the circumstances, have taken place at the inception of the credit. It is proven, by both the complainant and by William Somers, to have then taken place. The testimony of either is as disinterested and as credible as is that of the defendant Alfred Somers. It is established by the weight of the evidence. The defendant Alfred Somers thus obtained from the complainant the loan of his name upon a representation that his ownership of the lands now in question entitled him to that credit. He thus knew that the complainant would look, and had a right to look, to those lands in case, because of the loan of his name, he should be obliged to pay the note.

The defendant, in the early part of July, 1896, became president of the “ shoot-the-chutes ” company, and entered upon the conduct of the business of the company, whose stock was purchased by the money borrowed on this note, and on another one which the defendant Alfred Somers had endorsed. His only child, Milton Le Roy Somers, a young man of twenty-two years of age, was that summer employed as a ticket taker of another amusement affair immediately in front of his father’s “ shoot-the-chutes” place. The son testifies that' he could not remember the date when he first learned of the note made by his father to William Somers and endorsed by the complainant, but it was somewhere during the month of July, 1896. The proceeds of this note, and of another endorsed by him, enabled the father to secure the presidency of a company doing a business of the most public kind directly alongside and of the same general character as that in which the son was employed. The son then lived in his father’s family, and it is extremely unlikely that he was unacquainted with this marked change in his father’s employment, or that at his age, and with his financial relations to his father, he did not know of the note which the complainant had endorsed at the time it was due, or immediately that the moneys raised on it enabled the new scheme to be perfected. The son does not say he did not know, and all the circumstances indicate that he did know when he received his deed that his father had made the note in question'which the complainant had endorsed.

This deed, the son says, conveyed all the lands his father owned. The father says he yet owns an equity of redemption (possibly worth $25) in another'lot. Practically it was a conveyance of all the lands the father had. The consideration named in the deed is $2,000. No attempt was made to claim that this stated sum was in any way true. The son says that the actual consideration paid was $45 cash, and the rest was the payment of a claim which he had against his father for work and labor done by him while in his minority, and a member of his father’s family, to the amount of $900. Neither writing nor book entry was produced to show this indebtedness. The son said he had such a book, but none was put in evidence. No mention of such a consideration appears in the deed. No receipt or discharge of any such debt was shown to have been given by the son to the father. There was neither any statement of the accounts between them, nor any bargaining fixing the valuation of the land. In short, the satisfaction of the $900 debt of the father to the son remained after the deed, so far as any evidence in the cause showed, precisely as the debt itself had existed before the deed, a matter resting solely in the contemplation of the mind, and without physical evidence of any sort.

The defendant Alfred Somers swears that he paid sums aggregating $1,459.50 for the lots conveyed to his son and that they were subject to a mortgage for $400. The mortgagee testifies that the father continued to pay the interest on the mortgage since the conveyance by h,is check and to accept receipts given to him for the interest in his name. There was a sort of denial that it was the father’s money which made these payments. It appeared that the defendants had these interest receipts in their possession. If they had been produced the)' would have shown how the parties dealt. They were not produced. The taxes were receipted for in the son’s name. After the conveyance these receipts were produced.

The most extraordinary incident attending this remarkable sale, when but $45 of real consideration is claimed to have been paid, is exhibited in the testimony of the son and not denied by the father. The son testifies that at the time the deed was made he owed to his father money which he had borrowed from him on which to go to college, and from time to time since, amounting in all to about $1,700. When asked, “ How do you account for it, if you owed your father about $1,700 at the time this deed was made and your father owed you $900 and he was in your debt, that he ought to give you a deed for this property ? ” he answered, “ That was understood between my father and I, that the college debt was to stand until I could pay it.”

It thus appears that the son owed to the father nearly double the amount which the father is claimed to have owed the son and which made the consideration of the deed, so that if the amounts had been set off the son would yet owe the father about $800 and the father would have kept the lands conveyed by the deed, and they could have been applied in payment of his debts.

The business of “shoot-the-chutes” continued to run during the summer of 1896, but did not pay and was a failure. The defendant Alfred Somers, though admitting that he went into it with a purpose to shirk the losses and stand to take the profits, says he did not discover that it was going to fail until the latter part of the season, but his testimony is not very credible on the point. The business was begun early in July, when the summer attendance at Atlantic City is quite sufficient to indicate whether the popular patronage will support such a business. The defendant had plenty of opportunity to foresee the impending disaster, and his conveyance to his son of all the lands which he had that were of any value, for a nominal consideration, without any bargaining as to values, allowing his own large claim against the son to stand uncollected and unapplied, indicates that the father was forefending the wrath to come and seeking to retain the property in a control which would favor him, so that if the worst came to the worst it could not be applied to make good the assurances which he gave to the complainant when he induced him to endorse the note.

The only consideration for the deed which had any element of good faith in it was the $45. But this sum and the whole of the residue of the alleged consideration were far less than the debt which the son admits he owed his father. The natural and reasonable manner of dealing with the two acknowledged debts would have been to have offset the one against the other, leaving the son still indebted to the father in about $800. Instead of this the father’s debt- to the son was kept separate, so that its settlement might serve as the consideration in the deed, leaving wholly unpaid the very much larger debt of the son to the father. No reason for such a transaction is suggested, and none appears, except that one which accords with the other incidents of proof, a purpose to prevent the complainant from having that benefit of the defendants’ property which the latter held out to the cornplaiuaut as an inducement to endorse the paper. The complainant has shown by the weight of the evidence that the deed to the defendant Milton Le Roy Somers was made an,d accepted in fraud of the creditors of Alfred Somers.

No injury will be done to the son by declaring the deed made to him to be void. He admits that he owed his father a sum largely in excess of the amount which his father owed him, which he says was the real consideration of the deed. Neither debt is evidenced in a way to be negotiable. The son may at any time set oif the sum his father owes him against the much larger sum he owes his father, and thus allow the father’s lands to be applied in payment of his debt.

I will advise a decree in accordance with the views above expressed.