Trenton Banking Co. v. Woodruff

| New York Court of Chancery | Oct 15, 1838

The Chancellor.

Thomas L. Woodruff, being the owner in fee of a irioiety of a house and lot of land in the city of Trenton, executed, in conjunction with his wife, on that property three mortgages. The first bears date the 2d of March, 1821, and is made to Zachariah Rossell, to secure the payment to him of a bond of the same date, for one thousand seven hundred dollars. This mortgage is recorded on the same day it bears date. The second mortgage bears the same date with the first, and is made to Israel Co rle, to secure to him the payment of three thousand dollars. This mortgage is recorded on the 15th day of May, 1821. The third mortgage bears date on the 17th October, 1823, and is made to Elias D. Woodruff, to secure to him the payment of any notes which he then had or might thereafter endorse for his brother Thomas, and which should be discounted at any bank in the state of New-Jersey. These mortgages were all given in good faith, and no objection is raised against them at their inception. Nor is any question made as to the priority of the first named mortgage to Zachariah Rossell. That mortgage was first recorded, and the answer admits its priority. The first and third mortgages have been assigned to the complainants, who file the bill in this case to foreclose the equity of redemption in the mortgaged premises, insisting that all the principal, and large arrears of interest, are due on the first mortgage, and that there is due on the second mortgage the amount of two promissory notes for large sums, endorsed by Elias I). Woodruff, and fairly embraced within the terms stated in the condition of the same. The bill does not mention the existence of the second mortgage, but prays a foreclosure and sale of the premises to satisfy the two mortgages belonging to the complainants as the only liens on the property.

The counsel of the defendants, on the argument, raised an objection to the right of the complainants, under the terms of their charter, to enforce the payment of the first mortgage. This objection arises from the language of the ninth rule in the thirteenth section of the act incorporating “ The Trenton Banking Company,” which declares that “ the corporation shall not, directly or indirectly, deal or trade in anything except bills of exchange, promissoiy notes, gold or silver bullion, or in the sale of goods which shall be the produce of its lands.” The object of this provision was, no doubt, to restrain the company within the legitimate sphere of banking, and to prevent their branching out into any other kind of business. That this company might secure a debt by accepting the transfer of this kind of security, was not, and cannot be denied. There was, then, authority for this bank in this way, at least, to become lawfully the assignees of this mortgage. No allegation is made by the answer, nor is it attempted to be proved, that the bank came into possession of these securities other than within the scope of their chartered powers. Under such circumstances, the only legal or just inference which can be drawn, is, that the parties came lawfully to be the owners of this bond and mortgage.

The main question, however, in the cause, arises upon the answer of Mrs. Woodruff, the wife of the mortgagor, and Zachariali Rossell, her trustee; and it discloses a mortifying and painful state of facts. It seems that Israel Carle, the owner of the second mortgage, was the father-in-law of Thomas L. Woodrufl, and died in a little more than a year after receiving this mortgage, and by his will gave the residue of his estate (which embraced this bond and mortgage) to his daughter, free and clear of her husband, or his debts, and appointed his widow, and the said Thomas L. Woodruff, his son-in-law, his executors. The allegation is that WToodruff, availing himself of his situation as executor of his father-in-law, upon coming into the possession of his own bond and mortgage, without a dollar being paid, endorsed on the bond that it was paid, and cancelled the mortgage of record ; thereby defrauding his own family of the provision which a father’s kindness had made for his daughter. That such endorsement was made on the bond, and that the mortgage was cancel-led on the very day on which the will was proved, is clear from the proofs in the cause, but under what, circumstances such cancellation took place will be further considered hereafter.

I shall for the present consider the case upon the supposition that the cancellation was made without any payment, without stopping to enquire how that fact stands upon the proofs in the cause. As between the parties themselves, that, is, Thomas L. 'Woodrufl' and the trustee of his wife, the power of this court,, as well as its duty, to interpose in behalf of a wife, or any other cestui que trust, and arrest the evil arising from so gross a fraud, cannot he questioned. The mere fact of a party destroying a bond or other instrument without authority, can never be set up against the right of him who has the beneficial interest. It may create embarrassment in making the proof, but if the facts are established, he will be reinstated in his rights. It, is one of the plainest and most common grounds of equity jurisdiction, to guard innocent parties from frauds and impositions, and particularly married women and infants. This will be done, even against the husband. It has been settled in this court, that the cancellation of a mortgage on the record is only prima facie evidence of its discharge, and leaves it open to the party making such allegation, to prove that it was made by accident, mistake or fraud. On such proof being made, the mortgage will be established, even against subsequent mortgagees without notice. Miller and Stiger v. Wack and others, 1 Saxton, 214; Lilly v. Quick, ante, page 97.

That part of the will of Mr. Carle which embraces the bond and mortgage in question, is in the following words: — “ I give, devise and bequeath unto my said daughter, Ann E. Woodruff, her heirs and assigns, all and singular the residue of my estate, real and personal, but neither this nor any other part of my estate to be in any wise subject to the debts or failure of her present or any future husband.” It was not denied, that this clause created a clear trust in favor of Mrs. Woodruff. There was at one time great doubt expressed, whether a trust, especially of personal property, could be created, by a direct bequest to the use of a wife, so as to prevent the husband’s enjoyment of the estate, without the intervention of trustees; but the rule is now well settled, that equity will sustain such trust, either of real or personal estate, and declare the husband to be a mere trustee for the use of the wife. Clancey on Rights of Married Women, 36-8; Harney v. Harney, 1 Peere Williams, 125 ; 2 Peere Williams, 79, 316. What right, then, had the husband to destroy and cancel these instruments without their payment? He stood in the relation of a trustee to his wife. Even in his character of executor, he had no such right: it was a gross fraud upon the estate committed to his charge. A trustee cannot even transfer a trust estate for his own use: 2 Paige, 202. Nor will he be allowed to make any “ profit, gain or advantage” to himself out of a trust estate in his hands. Schiefflin v. Stuart, 1 John. Ch. Rep. 625. Indeed, the books are full of cases showing the arm of a court of equity extended as a protection and shield against the fraud and imposition of trustees. It was asked with force, on the hearing, how this trustee could defend himself on a bill filed against him, alleging these frauds? He could not, upon any principle.

As between the parties themselves, I can hardly suppose any question would ever have been raised. The case is too palpable, and forces the same conclusion upon the common sense of every man. But the establishment of this mortgage must materially affect the complainants, who claim to be mortgagees without notice. If this be so: if they have really taken their last mortgage ignorant of the one now disputed, they have a strong claim for the consideration of the court; for as at present advised, I should not feel willing to interpose in a case where the testator had, by the very act of constituting his debtor an executor, placed it in his power to practice a fraud on innocent parties. The question then of notice to the complainants, becomes most important. That Elias D. Woodruff, the person to whom the complainants5 last mortgage was made, had notice of the existence of the disputed one, is manifest. Ho is one of the subscribing witnesses to its execution, and the person before whom the same was acknowledged. The disputed mortgage bears date on the 2d of March, 1821 : the cancellation took place on the 22d of July, 1822 ; and yet we find, on the 5th of November, 1823, more than fifteen months after such cancellation, the then cashier of the bank gave a receipt of the following tenor: — “ Trenton, Nov. 5th, 1823. Received of Elias D. Woodruff, a mortgage executed by Thomas L. Woodruff and wife to Elias D. Woodruff, bearing date Oct. 17th, 1823, and recorded 28th day of October, 1823, in vol. 10 of mortgages, pages 123 and 4, clerk’s office, county of Hunterdon. I also admit notice from Elias I), Woodruff of prior incumbrances to Z. Rossell and I. Carle. (Signed) .Pearson Hunt, cashier.” This paper, if genuine, must have a strong bearing on this cause. Tt declares, explicitly and plainly, that at the time of receiving their last mortgage, the cashier was informed of the existence of this disputed mortgage, and that it was then a prior incumbrance. This was long after the cancellation. The information is also stated to have been received from Elias D, Woodruff, the very man from whom they received this mortgage, and who, from the whole evidence, appears to have known of the existence of the one now disputed, as he witnessed its execution, and acknowledged it as one of the masters of this court, and who, in his certificate of acknowledgment, declares that he made the contents of the mortgage known to the parties. The signature of the cashier to the paper is admitted, but the body is not in his hand-writing. The latter clause of the receipt, admitting notice of the two prior incumbrances, is charged to have been interlined. There is no evidence of such interlineation, except what is drawn from the inspection of the paper itself. I have examined it carefully, and feel bound to say, that I do not see ground for such belief. At all events, there is nothing in the appearance of the paper itself that would justify me in declaring it a forgery. I receive it, therefore, as a genuine paper, and take it as it reads. A court must be well satisfied of the fact of forgery, before it can undertake to predicate upon it any important result. It is also insisted, that, if genuine, still this paper is no notice to the bank. A notice to a cashier is notice to a bank. This must be the rule, otherwise it will be impossible to get on in the ordinary course of business. There is.no officer so directly intrusted with its concerns, especially the details of business, as the cashier. He is the authorized agent of the company for all the purposes within the sphere of their business. If the individual who signed that receipt as cashier, was now alive, he might possibly place the subject in a different light; but in the absence of any explanation beyond what the paper itself affords, I can only take it as its very words import, that he received the last mortgage with a knowledge of the two prior incumbrances.

The receipt is dated the 5th of November, 1823, and yet it seems the assignment of this last mortgage was actually not made to the bank until after the death of Elias D. Woodruff, whose executor made the assignment, on the 25th of August, 1827. Some speculation has grown out of this apparent inconsistency. I do not see that this can in any view vary the case. In any event, the receipt shows a notice at its date. But the difficulty, it appears to me, may be easily solved. The mortgage was ultimately to stand as a security to the bank. Elias D. Woodruff was the endorser to the bank, and reposing, as well he might, confidence in the cashier, it is not unreasonable to suppose he placed the papers in his hands to wait events as they might arise, respecting the notes he had so endorsed. After the death of Mr. Woodruff, it occurred properly enough to the cashier that these papers should be assigned, and the executor accordingly assigued them. The only evidence on this part of the case, as far as I can perceive, is that of Mr. Titus, the present cashier; and that, as he declares himself, is not very distinct. He remembers that about the time, or shortly after the mortgage was given by Thomas L. Woodruff to Elias D. Woodruff, he saw the disputed mortgage. Thomas L. Woodruff brought it into the bank, and handed it to Mr. Hunt, the cashier. There had been some discussion whether it had been discharged : it was wrote upon it that it had been discharged. He states that the mortgage was brought to satisfy Mi. Hunt that it had been discharged, as he understood. In his cross-examination, he says, he did not hear the -purport of the conversation between Mr. Hunt and Mr. Woodruff at the time he saw the Carle mortgage handed him. This witness seems rather to infer that Woodruff brought the mortgage there to satisfy Mr. Hunt it was cancelled, than to give what the conversation was, for he says he did not know the purport of their conversation. This conversation must have taken place about the time of giving the receipt, for he says it was about the time or shortly after the mortgage was given by Thomas L. Woodruff to Elias 1). Woodruff. That mortgage was given on the 17th of October, 1823, and the receipt is dated the 5th of November thereafter, if Mr. Hunt had, as it seems he had, received the mortgage subject to the other two, and there was a discussion about one of them being can-celled, and that too after Mr. Carle’s death, by the executor, who was also the maker of the instrument, there was, surely, enough to ha ve put the bank on enquiry. If they did not mean to hold this mortgage subject to the one of Carle, he should, and I think would, have taken up and vaiied the receipt which he had given. The recollection of what transpired, is not sufficiently distinct in the witness, to overcome the plain written declaration of the cashier, made at or about the same time, that he took the mortgage subject to the other two.

It is very manifest, the bank did not at this time rest its security for the loans made to Thomas L. Woodruff, on this mortgage. They had the endorsement of Elias D. Woodruff, and he took the mortgage for his protection. Afterwards, opon his death, they obtained this assignment, as the only means left by> which . they could get their money. , I consider, therefore, that the bank had full noticé of the existence of this mortgage, and recognized it as a valid prior-incumbrance to their own, long after the time of, its alleged fraudulent cancellation; and that they cannot, under such circumstances, stand 'in any other or better situation than the party himself could, in resisting the present effort of the trustee to establish this lien on the property. That trustee is now Mr. Rossell, who has by the act of the parties been intrusted with the whole estate of Mrs. Woodruff derived from her.father. It will not do for us to be led away by our strong disapprobation of the conduct of the husband, to disregard the rights of his family. Nor should we allow ourselves to be influenced by the possibility that, through the indulgence of his wife, he may again - reap the actual enjoyment of this money. If so, it will be contrary to the express trust. It will be as well the duty as the safety of the trustee, to see that the funds are applied according to the terms of the trust. . '

Thus far my decision proceeds upon the presumption that Thomas L. Woodruff never paid off this' bond and mortgage. To ascertain this fact by any evidence on which to rest, has been my great difficulty in the cause. The answer ,sets up the mortgage. This is the first We hear of it. There can be. no doubt that the allegations in the answer setting up new matter, and that affirmatively, must be sustained by proof.'. 1 Saxton, 209 ; 6 Johns. Rep. 559, 560. This is the settled rule.- We then look into the depositions, and find that of Thomas L. Woodruff himself, one of the defendants, much relied on. He was examined by an order of the court, subject to all legal exceptions. . He is the husband of Ann E. Woodruff, in whose behalf he is called. He is clearly an inadmissible witness. In a civil action a husband cannot be a witness either for or against his wife. He cannot be a witness for his wife, from a strong bias in her favor, and from their interests being the same. He cannot be a witness against his wife, as being opposed to the legal policy of marriage. Nor can the husband be a witness for his wife in a question touching her separate estate. The cases cited on the argument fully sustain this objection. Davis v. Dinmoody, 4 Term Rep. 678 ; Wyndham v. Chetwood, 1 Burrow, 424 ; Stuart v. Stuart, 7 Johns. Ch. Rep. 229. The deposition of this witness must be rejected, and for all purposes.

It was urged that the complainants were bound to show this mortgage paid off. This is not my viewr of the case, nor is it the view taken in the case in 1 Saxton, before cited. The records show the mortgage cancelled, and the papers, when produced, show on the bond and mortgage an endorsement by the executor that they are paid, and the mortgage has the seals taken off. Under such circumstances, it belongs to the defendants to show that the allegations in their answer are true, to wit, that Thomas L: Woodruff never paid the' money on this mortgage, but against right made the endorsement on and cancelled the papers of record. It is further said, that the mortgage could not have been paid, as Woodruff could not be both payer and receiver. Suppose it proved that on the 22d of July, 1822, the day the payment is endorsed, that Thomas L. Woodruff; out of his own funds, discharged a debt against the estate of Israel Carle for an amount equal to this bond and mortgage, and having done so, made this endorsement and cancellation. He then would be both payer and receiver, and yet the transaction would be honest, and the cancellation right. I have looked carefully through the complainants’ answer to the cross-bill to see if any admission was there made on this part of the case, but I find none. How, then, do the defendants prove the most essential part of the answer, that Thomas I- Woodruff never paid this bond and mortgage, but fraudulently cancelled them ? Resting here, 'there would be a total failure in the proof.

There are, however, some very strong reasons for believing that he never did pay the money. In the first place, the payment purports to have been made on' the very day the will was proved, and before it is usual with executors to perform any important business of the estate. It is hardly to be supposed that hjs first act, at so early an hour, would be to pay off so large a debt. In the second place, there is no trace of any payment being made at that time on account of the Carle estate. And in the third place, the receipt of Mr. Hunt, cashier, recognizes the mortgage as a valid and prior incumbrance, more than a year after the alleged payment.

There are facts both ways on this question, open to construction and inference, but of themselves not sufficiently conclusive in my view to found a decree, without the intervention of a jury. The matter to be established lays at the foundation of the whole cause, and upon which the conscience of the court should be well informed. There is, in my view, but one safe and correct course, and that is to direct an issue to ascertain the single fact, whether Thomas L. Woodruff ever paid, or not, this bond and mortgage to the estate of Israel Carle. My private views on the subject not growing out of the proofs of the case, cannot be allowed to operate: they may be founded in great error.

The power of the court to direct this issue, in a case like the present, is recognized in all the boobs, and is expressly authorized by our statute. The power rests in discretion, and 1 agree should be sparingly exercised. Nothing but imperious necessity would induce me to take this course. In a case very like the present, on the first hearing, in 1 Saxton, 206, chancellor Williamson ordeied an issue. In New-York it has often been done. 1 Johns. Cases, 436 ; 6 Johns. Ch. Rep. 256.

The cross-bill and answer disclose no new fact, and need not ¡receive any separate consideration. The object of that bill was to injoin the complainants from proceeding in an ejectment to obtaip possession of the mortgaged premises.

It appeared to ine proper, as the case was fully argued, to examine it on its merits. If it shall result in a verdict declaring the bond arid mortgage to have been paid by Thomas L. Wood-ruff. the claim of the defendants must end there ; if, that it was not paid, then the mortgage must be established and be paid in the order of its original priority.

Let an issue be made up upon the single question, whether Thomas L. Woodruff ever paid, in whole or in part, the bond and mortgage of Israel Carle, to be tried in the supreme court, on the part of the defendants, with leave to use on that, trial the pleadings and depositions in the case, subject to all legal objections to the competency of the witnesses, or the legality of their evidence — unless the complainants shall on their part waive the necessity of any further proof on the point. The question of costs and all other matters are reserved.

Issue awarded.