51 N.J. Eq. 405 | New York Court of Chancery | 1893
Two questions are at issue in this case — first, has the complainant a right, as a judgment creditor, to maintain this action ?‘ and, second, were four conveyances made by the complainant’s-judgment debtors in April, 1885, to the defendant Edwin C. Swift, executed under such circumstances as entitled a judgment creditor of the grantors to any relief against the deeds ?
That the complainant was at one time a judgment creditor of’ the persons who made the deeds which are assailed is undisputed. He recovered a judgment in the supreme court of this-state, on the 29th day of June, 1885, against James E. Bathgate, James E. Bathgate, Jr., and John B. Bathgate, for a sum slightly in excess of $9,000. Nor is it disputed that the complainant assigned this judgment to the defendant Edwin C. Swift on the 16th day of April, 1886. Nor can it he successfully disputed that the complainant was induced to assign his-judgment by fraudulent representations, if it be true that the deeds in question are subject to successful attack by the creditors-of the grantors on any ground. The. consideration given for the assignment was ten per cent, in cash of the amount of the judgment, and the promissory note of James E. Bathgate, Jr., for' fifteen per cent, more. The sum paid in cash was paid out of
The negotiations resulting in the assignment of the judgment were conducted, on behalf of Mr. Swift, entirely by James E. Bathgate, Jr., who hereafter will, for brevity, be called James. Neither Mr. Swift nor the complainant ever uttered a single word to the other on the subject. It is undisputed that James, to induce the complainant to accept the consideration offered and assign his judgment, represented that he and the other judgment debtors had no assets — “ were completely snowed under ” — and that, in order to raise money enough to pay ten cents on the dollar of their indebtedness, they had to mortgage their future. The complainant alleges that these representations were false, and that instead of its being true that his judgment debtors were without assets at the time these representations were made, the truth is that Mr. Swift then held a large amount of property which they had made over to him by deeds and transfer absolutely on their face, but under a secret arrangement by which a part of the property or its value should ultimately be restored to them or to one of them. He, therefore, claims that he is not bound by the assignment, but has a clear right to relief in equity, both against the fraud which was committed when he was induced to assign his judgment and also that which was perpetrated by his debtors in attempting to conceal their property.
To the case thus made, Mr. Swift answers that, even if it be assumed that everything alleged by the complainant has been satifactorily proved, still, according to a well-settled principle, it is clear, that he is not entitled to relief. The reason assigned in support of this contention is, that the complainant, prior to the institution of this suit, neither returned nor offered to return the consideration which he had received for the assignment of his judgment. This is true. He neither returned nor offered to return the consideration. All that he has done in that regard is to submit himself, by his bill, to the direction of the court. He says that he is ready either to return the money or credit it on
But this, like other rules of justice, must be so applied in the practical administration of justice as shall best subserve, in ■each particular case, the undoing of wrong and the vindication of the right. In Guild, Executor, v. Parker, Receiver, just cited, the material facts, briefly stated, were: The directors of the New Jersey Mutual Life Insurance Company, in violation •of their duty, passed over to the testatrix of the plaintiff in ■error mortgages belonging to the corporation of the value of $15,000, in exchange for stock of the corporation of the par value of $10,000. On the delivery of the mortgages, the stock •certificates were surrendered. The testatrix of the plaintiff in error acquired her stock as the legatee of her husband, who, in his lifetime, had been a director of the corporation and a promoter of the scheme under which mortgages were exchanged for stock. The corporation was subsequently adjudged to be insolvent, and a receiver was appointed to wind it up, who, without offering to return her stock, brought an action at law against the testatrix of the plaintiff in error for the value of the mortgages passed over to her, and had a recovery. A writ of error was then brought, and one of the errors assigned was, that the receiver could not maintain an action to recover the value of the mortgages until he had first rescinded the contract under which they were delivered, and that he could only do that by returning the stock or offering to do so. The court, however, repudiated this view, declaring that the rule invoked by. the plaintiff in error did not apply to a suit by a trustee to recover property which had been wrongfully obtained from his cestui que trust, for, in the language of the court, “otherwise, the inability to
Now if it be true, as the complainant contends, that the consideration he received for the assignment of his judgment proceeded from James, and was in truth James’ money, according to the real understanding between Mr. Swift and James, and that James procured the assignment to be made to Mr. Swift for his own benefit, and not for the benefit of Mr. Swift; and if it also be true, that when James induced the complainant to assign his judgment, by representing that he and the other judgment debtors were without means, the truth was that Mr. Swift held a 'large amount of property for them under a secret trust, it appears to me to be entirely clear, that neither Mr. Swift nor James occupies a position where either has a right to demand that the complainant shall be required to repudiate and restore before he will be permitted to maintain an action to obtain redress against their wrong. If the consideration proceeded from James, it is certain Mr. Swift has no right to its restoration. And why should it be restored to James? On what principle of justice or honesty can he demand its restoration? He has not paid his debt. The money he passed over was only one-tenth of the sum he justly owed. True, he did not pass it over as a payment, but if the money was in fact his, and he concealed that fact, and also falsely represented that he and the other judgment debtors were in a state of absolute poverty, then he passed the money over in consummation of a fraud. It was the means by which he made his fraud effectual, and he has no right, therefore, to the restoration of the money. For no rule of equity jurisprudence is better settled, or rests on higher considerations of justice and morality,
For several years prior to the date of the deeds in question, the complainant’s judgment debtors, consisting of a father, James E. Bathgate, and his two sons, John B. Bathgate and James E. Bathgate, Jr., had carried on the business of butchers, as copartners, under the name of James E. Bathgate & Sons. James was also, at the date of the deeds, a member of a firm, composed of himself, Henry N. Swift and Edwin C. Swift, engaged in the business of selling Chicago dressed beef, on commission, in the city of Newark, under the name of the Newark Beef Company. This latter firm was formed on the 1st day of August, 1883. James held a one-half interest in it and was entitled to one-half of its profits. Whether he became a member for the benefit of James E. Bathgate & Sons or for his own .benefit is in dispute; but it is undisputed that a large part of the profits he received were, immediately on their receipt, paid over by him to James E. Bathgate & Sons and used by them as their own. The Bathgates failed in April, 1885. Their unsecured debts, at that time, amounted to over $100,000, and their debts, secured by mortgages on real estate, also exceeded $100,000. They appear to have dealt with each other during the whole period of their association as though it was understood that a perfect community of property rights and interest should exist among them. Each contributed to and drew from the firm whatever he thought proper, without credit or charge, no account of any kind ever having been kept of what each put in or took
The lands were conveyed for less than their fair market value. All the witnesses agree in this, those called by the defence estimating their market value, at the date of the deeds, at sums
There was no reason why Mr. Swift should make an unconditional purchase of these lands, at least none such as ordinarily controls the action of a man engaged in a large, widely-extended- and growing business. He was not a creditor of James E. Bath-gate & Sons, and therefore in no danger of losing anything by their failure. The lands lay in the suburbs of Newark; a large-part of them was unimproved; they were mainly valuable as building sites; some of them were low and wet; these were not likely to become salable foi’ building purposes until they could be drained by leading the water in them to a sewer; no such sewer existed; an attempt had been made to construct a public sewer in the vicinity of these lands, but natural and legal difficulties had been encountered, making it uncertain whether the attempt would not have to be abandoned; Mr. Swift did not reside in Newark and owned no real estate there; the only business interest he had there was that which he held in the firm doing business under the name of the Newark Beef Company; he resided in Lowell, Massachusetts; he was not a real estate dealer or speculator, but was extensively engaged in slaughtering
The manner in which the lands were used and occupied and -dealt with subsequent to the execution of the deeds, furnishes much stronger evidence that the deeds were executed as mort•gages than as absolute conveyances. Shortly after their execution, the lawn-tennis property was leased in the name of Mr. Swift, and the Newark Beef Company used a part of the sheep-skin property and also a part of the slaughter-house property ■for the purposes of its business. John and James were both ■then in the employ of the Newark Beef Company. The Bath-•gates retained possession of the residue of the lands and used them very much as they did before the deeds were executed up ■until John and James quarreled in the spring of 1887. They had the buildings insured and paid the premiums. James remained in possession of his homestead without the payment -of rent or any definite arrangement upon that subject, until February, 1887, when it was reconveyed to him on the payment -of $1,000 His deed has never been recorded. The consideration paid for the reconveyance was nearly $3,500 less than the property had cost Mr. Swift, not computing interest on his out-day. It will be remembered that he paid $3,000 for the prop
But this is not the 'Only marvelous feature of this transaction. If it was not understood, when this property was conveyed to Mr. Swift, that he should subsequently reconvey it., the recon-' veyance would seem to have been the offspring of a vagrant impulse rather than the result of a contract or understanding. The events which preceded the reconveyance, as they appear in the evidence, were these: A short time before the reconveyance was made James told Mr. Swift that he desired, in the near future, to repurchase his homestead; that he expected soon to receive $1,000, and that he would like to repurchase it for that sum. To this Mr. Swift replied, that he neither wanted to make nor lose on the property. James says, on this occasion, he saw Mr. Swift for a short time only, and that nothing definite was agreed upon, but as they separated, Mr. Swift said that he (James) could see him again or write to him, or he could see his attorney and have his attorney to write, and that the matter was left rather in that way. James did not see Mr. Swift again, nor did he write to him, nor did he have Mr. Swift’s
In this condition of affairs, by what confusion of recollection or other mental operation was it possible for Mr. Swift to suppose that he had only paid $1,000 for James’ property ? Moreover, had he forgotten that within less than a year he had' paid for taxes on this very property nearly $1,500? And did he not remember that the person to whom he was reconveying had occupied the property as his tenant — for that is his claim — for nearly two years without the payment of a single penny for rent ? The deed by which the reconveyance was made was sent to Mr. Swift for execution, at his home in Massachusetts, where
And just here it is important to state, that within less than two months before the reconveyance, Mr. Swift resold to James an interest in the Newark Beef Company. According to the testimony of both James and Mr. Swift, James only succeeded in effecting the repurchase after a long and hard struggle. As a means to that end, he threatened, in a mild sort of way, to leave the services of the beef company if Mr. Swift did not resell. Mr. Swift says that he was compelled to resell. Now, during this struggle, when James was exerting his utmost skill to compel Mr. Swift to resell, and Mr. Swift was doing his best to resist him, can it be believed that Mr. Swift, in searching for means to defeat James’ efforts, did not recall all his transactions with the Bathgates, and see, distinctly, what had been done in each ? He aud James both say that he did not want to buy James’ homestead, and did so reluctantly and more for the purpose of furnishing the Bathgates with money to save their honor than with a view of making money. On the assumption that this is true, is it credible that, while James and Mr. Swift were engaged in this contest, the fact did not force itself before Mr. Swift’s mind, not only vividly, but as a powerful means of resisting James’ importunity that he had paid $3,000 for a thing he did not want and simply to oblige James ?
Another fact requires mention here. In April, 1886, Mr. Swift sent to his attorney in Newark, $12,600, to be used in the purchase of judgments and other claims against James E. Bath-gate & Sons. The Bathgates, prior to the time when this money was sent, had arranged with many of their creditors to accept less than the amount due to them, and release their debts. The $12,600 was used in carrying out these arrangements.. With the money, Mr. Swift sent direction that the -debts which his money paid, under this arrangement, should be assigned to him.
.Balance due on resale of one-third interest in Newark Beef Company............................................................................... $4,451 87
Advanced in April, 1886........................................................ 12,600 17
.Interest on the $12,600.17, to January 1st, 1887.......................... 589 70
Making, in the whole......................................................$17,591 74
For this sum James made his note to Mr. Swift, dated Janu•uary 1st, 1887, payable on demand, with interest, and sent the note and statement to Mr. Swift, accompanied by a letter dated -January 21st, 1887. Mr. Swift accepted the note, and since then, up to February 10th, 1889, has received partial payments on it, amounting in the whole to $2,918.12. In the letter, ac-companying the note and statement, James expressed the hope that Mr. Swift would find the statement correct, and then added, if satisfactory to you, I will have your attorney draw the necessary papers for the cancellation of the judgments and mail them to you.” The judgments here referred to are those which had been recovered against James E. Bathgate & Sons and assigned to Mr. Swift. Satisfaction-pieces were subsequently drawn, at the request of James, and executed by Mr. Swift, in Newark, on the 2d day of February, 1887, just two months before he exe- ■ cuted the deed of reconveyance. Mr. Swift left the satisfaction-pieces with his attorney, with direction to hold until further .instruction should be given.
It thus appears that Mr. Swift’s attention, just before the re-conveyance, had been called so frequently, and in so many different forms, to his transactions with the Bathgates, and especially with James, and under circumstances so strongly calculated to excite and revive his recollection, that I find it impossible to .believe that he made' the reconveyance under either a belief or a
As has already been stated, the lands in question were placed in the hands of a real estate broker for sale shortly after they were conveyed to Mr. Swift. James put them there. He says, all the authority the broker got from Mr. Swift he got through him, and that the broker made no sale without consulting him,, unless he had previously told the broker the price which Mr.. Swift was willing to take. The evidence shows that James managed and directed the sales. It also shows that he spoke to Mr. Swift as though the lands were his and not Mr. Swift’s. In his letter of January 21st, 1887, already referred to, he said to Mr. Swift:
“ If you could possibly arrange to spend with me a half hour at Boseville [that is the point at which the lands were located] I would very much appreciate your doing so. I would like to show you the improvements and present some things to you. I can sell the lawn-tennis grounds for $10,000. I am afraid I am, in considering it, too anxious to close the matter. If I could make sale of something else, I would be decided; as it is, I would like to be-guided by your judgment.”
James says that he does not know how he happened to speak to Mr. Swift in this way, nor what exactly he meant, but his words-appear to me to make his meaning plain. If Mr. Swift was the absolute owner of the lands, and James had no interest in them, why should James feel that Mr. Swift would be doing him a favor by looking at the lands and examining the improvements T In that case Mr. Swift, by visiting and examining the lands, would simply have been giving proper attention to his own business, and doing nothing which should have called forth James’ appreciation.. If, however, they were jointly interested in the lands, Mr. Swift as mortgagee and James as the owner of the equity of redemption, then it is easy to see why James should highly appreciate a visit by Mr. Swift to the lands. And why
But there is another fact giving still weightier evidence as to the real character of the deeds under consideration. The lands, it will be remembered, were conveyed subject to mortgages amounting altogether to $41,400. They were all overdue and all bore interest payable semi-annually or at shorter intervals. Between the date of the last deed, April 13th, 1885, and the 1st day of February, 1887, John B. Bathgate, at the request of .James, paid $2,938.84 for interest on these mortgages. Thirty-six dollars were paid on April 29th, 1885, sixteen days after the •execution of the last deed; $165.68 was paid on May 5th, 1885, and $360 more was paid in May, 1885, being six months on the .$12,000 mortgage on James’ homestead. Of the $2,938.84,. $1,737.84 was paid between the 29th day of April, 1885, and
Mr. Swift says that these payments were made without his-authority and that he had no knowledge of them until May,. 1887. On the assumption that this is true, his counsel claim that he should not be bound by the officious intermeddling of John and James in his affairs. That is true. He cannot be bound by their unauthorized acts, but it is also true that he is-bound by what it appears he must have known, and he must also be required to bear the consequences of his own indifference- and laches. The undisputed facts show conclusively, as I think,, that he either knew that these payments were being made or willfully excluded such knowledge from his mind. If he did*
On the 27th day of May, 1887, Mr. Swift repaid to James nearly the whole amount which John had paid for interest on the mortgages, and James credited the amount so repaid on John’s account with the Newark Beef Company. This was done without consultation with John, and after John and James had had a quarrel, resulting in much bitterness and hate, and after danger had arisen that John would disclose the secret arrangement under which the lands had been conveyed.
From -this series of facts, it seems to me it must be declared, as was declared in substance by the chief-justice, in pronouncing the judgment of the court of errors and appeals in Demurest v. Terhune, 3 C. E. Gr. 532, 539, that it is plainly consistent with sound reason and good sense to infer that the deeds in question were executed with an understanding, if not clearly expressed, at least tacit, that the grantee should sell the lands, and after reimbursing himself for his advances, pay over any surplus realized from them to one or more of his grantors. There are some facts in the case which go, to some extent, to warrant a harsher judg
The facts which must control the decision of the question, whether or not the complainant’s judgment was assigned to Mr. Swift for the benefit of James, and on a consideration proceeding from James, have already been narrated. They sIioav that the money used in paying for the assignment was James’. The money was advanced by Mr. Swift in April, 1886. Shortly
The complainant is entitled to a decree adjudging and directing as follows: That the assignment made by him of this judgment is void; that the four deeds made to Mr. Swift were •executed to secure advances, including the $12,600 advanced in April, 1886; that an account shall be taken to ascertain the amount remaining due to Mr. Swift, in which he must be charged with whatever he has realized from the lands by sale or otherwise, and also with the $1,000 received by him on the reconveyance of James’ homestead; that an account shall also be taken of the amount remaining due to the complainant on ,his judgment, in which the judgment debtors must be credited •with the money received by the complainant on the assignment ■of his judgment; that the amount which shall be found to be ■due to Mr. Swift shall be declared to be a first lien, as between the parties to this suit, on all the lands which were conveyed to him, and to which he still retains the title, including James’ homestead; and that the lands last designated, including James’ homestead, shall be sold, and out of the proceeds the amount remaining due to Mr. Swift shall be first paid, and then so much of the residue as may be necessary for that purpose shall be applied to the payment of the amount remaining due to the complainant on his judgment, together with his taxed costs of this suit.