Smart v. Bement

| NY | Sep 15, 1866

Lead Opinion

Wright, J.

The action was to foreclose a mortgage on a farm or tract of land in the county of Tioga, executed on the 20th October, 1854, by Egbert Bement and wife to William B. Bement, and by the latter on the 27th October, 1854, duly assigned, for value, to the plaintiff. The complaint contained the general allegations that the defendants Isaac Hyde, Jr., and Valentine Everett, have, or claim to have, some interest or lien upon the mortgaged premises or some part thereof, which interest or lien, if any, has accrued subsequent to the lien of said mortgage. The defendant Bement, the mortgagor, put in an answer, admitting the execution and validity of the bond and mortgage, and the amount due thereon as set forth in the complaint, and set up no defense thereto, but alleged that before making the mortgage he was the owner of an undivided half of the mortgaged premises, and was applied to by William B. Bement, the owner of the other undivided half of said premises, to purchase the same, which he did, and executed the bond and mortgage in question for the purchase-money of said half of the premises, and for no other consideration; which bond and mortgage were sold by William B. Bement to the plaintiff, and the avails thereof applied to the payment of the debts of the latter; that on proceedings on behalf of defendants Hyde and Everett, as creditors of Wm. B. Bement, the title to the said half of the premises so purchased, failed, and was of no value to him, but was declared to belong to William B. Bement, without interfering in' any manner with the lien or validity of the mortgage in the complaint mentioned; that since that proceeding the mortgaged premises have been partitioned between himself and William B. Bement; and he insisted that he was equitably entitled to have that part of the mortgaged premises that had been set off to William B. Bement first sold, and if from that was not realized the amount of the bond and mortgage, interest and costs, then that. the part set off to him should be sold for any deficiency.

The defendants Hyde and Everett also answered in the action. In their answer they admitted the execution of the bond and mortgage, setting up no affirmative defense against the same, nor controverting the fact that the amount thereof should be made from the mortgaged premises, but the allegations of the answer consisted in showing-that, as between themselves and William B. Bement, as creditors of the latter, they had succeeded in obtaining the judgment of the Supreme Court; that the conveyance from William B. Bement to the .defendant Egbert Bement, in October, 1854, of an undivided half of the mortgaged premises (the consideration for which was the bond and mortgage in suit) was fraudulent in fact, and that the same was declared void, and such deed set aside; that the sheriff sold, on one of their executions issued to him, the real estate embraced in such conveyance (viz., the undivided half' part of the premises covered by the mortgage, the other undivided half part belonging to Egbert Bement), and they became the purchasers and now hold the certificates of sale, and they claimed and insisted that if the bond and mortgage in suit are valid and binding securities in the hands of the plaintiff, they are entitled to have the same first enforced against Egbert Bement’s undivided half part of the premises covered by the mortgage before the same can in any manner be enforced, as against the undivided half part thereof conveyed by William B. Bement to Egbert Bement, by the deed of the 20th October, 1854.

Upon this narrow question, raised between the defendants, as to what part, or which interest in the mortgaged premises, that of the defendant Egbert Bement or that which his father as alleged fraudulently attempted to convey to him in October, 1854, should be first sold under the foreclosure judgment, the action has been pending for nearly six years. The question was one in which the plaintiff had no interest whatever; for the whole premises were subject to the lien of his mortgage. The contest has been conducted wholly between the defendants Hyde and Everett, on one side, and the defendant Bement, on the other. Certainly it was of no consequence to the plaintiff, whether Bement’s claim, or Hyde and-Everett’s claim, as to the order of sale, should be preferred; nor could the rights and equities of each defendant as against the other, and on which their respective claims were alleged to depend, be determined in the action. There were no issues of that kind raised by the pleadings. When all the facts as between defendants on the record are before the court, it' may have power to determine issues and adjust equites between them, but it is not bound to do so, especially if there be any right of the plaintiff on the record which may be impaired or invaded. • That the defendants substantially asked by their answers the insertion of a clause in the decree of sale that might jeopard the interests of the plaintiff, seems to me apparent. Bement was the owner of an undivided half part of the mortgaged premises, and Hyde and Everett held the sheriff’s certificates of sale, but no deed of the other undivided half part. In effect, the claim was on the part of Bement that the judgment should contain a provision that the undivided interest claimed by Hyde and Everett in the whole mortgaged premises (for that was the interest they had, if any), should be first sold, and on the part of Hyde and Everett, that Bement’s undivided interest should be first sold — not that the farm or mortgaged premises should be sold in specific parcels, as the interest of each party, as alleged, was in the whole. It was easy to see that such a provision might injuriously affect the plaintiff in the collection of his mortgage debt. Yet the judge at Special Term (under the plaintiff’s objection) proceeded to try the issues between the defendants, raised by their answers. Testimony was received wholly.on their part, sometimes under objections of one party and then again by the other. Hyde and Everett were allowed to introduce the record of a judgment in an action between themselves and the Bements, to which the plaintiff was not a party, and in which judgment it was provided in express terms that his rights as assignee of the mortgage should not be prejudiced thereby, declaring the deed from William B. Bement to Egbert Bement, of the date of October 20, 1854, conveying an undivided half of the mortgaged premises, fraudulent and void as to Wm. B. Bement’s creditors, and setting the same aside.

To prove, also, the sale, by the sheriff, under one of these executions, on the 10th March, 1859, of the real estate embraced in and covered by such deed; that they became the purchasers and received the sheriff’s certificates of sale, and still owned them; and that the only consideration for the bond and mortgage in suit was the conveyance of October 20, 1854,—Bement was also permitted to show the sale and assignment, by William B. Bement, of the bond and mortgage to the plaintiff, and the application of the proceeds thereof to the payment of Bement’s debts; also, to introduce in evidence a judgment entered in January, 1860, in an action in the Supreme Court, wherein he was plaintiff, and William B. Bement was defendant, partitioning the mortgaged premises between them. And the judge, after thus receiving the defendant’s proofs, found as the facts: First, the adjudication in the action of Hyde and Everett against the Bements,- that the deed of October 20, 1854, was, as to the plaintiffs therein, fraudulent and void, and was set aside; second, that the mortgage in suit was executed as the consideration for such conveyance;. third, that the plaintiff was a bona fide purchaser, for value, of such mortgage; fourth, that the proceeds of the mortgage were applied by William B. Bement to the payment of his debts; fifth, that the mortgage covered, not only the undivided half of the farm conveyed by William B. Bement to Egbert Bement, by deed of October, 1854, but also the undivided half conveyed in March previous; sixth, that, since the determination in the suit of Hyde and Everett against the Bements, the farm has been partitioned, and the half thereof set off to Egbert Bement; seventh, that, since such determination, Hyde and Everett have become the purchasers of the other half, under the sheriff’s sale, by virtue of the execution in their favor against William B. Bement, having received a sheriff’s certificate, but no deed; eighth, that Egbert Bement never received any consideration whatever for the bond and mortgage sought to be foreclosed in this suit. Hpon these findings, his legal conclusions were, that the plaintiff was entitled to judgment, directing the sale of the mortgaged premises, or so much' as was necessary to pay his mortgage, interest and costs of suit; and that, on such sale, • the premises be sold in parcels, and the half part set off to William B. Bement, or his creditors, be first sold, and, if it does not produce sufficient to pay the plaintiff’s judgment, then the half part of Egbert Bement, or as much as may be necessary to make up the deficiency, be sold. Accordingly, a judgment was entered, directing á sale of the mortgaged premises, to satisfy the amount due on the mortgage (§3,918.54) and costs; and further directing that the premises be sold in parcels, the first parcel to be sold being that described in the judgment of partition as set off to William B. Bement; and in case that be not sufficient to satisfy the mortgage debt and costs, then to sell the part of the mortgaged premises set off to Egbert Bement. This judgment was reversed, or modified, by the General Term, by the entry of the usual one in foreclosure cases, viz., that the mortgaged premises, or so much thereof as may be necessary to satisfy the mortgage debt and costs, be sold; and it is from the latter judgment that these litigatory defendants between themselves have appealed to this court.

If there be any merit in the appeal of either of them, I have failed to discover it. The plaintiff has obtained, by the judgment of the General Term, what I think he was originally entitled to upon the pleadings. He wag the assignee of a mortgage covering the whole premises; and no issue was anywhere raised by the pleadings that the amount claimed was not due, nor that the mortgage was not wholly valid in his hands. But if the view be incorrect," that he should have had the judgment appealed from on the pleadings, the case will be searched in vain for any evidence to impeach the validity of the mortgage in his hands, or to show that he was not entitled to enforce it against the entire premises. Clearly, the defendants, as against the plaintiff, have no ground for appeal.

The judgment should be affirmed.

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Dissenting Opinion

Leonard, J. (dissenting).

The court below have wholly mistaken the effect of the fraudulent transaction of October, 1854, between the debtor and his son. They were each equally culpable, and the law has no partiality fór either of them.

The judgment declaring the conveyances of October 20 to have been made to hinder, delay and defraud the creditors of William B. Bement, and void as to them, and directing a sale of the lands thereby granted, to satisfy the executions of the said creditors, granted no relief to the parties to the said fraud. ■ As to them, the transaction remained as it did before. Neither could allege their own turpitude as a ground for setting aside the deed or the mortgage. They were forever estopped by those instruments. There was no revesting of the title to the land in William B. Bement by the judgment declaring his convéyance null and void as against Hyde and Everett. The father and son did not thereby again become tenants in common of the land, as if no conveyance had been executed. It was only for the purpose of relief to , creditors that the land was subjected to their debt, as if no deed had been executed. Hence, there could be no partition of the lands between William B. and Egbert Bement. As between them, the conveyance was a barrier to their ownership in common. The General Term appear, to have so considered it, as they refuse to direct a sale in the inverse order of alienation, according to the usual rule in equity, but direct the sale of the mortgaged premises without respect to the division which had taken place.

The effect of this modification, and the further direction to divide the surplus money arising from the mortgage sale between Hyde and Everett and Egbert Bement, is to charge the share conveyed by the fraudulent deed with one-half of the mortgage debt, interest and cost. It gives to Egbert Bement a large portion of the benefit derived from his fraudulent transaction, and to that extent the creditors of William B. Bement are still hindered, delayed and defrauded. What is there in the facts which gives rise to this tenderness for Egbert Bement? The fact found by the judge, that he received no consideration for the mortgage, is wholly immaterial. The want of consideration, arising from the defeat of the fraudulent transaction, is a fact which Egbert is estopped by his mortgage from setting up, either as against his father or any other holder. Were the mortgage held by his father, neither would have any rights which would call for or permit a sale by foreclosure of that portion of the land covered by the fraudulent deed. Nor does the fact; also found by the judge, that William B. Bement applied the proceeds of the sale of the mortgage to the payment of his just debts, in any manner sanctify the fraud. The hindrance and fraud, and the consequent damage to creditors, must be overcome, as far as it is in the power of a court of equity to do it, without injury to the rights of innocent third parties.

Had Egbert paid the money for the conveyance of October 20, and the transaction had been committed to hinder, delay and defraud creditors', neither the payment of the money nor its subsequent honest application -by the debtor to the payment of other debts would have saved the premises so conveyed from being subjected by a decree in equity to the executions of judgment creditors; and such would have been the result, without any regard to protecting Egbert, or making the money paid by him a prior equitable charge upon the land which he had sought fraudulently to acquire. It is his misfortune, as it was his fault, that this incumbrance was created, and not that of Hyde and Everett. Egbert Bement must bear the consequences resulting from the injury inflicted upon his father’s creditors by the fraudulent act to which he was a voluntary party. A court of equity can extend no protection to Egbert Bement in this transaction, without visiting some portion of the injury arising from the fraud upon the creditors, and, to that extent, making the fraud operative. The plaintiff has purchased a security of no validity as a lien upon the land conveyed by the fraudulent deed in the hands of the mortgagee, as against his creditors. It is theprarchase by the plaintiff, in good faith and for value, that gives it any validity in his hands, as against the interest acquired by Hyde and Everett. The plaintiff became the owner before the creditors of William B. Bement had made any claim, or given any notice of their equitable rights, affecting a portion of the land covered by the mortgage. The defendant Egbert Bement made the claim by his answer ,• and it is between him and Hyde and Everett that the litigation has been conducted.It was necessary for Hyde and Everett to appear and defend, to protect their interest. They are entitled to costs of their whole defense and of the appeals taken against the defendant, Egbert Bement, whose unfounded claims have rendered the defense and the appeals necessary.

The decree should be modified, by directing a sale of the interest of the defendant, Egbert Bement, in the first instance, and payment of the mortgage, with interest and costs. In case there is a surplus, it is to be applied to the costs of Hyde and Everett, as far as necessary, and the surplus to be paid into court. Should the sale of the interest of Egbert fail to produce the sum reported due, with interest from October 27, 1854, and the plaintiff’s costs, then the interest purchased by Hyde and Everett at the sheriff’s sale is to be sold to raise the deficiency, and the surplus to be paid into court. Ho costs to be allowed as between the plaintiff and Hyde and Everett, nor as .between the plaintiff and Egbert Bement, upon this appeal, nor of the appeals to the General Term of the Supreme Court, as no judgment in favor of the plaintiff has at any time been correct. The defendants Hyde and Everett should recover the costs of their defense, and of the appeal to the General Term and to this court against the defendant Egbert Bement.

Judgment affirmed, with a modification striking out the claims therein disposing of the' surplus moneys, if any, arising from the sale of mortgaged premises.