7 F. 689 | U.S. Circuit Court for the District of Eastern Michigan | 1881
This is a bill to set aside a conveyance of the property in question, made by complainant to the defendant Cunningham, which it is claimed was made to entibie him, Cunningham, to satisfy from the issues of the estate, by sale or otherwise, a mortgage of $35,000 held by himself and his co-defendants Hunt and Eschelman, together with other indebtedness of Oliver. The hill also asks to have set aside a conveyance of the same lands made by the defendant Cunningham to. his co-dofendants G. J. Eobinson, Haines, and Ranney; and for an accounting by all the defendants for the issues, rents, and profits of the property since the second-named conveyance.
It is alleged that the conveyance to Robinson, Haines, and Ranney was made for the benefit of all the defendants, including Cunningham himself, and with full knowledge on their part of all Oliver’s rights in the premisos. I shall not enter upon an elaborate discussion of the evidence, or give at length the reasons for my conclusions, hut content myself by stating the principal facts, my conclusions, and briefly the reasons therefor.
In the summer or fall of 1868 Oliver owned about 12,500 acres of pine lands, and held a contract for the purchase of
Notwithstanding the fact that the $35,000 mortgage had been put into the firm as capital stock, Hunt and Eschelman afterwards instituted proceedings to foreclose the same, to which proceedings we shall hereafter have occasion to allude. And it appears that the firm of Cunningham, Robinson, Haines & Co. paid all the expense of such foreclosure, and subsequently received $46,000 as the proceeds of timber sold from the lands covered by sale, although Hunt was the nominal purchaser at the sale. A letter of Cunningham to G-. J. Robinson, of date January 25, 1872, refers to Eschelman as “a very quiet and comfortable partner.” The copartnership articles between Cunningham, Robinson, Haines & Ranney were signed for Cunningham by Hunt, who is his father-in-law, thus establishing the fact that Hunt then knew that Cunningham was using the mortgage, the legal title to which was in Hunt and Eschelman as capital stock in the firm. Although. Oliver proposed voluntarily to place the title to his
The testimony in the case abundantly establishes that all of these defendants must have known of the trust with which the property was charged; and we think that it is also established that the transfer to Robinson, Haines, and Ranney, and the subsequent dealings with the property under the firm name of Cunningham, Robinson, Haines & Co., wore in the interest of all the defendants. It should be borne in mind that, at the times of these transactions, each of these defendants stood in the relation of either creditor or mort
The transfer by Oliver to Cunningham of this property, if any other view was necessary to be taken, could be regarded in no other light than'making Cunningham the trustee of Oliver’s property. If, then, Cunningham was still interested, notwithstanding his assignment of it', in the $35,000 mortgage, and was subsequently so. regarded by Hunt and Eschelman, then any disposition of the property held by him in his own interest, or for his own benefit, would be a fraud, and render any such transfer void, not only as to himself, but as to all other parties dealing with him, with notice of his relation to the property.
Without going through the testimony in detail, it is manifest that Oliver has received nothing like adequate consideration for his large property. .It is not overlooked by the court that Oliver was to receive back the Preston-eontract lands, and other lands outside of towns 28 and 29 ; and that, under the Buffalo agreement, Robinson, Haines,, and Ranney were to pay the contract price of the Preston lands—$10,500; nor that the new firm paid unsecured debts. But, nevertheless, the case is regarded as clearly within the doctrine stated in Russell v. Southard, 12 How. 154, as a transaction that should be scrutinized to see whether any undue advantage has been taken of the mortgagor, in reference to which the court says:
“We think that inasmuch as the mortgagee in possession may exercise an undue influence over the mortgagor, especially if the latter be in needy circumstances, the purchase by the former of the equity of redemption is to be carefully scrutinized when fraud is charged, and that only constructive fraud, or an unconscientious advantage, which ought not to be retained, need be shown to avoid such a purchase.”
Again, in Pugh v. Davis, 96 U. S. 337, the court says:
“ A. subsequent release of the equity of redemption may undoubtedly be made to the mortgagee. There is nothing in the policy of the law which forbids the transfer to him of the debtor’s interest. The transaction will, however, be closely scrutinized, so as to prevent any oppression of the debtor.”
Viewed in the light of these authorities, the transactions
Whether the judgment in the foreclosure case is a bar to the present action, depends upon whether the subject-matter of the suit, pleaded as a defence to that, constituted a subject-matter which the defendant Oliver was entitled to interpose against a decree of foreclosure. If he was entitled to avail himself, as a defence to the 'foreclosure, of the matters which he brings forward in this suit, and did set up such a defence, and introduce evidence in support of it, no matter upon what ground the court gave to the mortgagees a decree of foreclosure and sale, that judgment would be a bar against setting up the same transactions by an original bill against the same parties. It would make no difference that the court held that the défence could not be allowed, and that Oliver must bring his original hill, if, as a matter of law, it was admissible to defeat a foreclosure of the mortgage. The proceeding would he none the less a bar to this suit. Eor a correction of the error of the court in thus deciding, the party would be remanded to his remedy by review. While, on the other hand, if the subject-matter of this suit was not admissible as a defence to the foreclosure, for the reason that it involved the rights of other parties, strangers to the mortgage, as well as property other than that covered by that of the mortgage, which must have been affected by any decree based upon the defence then urged, in that case, though it may have been set up in a proceeding, it would be no bar to this bill.
The supreme court of Michigan, in Jacobson v. Miller, 41
We have stated what was the subject-matter of the litigation in the foreclosure on the part of the complainant. Now, the subject-matter of the litigation as respects Oliver, in that foreclosure, was the right to have whatever defence he was entitled to make determined in that suit, and the judgment of the court would not be res adjudicata as to any matter which he was not so entitled, as a matter of right, to have litigated there. It only becomes necessary, as it seems to me, then, to determine whether, as a matter of law, Oliver was entitled to interpose the transactions brought forward in the present suit as a defendant to a decree of foreclosure. As already intimated, if H. M. Eobinson, not a party to the foreclosure, but a defendant here, was a necessary party to any suit in which the transactions in controversy were to be decided, then, as he could not be made a party to that foreclosure, it was not Oliver’s right to interpose the subject-matter of this suit as a defence to that. It has already been stated that H. M. Eobinson was interested with his co-defendants in the business and profits of the firm of Cunningham,
Before a final decree can be made there must be a reference to a master to state an account. In stating such account, timber taken from the lands and the personal property received by the defendants will be charged against them as follows, viz.:
Yaluo of timber, ------ §110,000
Personal property, including logs, teams, and lumbering supplies, and goods in store, - 70,000
Accounts and bills receivable transferred to Cunningham by Oliver, ------- 11,000
The defendants should be credited as follows:
G. J. Robinson's interest in the firm of Oliver & Robinson in case of his election to retire, - 20,000
Cunningham, Hunt, and Eschelman mortgage, - - 37,450
Amount paid David Preston, ... - 12,287
C. Haines & Co. mortgage, ----- 10,000
Paid to Joseph Hill, > 1,000
Paid for E. & G. R. Haines mortgage, ... 0,000
Oliver & Robinson’s debts, - 25,000
Amount of Wayne mortgage, - 10,000
8127,739
The defendants should be allowed on such accounts for the taxes paid. Interest on the balance should be computed at the rate of 7 per cent, per annum from October 17,1874, the date of the final sale of timber by defendants, to the date of the master’s report. The proofs do not disclose any earlier time which the court would feel justified in fixing as the date from which interest should be computed, and the defendants should also be allowed a reduction from the amount charged against them, for notes and accounts to the extent that they were uncollectible.
The decree will also provide for the reconveyance of all the lauds transferred by Oliver, as well those in townships 28 and 29 north, as those lying outside of those townships not heretofore reconveved to complainant. The claim of complainant for allowance for the mill burned while in defendants’ control, cannot be allowed, as we think there is no