36 N.J. Eq. 459 | New York Court of Chancery | 1883
The defendant is the receiver, appointed by this court, of the Mechanics and Laborers Savings Bank of Jersey City, an insolvent corporation. Among the assets which came to the defendant’s hands, were a bond and mortgage made by the complainant to one John Halliard for $10,000, bearing date November 1st, 1876, and which Halliard had assigned to the bank by an assignment bearing date April 19th, 1877. The defendant has brought an action at law against the complainant on the bond, and the object of this suit is to have that action perpetually enjoined. The complainant puts his right to the relief he asks on a single ground, namely, that the bond is without consideration. The bill also charges that he was induced to execute the bond by fraud, but as this charge is wholly unproved, it may be dismissed without further remark.
At the time the bond and mortgage were executed, the complainant and Halliard were both officers of the bank — Halliard was its president, and had been for several years, and the complainant was a member of the board of directors, and had also been a member of the executive committee of the board since November, 1875. Halliard had been allowed to manage the affairs of the bank in his own way, and without being required to report his transactions to the board. At a meeting of the executive committee, held on the 15th of February, 1877, it was found that Halliard had abstracted a number of securities belonging to the bank, representing in value a large sum of money. He promised to secure the bank as soon as possible. The complainant was at this time chairman of the executive committee; he professed to have full confidence in Halliard’s honesty, and advised the committee “ to act very quietly,” and not press Halliard, as a contrary course would be productive of no good, and might result in injury to the bank. His advice was adopted. No action was taken against Halliard, and no time was fixed
The bond and mortgage were actually executed on the 17th of April, 1877, though dated November 1st, 1876. The circumstances attending their execution are thus described by the complainant: He says Halliard told him that he had a paper at the office of the counsel of the bank, which he wanted him to sign that he inquired what the paper was, and that Halliard replied he wanted to put his Morristown farm in complainant’s name, but he must not ask too many questions; that what he wanted complainant to do was only a matter of favor, it was all right and he would take care of it. The complainant says, without further inquiry or investigation, he executed the bond and mortgage. Shortly afterwards, Halliard conveyed the farm covered by the mortgage to the complainant, for a consideration, as the deed states, of $30,000. The mortgage states that it was given to secure a part of the purchase-money of the mortgaged premises. These papers are false. No sale of the farm was made to the complainant, nor was the deed for it ever formally delivered to him. The complainant says he never saw the bond and mortgage after he executed them, and that the first knowledge that he received that the bank held them, came in the form of a notice from the bank that six months’ interest was due and must be paid. On receiving this notice, the complainant went to Halliard and asked him what it meant; Halliard replied it was all right, he would take care of it, and then gave the complainant sufficient money to pay the interest, which the complainant immediately paid to the bank. This payment was made October 31st, 1877.
As between the complainant and Halliard, it must be admitted that these papers are without the slightest legal force, and it must also be conceded that, as a general rule, the assignee of a non-negotiable chose in action takes it subject to all the equities which could be urged against it in the hands of the person to whom it was orginally given. But there is another proposition of law pertinent to this cáse which needs to be stated. It is this: if the bond and mortgage were executed by the complainant for Halliard’s accommodation, and Halliard was not restricted in the use he should make of them, then while it is true so long as they remained in Halliard’s hands they were without legal force, yet the moment Halliard transferred them in good faith for his own accommodation, whether they were transferred for a money consideration actually paid, or in satisfaction of a preexisting debt, or only as security for such a debt, they became, in the hands of the transferee, a living, valid and effectual security.
The important question then is, do the facts bring this case within the last proposition? The complainant’s own evidence renders it entirely clear that the bond and mortgage were made for Halliard’s accommodation. They were executed to be used. This is proved conclusively by the form of the papers themselves. They were put in form to represent a sale of the farm to the complainant, for a large price, and the return of a mortgage for part of the purchase-money. Halliard was not restricted in the use he should be at liberty to make of them. He says he procured them to be made for the purpose of assigning them to the bank, and that he intended to tell the complainant what use he intended to make of them, but he will not say positively that he did tell him. The circumstances would seem to show, with reasonable certainty, that the complainant understood what use was to be made of them. He knew that Halliard was liable to the bank for a large sum of money, and that he had promised to give security for it. With a strong profession of confidence in Halliard’s honesty, he had advised his fellow managers not to press Halliard. When he is notified that the bank has the bond and mortgage, he does not express surprise, nor charge Halliard with bad faith, nor claim that the use Halliard had made of them was a misappropriation. Halliard had promised to take care of them, and when he finds that Halliard had not paid the interest — that he had not taken care of them in that respect — he asks Halliard what it means, but he does not pretend that the use Halliard had made of them was contrary to his understanding or expectations. His subsequent conduct, in allowing them to be dealt with as an asset of the bank, and in concealing from his fellow managers the facts on which he now seeks to escape liability, would seem to furnish almost conclusive evidence that the use made of them was just such as he had understood and expected would be made of them.
A question ably discussed by the counsel of the complainant, namely, whether the consideration paid by the bank was sufficient to impart to it the character of a purchaser for value, so as
Where a mortgage is made by one person for the benefit of another, under an understanding that it shall be used for a specific purpose, it must be applied exclusively to that purpose, and any other disposition of it will be regarded as a fraudulent misappropriation of it, and discharge the mortgagor. Andrews v. Torrey, 1 McCart. 355; Atwater v. Underhill, 7 C. E. Gr. 599. But where it is given for the accommodation of the mortgagee generally, without restriction or direction as to how he shall use it, he is authorized to use it for any honest purpose, and a transfer of it to his creditor, either in payment of or as security for a pre-existing debt, will pass a title, which, in my judgment, the mortgagor cannot successfully dispute.
But I think I am. also bound to say that there is nothing in the conduct of the complainant, in this transaction, which entitles him to favor, or which should induce a fair mind to be eager in trying to help him escape liability. He is chargeable with full knowledge of the contents of these papers at the time he executed them. He does not pretend that the officer before whom he executed them did not faithfully perform his duty.
A person who executes instruments of the nature of those under consideration, is bound to look and see what they are before he signs them, and if he willfully shuts his eyes, or rashly closes his ears when he has a full opportunity to see everything, or to know everything, he must submit to the consequences of his folly. The complainant allowed the papers to represent a condition of affairs which he knew to be false, and which he also knew would give them a currency and credit they were not in fact entitled to. He allowed them to be clothed in that sort of false garb which was best calculated to render them successful as instruments of deception. The law justly declares that he who enables another to commit a fraud, shall himself be answerable for the consequences of the fraud. If the complainant, by first furnishing Halliard with these papers, and afterwards, after they were assigned to the bank, by his acts and by his silence, designedly produced a false impression as to their real character,
This is a case in which, I think, this court might very properly decline jurisdiction, because its aid is not necessary to the protection of the complainant. An action at law had already been commenced when the complainant filed his bill, the plaintiff in that action is an officer of this court, and must, in the proper discharge of his duty, prosecute his action diligently. The ground on which the complainant asks the aid of this court, will, if established, be just as effectual as a defence to the action at law as it can possibly be as a ground of relief here. If he is successful in his defence at law, his bond will be adjudged to be without legal force, and should he desire its surrender, and the receiver refuse to give it up, this court will, in a summary way, direct its surrender; it would seem, therefore, to be entirely clear that there is nothing in the case which renders a resort to equity either necessary or expedient. While a court of equity will undoubtedly take jurisdiction in certain cases of the class to which this suit belongs, even though a complete defence at law may exist, yet it is equally certain that it will not do so simply
The complainant is not, in my judgment, entitled to the relief he asks; his bill must, therefore, be dismissed, with costs.