Opinion
10-06-1892
McCANLESS v. SMITH et al.
Jas. Cross, R. V. Lindabury, and A. P. Whitehead, for complainant. G. D. W. Vroom, Barker Gummere, Wm. S. Gummere, and Elihu Root, for defendants. H. N. Smith and devisees of Mary E. Smith. Wm. M. Lanning, for defendants C. I. Hudson & Co.
(Syllabus by the Court.)
Bill by Adamson R. McCanless, assignee for the benefit of creditors of Heath & Quincey, against Henry N. Smith, Mary E. Smith, and C. J. Hudson & Co., to subject to the lien of complainant's judgment against Henry N. Smith certain lands which, at the date of its entry, stood in the name of Mary E. Smith. Decree for complainant.
Jas. Cross, R. V. Lindabury, and A. P. Whitehead, for complainant.
G. D. W. Vroom, Barker Gummere, Wm. S. Gummere, and Elihu Root, for defendants.
H. N. Smith and devisees of Mary E. Smith. Wm. M. Lanning, for defendants C. I. Hudson & Co.
PITNEY, V. C. The complainant is a judgment creditor of the defendant Henry N. Smith. The object of his bill is to subject to the lien of his judgment certain lands which, at the date of its entry, stood in the name of the defendant Mary E. Smith.
After the defendants had answered the said Henry N. Smith and Mary E. Smith answered separately. Mary E. Smith died testate, and her devisees, including three infant children, were made parties defendant in her place. The lands in question comprise what is known as the "Fashion Stud Farm," near Trenton, N. J., containing about 370 acres of land. This tract was composed originally of 12 smaller tracts. To five of these Mrs. Smith acquired title by five separate conveyances from five different owners, dated at different dates between the 5th of April, 1872, and the 7th of April, 1873. These five tracts comprise, in their aggregate, 136.38 acres. The remaining seven tracts were conveyed to her by her husband, Henry N. Smith, through their son, Everett L. Smith, as a conduit, by deed dated 21st of July, 1885. The bill sets out an assignment made by Heath & Quincey on the 2nd of October, 1885, to the complainant, of all their property of every nature, except such as was exempt by law from levy and sale under execution, in trust for the benefit of their creditors: and, further, that among the assets so assigned was a claim against the defendant Smith, upon which the complainant recovered judgment in the supreme court of the state of New York on the 7th of July, 1886, for the sum of $906,236.97 damages and costs, and that upon that judgment suit was brought and judgment recovered in the supreme court of the state of New Jersey on the 4th day of June, 1887, for the sum of $955,576.80. The bill sets out several executions issued upon this judgment, and a levy, among other lands, upon the lands just mentioned.
The bill alleges that the consideration for the several conveyances to Mrs. Smith of the five tracts which were conveyed to her in 1872 and 1873 was paid by Smith, and that, although a consideration of$46,073.75 is mentioned in the deed from Smith to his wife of July 1, 1885, yet, in fact, nothing was paid by Mrs. Smith to her husband for that conveyance; and that the twelve tracts lie together, and compose what is known as the "Fashion Stud Farm ;" and that at and before the original purchases of 1872-73, and from that time until the month of October, 1885, Smith was engaged in speculating in stocks, bonds, and other securities dealt in at the stock exchange at the city of New York, such speculations consisting mainly in selling "short" by Smith of such securities as he thought likely to fall in market price, with the expectation that he could buy the said stocks for delivery to the purchaser thereof at a lower price than he had sold them at, and make the difference between the price at which he bought and the price at which he sold the stocks; and that he also speculated in and bought and sold the commodities dealt in on the produce and petroleum exchanges in New York, by means of what are termed "futures" and "options." That said speculations were carried on by Smith during that period on a large scale, and to the extent of many millions of dollars, and that his profits depended mainly upon a fall in the market price of such securities and commodities, and that any great or permanent rise in such prices was liable at any moment to wipe out his profits as well as his capital, and render him insolvent, and unable to meet his engagements; and that his capital and profits during the whole of the period mentioned consisted almost wholly of balances standing to his credit on the books of the stockbrokers and others in the city of New York, which were liable to be wiped out and extinguished by any considerable fluctuation in the price of the different articles speculated in. The bill further alleges that Smith spent large amounts of money in various improvements upon the Fashion Stud Farm, amounting to several hundred thousand dollars, and that all the moneys so spent on the premises were his own moneys; and that he used the premises for the purpose of carrying on the business of raising and selling colts, fillies, horses, mares, and other stock; and that he carried on that business on a very extensive scale, and has continued it down to the time of the filing of the bill: and that he invested very large sums of money in it, aggregating half a million dollars; and that the business so carried on was his business, and not his wife's. The bill further alleges that the five tracts of land originally purchased by Smith, of which the title was placed in the name of his wife, "were so taken on account of the hazardous nature of the business in which he was engaged, as aforesaid, and in anticipation of the contraction of debts therein which he would be unable to pay, and with a view thereby to place and hold them beyond the reach of his creditors; and that they have always been held by the said Mary E. Smith in trust for the said Henry N. Smith, and have been occupied, used, and enjoyed by him, and are now occupied, used, and enjoyed by him, as his own property."
The bill further alleges that the complainant's judgment was recovered on a balance of account due from Smith to Heath & Quincey, arising out of the stock transactions of Smith; that Heath & Quincey were stockbrokers doing business on Wallstreet, in the city of New York, and were brokers for Smith in said stock transactions for a period of four or five years before the assignment of October 2, 1885; and that in such business Heath & Quincey made large advances and loans and sales of stocks and securities to Smith, and incurred various liabilities on his account and at his request, and performed sundry valuable services for him, on account of which he became indebted to them for salaries and commissions in various large sums; and that said balance of account upon which said judgment was recovered was made up of the balance due upon such loans, advances, sales, commissions, etc., together with interest. The bill further alleges that during the time in which the liabilities just mentioned were incurred by Smith to Heath & Quincey, Smith, with the knowledge and consent of his wife, gave out and represented on all occasions that he was the owner and proprietor of the Fashion Stud Farm, especially representing it to Heath & Quincey; and that it was generally understood and believed among and by the various firms in the city of New York and elsewhere with whom Smith was dealing, and especially understood and believed by Heath & Quincey, that he was the owner of the Fashion Stud Farm; and that in dealing with him, and giving him credit Heath & Quincey relied upon their belief that he was the owner thereof, and that the same would be assets or security to which they would be entitled to resort in the event of the suspension of payment or other pecuniary embarrassment of Smith; and that Heath & Quincey made said advancements, and incurred said liability, and performed such services, on the said representation of Smith, and the belief aforesaid. The bill further alleges that Smith was insolvent at the time he made the conveyance of July 21, 1885, and that that conveyance was made for the purpose of hindering and delaying his creditors, including Heath & Quincey. The prayer is that the five tracts conveyed in 1872-73 to Mrs. Smith may be decreed to be held in trust by her for the use and benefit of her husband, Henry N. Smith; and that the conveyance by Smith to his wife of July 21, 1885, may be declared to be fraudulent and void, and set aside in favor of the complainant, and all the lands subjected to the lien of his judgment.
Mrs. Smith, by her separate answer, alleges that in 1872 and 1873, when the first five tracts of land were conveyed to her, her husband was unembarrassed, and did not owe Heath & Quincey anything, and that he, was then minded, and proposed to this defendant, to give to and settle upon her certain lands in the county of Mercer and state of New Jersey, and that she, knowing him to be a man of large wealth, accepted his proposal, and thereupon the five several conveyances were immediately put upon the public records,and that Heath & Quincey had notice thereof by their record; and she alleges that the conveyances were not made or contrived in fraud, covin, or collusion, with intent to hinder, delay, or defraud Heath & Quincey, or any other creditors of her husband, but that the said transaction was a bona fide and lawful gift and settlement of the said lands upon her. The answer further sets out, with regard to the seven tracts of land conveyed to Mrs. Smith July 21, 1885, that they were so conveyed for a full and valuable consideration, which is set out in this wise: That on the 28th of September, 1869, her husband, Henry N. Smith, being then possessed of an estate of at least $500,000 over and above all his debts and liabilities, gave and settled upon her a leasehold estate in certain lands situate on the south side of Forty-Third street, between Fifth and Sixth avenues, in the city of New York, and caused such estate to be assigned to and vested in her by certain assignments of lease,—one made and executed by Helen Day Gould, and the other by William F. Smith; and that her husband paid the said Helen Day Gould and William F. Smith the purchase money and consideration for those assignments; and she says that such assignments were not made or contrived in fraud, covin, or collusion, with intent to hinder, delay, or defraud any creditor, but were a bona fide and lawful gift and settlement of the said leaseholds to and upon her; and she says that she held said leasehold estate until the 16th day of July, 1883, at which time the said leasehold estate was of the value of at least $45,000; and on that day her husband, who was at that time the holder of the leasehold estate in certain lands adjoining the leasehold of Mrs. Smith, proposed to her to vest her leasehold estate in him, "and promised this defendant that, if she would execute the necessary instruments to accomplish that purpose, he would account to her for the value of her said leasehold estate, and would pay her the value thereof, or would vest in her the title to other lands of a value equal to that of her said leasehold estate;" and that such leasehold consisted of an unexpired term of 17 years, with the right of two renewals of the lease for the term of 21 years each; and that, confiding in that promise, she surrendered the lease to the original lessors, in order to enable her husband to receive a new lease, which he did, and that he thereafter enjoyed the benefit of it, and never paid her any consideration for it. She further says that on the 25th of July, 1883, her husband acquired the freehold of a house and lot on the east side of Fifth avenue, near Forty-Fifth street, in the city of New York, for the consideration of $60,000, in which she was entitled to an inchoate right of dower, and that in July, 1885, her husband asked her to join him in the execution of a mortgage to Heath & Quincey upon, and to release to them her inchoate right of dower in, the house on Fifth avenue, in order to enable him to secure Heath & Quincey for whatever moneys he might owe them; whereupon she advised with counsel, and, after such advice, she, by her counsel, informed her husband that she would not join in the execution of the mortgage unless Smith would pay over to her the value of the leasehold premises which she had released to him two years previously, or would convey to her the seven tracts of land in Mercer county, in payment of the debts he owed her for the leasehold surrender of 1883; and she alleges the value of her leasehold estate which she had previously surrendered, with interest thereon, and her inchoate right of dower, was at least the sum of $46,073.75; and it was thereupon agreed between her and her husband that he should convey to her the several tracts at Trenton, and he made the conveyance accordingly, and that she at the same time joined with him in a mortgage to Heath & Quincey on the house on Fifth avenue, bearing date the 20th day of July, 1885; and so she says that the conveyance of the seven tracts to her in July, 1885, was made upon a full consideration, without any intent to hinder, delay, or defraud creditors. She alleges that as soon as she obtained the conveyance of the first five tracts in 1872 she commenced the business of breeding and selling stock, and using the said lands as a stock farm, and that she has ever since continued the same business upon the same lands upon her own account, and has ever since resided upon the said stock farm a considerable part of each year, and that she has had exclusive possession thereof, and has taken and received to her own separate use the rents, issues, and profits thereof, and that her said husband has never had any possession of the said stock farm other than as her husband, living with her thereon, and aiding her in the management thereof. She denies that she ever authorized her husband to make any representations to anybody that he was the owner of these lands. She admits that shortly after the vesting of the title in her in 1872-73 several buildings were erected and constructed upon the farm, but that all of said buildings were erected pursuant to contracts made by, her with the several material men and builders thereof, and that a considerable amount of fencing was also erected upon the said farm; and she says that the materials and work done in the said buildings and fencing were paid for from the receipts of the farm, and the deficiency was paid for by Smith, and was a voluntary gift by him to her; and that at the time of making said improvements Smith was possessed of an estate of over a million dollars over and above all his debts and liabilities, and that all the improvements were made many years before Smith became indebted to Heath & Quincey.
Smith's answer is an echo of that of his wife's. He says that in 1872 he was worth a million of dollars over and above all his liabilities, and, being so minded, he did procure a conveyance of the five tracts above mentioned to be made to his wife as a gift and settlement upon her, and that the said transaction was a bona fide and lawful gift and settlement upon his said wife. He repeats the statement contained in his wife's answer with regard tothe acquisition by her of the leasehold estate in lands situate on the southeast side of Forty-Third street, between Fifth and Sixth avenues, purchased from Mrs. Gould and William F. Smith; and he says that the transaction was a bona fide and lawful gift and settlement of the said leasehold to and upon his wife. He further says that in 1883 he was the owner of a leasehold estate in lands adjoining those of his wife on Forty-Third street, and, being desirous of uniting the titles and building a single house upon the property, he proposed to his wife that she should vest her leasehold estate in him; "and this defendant then and there promised his said wife that, if she would execute the necessary instruments to accomplish that purpose, he, this defendant, would account to her for the value of her said leasehold estate, and would pay her the value thereof, or that he would vest in her the title in other lands of a value equal to that of her leasehold estate." He also sets out the purchase of the house and lot in his own name on Fifth avenue in July, 1883, and the desire to mortgage it to Heath & Quincey in July, 1885, and that he asked his wife to join with him in the mortgage, in order to release her inchoate right of dower, and that she consulted counsel, and then declined to join in the execution of the mortgage unless he would pay her the value of the leasehold premises, and the value of her estate in dower, or convey to her the seven tracts which he owned adjacent to her five tracts in Trenton; and that he agreed to convey the seven tracts in payment of what he owed her for the leasehold and her inchoate right of dower; and he says that the actual value of the leasehold estate of his wife, with interest thereon from the 16th day of July, 1883, and her inchoate right of dower, was at least the sum of $46,073.71. He admits that at times between 1872 and 1885 he did deal in and was engaged in speculating in stocks, bonds, and other securities dealt in at the stock exchange in the city of New York, but denies that his speculations consisted mainly in selling "short," but that his interests were more often on the "long" side of the market than on the "short;" and he says that at times during the period in question he had no speculations whatever in stocks, and had moneys and securities actually in his possession to a large amount, aggregating many millions of dollars, upon which he did not owe anything; and he denies that during all that period in question his profits depended either upon a fall or a rise in the market price of securities, and denies that at all times during that period his capital and profits consisted almost wholly of balances standing to his credit on the books of stockbrokers and others in the city of New York, and insists that there were times during the said period in which all his speculative interests were closed, and he was possessed of stocks and securities actually paid for and in possession, and his income consisted of interest upon his moneys loaned or on deposit, and in dividends upon his securities.
With regard to the several tracts of land at Trenton, he denies that the seven tracts purchased by him were in fact added to the Fashion Stud Farm, and says that he was not the owner of the tracks constituting the Fashion Stud Farm, and he says that at the time he purchased the seven tracts conveyed to him he purposed to improve a large portion of the same in a manner entirely distinct from, and having no connection whatever with, the said Fashion Stud Farm, and that, until prepared to make the improvements designed by him on those lands, he permitted a portion of them to be cultivated and used by the Fashion Stud Farm. He admits the making of improvements, but says that all were made by his wife, Mary E. Smith, in pursuance of contracts made and executed by her with the several material men and builders; and he says that the proceeds of the Fashion Stud Farm were used by his wife for the payment of improvements, so far as they would go, but that any balance necessary to meet the payments therefor over and above such receipts or proceeds were paid by him to his wife, and that said payments were made many years before he became indebted to Heath & Quincey, and at a time when he was worth a million of dollars. He denies that he was ever engaged in the business of raising and selling colts, fillies, horses, mares, and other stock upon the farm, but that the business was carried on by his wife under the name of the "Fashion Stud Farm," and that her moneys have always been used in the business; that no moneys have been invested by him in the business, and no moneys paid by him, except such as were a voluntary gift to his wife. He admits that the complainant's judgment was recovered upon a balance of account due from him to Heath & Quincey, and he admits that Heath & Quincey were stockbrokers doing business on Wall street in New York, and had been his brokers in stock transactions for a period of four or five years before the assignment of Heath & Quincey to complainant, "and that the judgment recovered against this defendant was made up of the balance due upon loans, advances, sales, commissions, etc., with interest thereon." He denies that he ever represented himself to Heath & Quincey to be the owner of the Fashion Stud Farm, but alleges that they well knew that the same was the property of his wife, and had been her property for many years; and he denies that Heath & Quincey relied at all upon his supposed ownership of that property.
Upon the issues thus made up the cause was brought to hearing, and a mass of evidence, oral and written, produced in support of the issues on both sides. At the argument the point was made on behalf of defendants that the court ought not to aid the complainant to enforce his judgment against the lands, because it appeared that it was founded upon a debt arising out of gambling transactions, such as received the disapprobation of the court of errors and appeals in Flagg v. Baldwin, 38 N. J. Eq. 219, and it was urged with much force that, although the complainant had obtained a judgment in thesupreme court of this state for the amount of his claim, yet that, if it appeared that it was in fact based upon such a foundation, it was competent for the devisees of Mrs. Smith, who were not parties to that judgment, to set up the vice in question as an equitable bar. Several objections to this position were taken by the counsel of the complainant, and, as it lies at the foundation of complainant's standing in this court, I think it proper to consider it at the start.
In the first place, although it is alleged in the bill that the complainant's judgment in this state was based upon the previous judgment recovered in the supreme court of the state of New York, and that that judgment was based upon a balance of account due Heath & Quincey from Smith, arising out of stock transactions in which "Heath & Quincey made large advances and loans and sales of stocks and securities to Smith, and incurred various liabilities on his account and at his request, and performed sundry services for him, on account of which he became indebted to them for services and commissions in various large sums, and that the balance of account upon which the judgment was recovered was made up of the balance due upon such loans, advances, sales, commissions, etc., with interest," yet the defendant Mrs. Smith made no allegation in her answer that the basic transactions were unlawful. She, in fact, neither admits nor denies the allegations of the bill just referred to; but the defendant Smith, by his answer, admits this allegation of the bill in these words: "And that the judgment recovered against this defendant was made up of the balance due upon loans, advances, sales, commissions, etc., with interest thereon." It thus appears that the question whether the judgment was in fact based upon transactions of the same character as those under review in Flagg v. Baldwin was not raised by the pleadings, and was not put in issue. The proof was here, as in Flagg v. Baldwin, that in all instances where stocks were ordered to be bought or sold they were in point of fact actually transferred and delivered, one way or the other, in accordance with the orders of Mr. Smith. Both Mr. McCanless and Mr. Quincey testify to this in the most positive manner, and there was no evidence to the contrary. On the other hand, there is no evidence that there was any understanding between Smith and his brokers that there were to be no deliveries of the stock as between him and them, such as was sworn to by Flagg in the case of Flagg v. Baldwin. It is stated in the opinion (38 N. J. Eq. 232) that Flagg swore in that case that it was expressly understood that there were not to be any actual deliveries of stock, and that he should not be required to pay for them. In the absence of such express proof, I do not feel called upon to presume that the transactions between Smith and his brokers were precisely the same as those between Flagg and his brokers, which were declared unlawful in Flagg v. Baldwin. It is, however, manifest from the whole case that the general transactions between Smith and his brokers were very much of the same character as those between Flagg and his brokers in the case referred to.
In the next place, the judgment roll of the judgment in New York was exhibited, and its examination shows that it was a judgment for deficiency in an action for the foreclosure of the mortgage given by Smith and his wife to Heath & Quincey upon the Fifth avenue house, which is referred to in the pleadings. The suit was brought in the supreme court of New York by the complainant, McCanless, as assignee of Heath & Quincey, against Henry N. Smith and Mary E. Smith, his wife, and John T. Cumming, assignee of Henry N. Smith, and two other persons, and it sets out that during the years 1882, 1883, 1884, and 1885 the defendant Henry N. Smith employed Heath & Quincey to buy and sell and borrow stocks and other securities for his account upon the usual commissions, and Heath & Quincey, by the authority and direction of Smith, from time to time bought, sold, and borrowed stocks and other securities as bankers and stockbrokers on commission for Smith's account, and in the course of such purchases and sales and for said borrowed stock paid and laid out and expended large sums of money at the request and for the account of said Smith, and said Smith became indebted to them for said sums of money, and for the usual commissions on such purchases and sales; and that, after giving him credit for all which he is entitled to, there was due and owing from Smith to Heath & Quincey on account of said transactions, on the 2nd of October, 1885, the sum of over $1,000,000. It then sets out that Smith and his wife, for the purpose of securing the payment of the amount that might be due Heath & Quincey, gave the mortgage on the Fifth avenue house, mentioned in the pleadings, on the 20th of July, 1885, and sets out the assignment by Heath & Quincey to the complainant, and prays a sale of the premises mortgaged, and that the defendant Smith be adjudged to pay any deficiency which might remain after applying all the moneys applicable thereto. To this suit Mrs. Smith appeared by one Henry Thompson, an attorney of New York. No answer was filed, but in February, 1886, a stipulation was filed, signed by all the parties, including Mrs. Smith's attorney, by which it was admitted that there was due to the plaintiff, by reason of the transactions set forth in the complaint, a sum of money which will greatly exceed the net proceeds of the mortgaged premises described in the action, and that an interlocutory judgment for the sale of the premises might be entered, and that it might be referred to a referee to compute the amount due the plaintiff from the defendant for and by reason of the claims set up in the complaint. Upon that stipulation it was referred to a referee to take an account of what was due, and that referee, by his report, stated that he had been attended by the several solicitors of the parties, including Henry Thompson, the solicitor of the defendants Henry N. Smith and Mary E. Smith, his wife, and that in their presence he had taken the account of whatwas due. The referee reported that he had examined Mr. McCanless as a witness, and reduced his testimony to writing, and made it a part of his report. By his evidence it appears that Smith employed Heath & Quincey to buy and to sell and to borrow stocks and other securities for his account, and to advance and pay out for his account all moneys that might be required or necessary for that purpose; and that he agreed to pay, and was accustomed to pay, to said firm, a broker's commission of one sixteenth of 1 per cent. upon all transactions made or had by the firm for his account. He further testified that the accounts between Heath & Quincey and Smith were made up and submitted to Mr. Smith shortly after the 2nd of October, 1885,—that being the date of the assignment; and that those accounts were gone over by the direction of Mr. Smith by his, Smith's, bookkeeper, and all found to be correct; and he makes up a statement showing the amount due, upon which the referee founded his report. From all this it appears that the judgment was based upon a claim for money loaned to Smith, and money paid at his request and for commissions, and that Mrs. Smith was a party to the judgment, and had notice of the proceedings thereon, and actually appeared by her counsel before the referee. It was urged in reply to this that Mrs. Smith was not called upon to contest the claim in that suit, since the equity here set up could not have been there administered. Granting that to be so, yet it seems to me that she is estopped from alleging that the judgment was recovered for anything else than money paid and money loaned and services rendered by way of commissions.
But the complainant further answers the position of the defendants now under consideration by arguing that it is not competent for a person situated as these defendants are to say that the judgment is void for any cause except that of fraud and collusion between the plaintiff and defendants therein, or that it had no substantial foundation, or that it is founded upon an unlawful consideration; and that this is especially so where the judgment is based upon that of another state. The position may be more accurately stated thus; the hypothesis being that the complainant holds a judgment against the grantor of defendant, recovered after the conveyance, and asserts that the conveyance was made in fraud of creditors. In such a case he says to the defendant: "Your conveyance is either free from the vice I charge against it, or it is not. If it is honest, and for a valuable consideration, then you have nothing to fear from my judgment. If, on the other hand, my charge is true, and you in fact hold the land in question by conveyance made in fraud of creditors and in trust for the grantor, then you have no standing to go behind my judgment, and inquire into its consideration, unless, indeed, (and this is claimed to be the only exception,) it is merely a collusive judgment, without consideration, and suffered for the purpose of enabling the debtor to recover his property, and accomplish by that indirect means what he could not do directly." This exception, I stop to say, is illustrated by the case of Anderson v. Tuttle, 26 N. J. Eq. 144. There one Tuttle, having judgments against him, caused land to be conveyed to his sister, Mrs. Stewart, in secret trust for him. Having failed (Cutler v. Tuttle, 19 N. J. Eq. 549) to get the title from her, he caused certain judgments against him to be assigned to his brother-in-law, Anderson, who in Tuttle's interest filed a creditors' bill against Mrs. Stewart; and it was held that the complainant was a mere trustee for Tuttle, and could not have any remedy. In other words, the fraudulent grantee may defend against the fraudulent grantor, or anyone who claims openly or secretly in his interest, but not against his actual creditor, no matter what may be the foundation of his debt, so long as it be a debt established by judgment in invitum. The doctrine of merger precludes all inquiry into or notice of the character of the original debt, although, in order to show the date of its origin, such character be incidentally exposed. The original debt, with all its inequities, is merged in the judgment. This position seems to be sustained by a great weight of authority.
In Spencer v. Brockway, 1 Ohio, 259, the action was based upon a judgment recovered in the state of Connecticut, founded upon a penalty, and the defense was set up that the Ohio court would refuse to render judgment for the plaintiff on this foreign judgment, on the ground that the state of Ohio was not obliged to enforce the penal laws of the state of Connecticut; but the court held that the point was not well taken, and that the court could not go behind the judgment to see upon what it was founded.
In Thatcher v. Gammon, 12 Mass. 268, the action was based upon a mortgage, and the defense was usury, and it appeared that the mortgage was given to secure the amount of a judgment recovered by the mortgagee against the mortgagor and the proof was that the judgment in included illegal and usurious interest; but the court held that the plaintiff was entitled to remedy upon his mortgage, and that the judgment was conclusive.
The case of Healy v. Root, 11 Pick. 391, is similar to the case of Spencer v. Brockway, supra.
In Christmas v. Russell, 5 Wall. 290, the case was this: Christmas, a citizen of Mississippi, made his promissory note, which came to the hands of Russell, a citizen of Kentucky. After the note was outlawed by the law of Mississippi, Russell procured service of a writ upon Christmas in Kentucky, and recovered judgment against him upon the note there; then brought suit upon the judgment in the federal court of Mississippi, and the defendant set up a statute of Mississippi, which provided that no action could be maintained on a judgment of another state recovered against a citizen of that state, where the cause of action would have been barred by any act of limitation of that state if such suit had been brought there; and the court held that the statute was unconstitutional, and that the judgmentof the Kentucky court was conclusive upon the Mississippi court.
In Mattingly v. Nye, 8 Wall. 370, the case was that Mattingly recovered a judgment against Nye in the court of the District of Columbia, and filed a bill to subject to the lien of his judgment lands which Nye had caused to be conveyed to a trustee for the benefit of Nye's wife; and defense was made, among other things, that there was nothing due upon the judgment; that it was recovered by a default, which was due to the sickness of Nye, and that it was tainted with usury. It will thus appear that the case was very similar to the one before the court, and it was held that the judgment was conclusive, and that Mrs. Nye and her trustee could not set up that it was void, or founded upon a usurious consideration; the headnote being: "A judgment for money due at a certain time against the party making the settlement is conclusive in respect to the parties to it. It cannot be impeached collaterally, and it cannot be questioned upon a creditors' bill."
In Candee v. Lord, 2 N. Y. 269, the case was this: The complainant obtained judgment against the defendant Lord, and then filed a bill to set aside certain conveyances made of the debtor's property by virtue of judgments recovered against the debtor prior to the recovery of his, the plaintiff's, judgment, on the ground that those judgments were collusive, and contrived for the purpose of putting the property of the debtor out of the reach of his real creditors. The purchasers, by virtue of the prior judgments, answered separately, and insisted, among other things, that the plaintiff's judgment was obtained in a suit brought against the common defendant, Lord, upon a forged endorsement of a promissory note; and this was insisted upon as a ground of defense to the bill, so far as they were concerned. It was held by the court of appeals that such defense could not be set up. In delivering judgment, GARDINER, J., said: "A debtor may be said to sustain two distinct relations to his property,—that of owner, and quasi trustee for his creditors. As owner, he may contract debts to be satisfied out of his property, confess judgments, create liens upon it, sell or give it to others, at pleasure; and, so far as he is personally concerned, will be bound by his own acts. But the law lays upon him an obligation to pay his debts, and holds him, in behalf of his creditors, to the exercise of good faith in all transactions relating to the fund upon which they must depend for payment. He can therefore neither create a debt, nor do any of the things above mentioned mala fide, to their prejudice. * * * In creating debts or establishing the relation of debtor and creditor, the debtor is accountable to no one unless he acts mala fide. A judgment, therefore, obtained against the latter without collusion is conclusive evidence of the relation of debtor and creditor against others. * * * In this case, the defendants have not alleged that the judgment of the complainant was not obtained in good faith. But they insist that there was error in the suit in which it was obtained, in the determination of a question of fact; and that they are not concluded by the defense of the debtor, because they are not in privity with him. We think otherwise. The law which gave the judgment debtor the unlimited right (when honestly exercised) to contract debts, to settle and adjust their amount, to secure and to pay them, made him to this extent the representative of all his creditors who should seek the satisfaction of their demands out of his property. So far, at least, they are in privity with, and claim under, their debtor. If, as the defendants insist, they hold the property in question by a title derived under a valid judgment, prior to that of the complainant, their rights cannot be affected by this evidence. If, however, as the bill alleges, their judgment was fraudulent, the complainant, as a creditor, can repudiate it, and claim the property as that of his debtor, his acts to the contrary notwithstanding, and hold his confederates in the fraud accountable as trustees for his benefit. If the defendants would shield themselves under the maxim potior est conditio defendentis, they should show, or, at least, allege, that the complainant is in pari delicto."
To the same effect are Burgess v. Simonson, 45 N. Y. 225, and Carpenter v. Osborn, 102 N. Y. 552, 7 N. E. Rep. 823. This late case was peculiar, and is quite in point. The plaintiff had recovered five successive judgments in a justice's court against her husband, John Carpenter, for about $30 each. They were founded on monthly installments due to her upon a contract entered into between her and her husband, by which they agreed to live separately, and he agreed to pay her $26 and a little more four times a year; and the defense was made that the court would not aid the plaintiff to recover the money as against her husband and his fraudulent grantees, because the contract between them was void, as against public policy. Chief Justice Ruger said: "The judgments rendered in these actions were, in the absence of proof of fraud in their procurement, conclusive evidence, not only as against John Carpenter, but also as to all other persons, of the several questions of fact and law material to the issues tried which were thereby determined. The defendants acquired title to the real estate in question from John Carpenter, and necessarily took it at the risk of any incapacity in him to convey a good title, and, so far as that was affected by the rights of existing creditors, his fraudulent grantees were equally bound by such legal adjudications as might be made against him in respect thereto as John Carpenter himself. It did not, therefore, lie open to any of the defendants upon the trial of this action to contest the validity of such agreement, or the liability of John Carpenter as a judgment debtor thereon, or the legal competency of husband and wife to contract with each other, for those questions were res adjudicata, and placed beyond the power of retrial. This present action was founded upon the last four judgments described, and was brought for the purpose of setting aside certain transfers of real property made by the defendant John Carpenter to the other defendants,as being fraudulent and void as against his creditors. To entitle the plaintiff to maintain such an action, it was essential that she should establish her character as a judgment creditor of the fraudulent grantor, and the fact that the conveyances challenged as fraudulent were so in fact, and stood in the way of the collection of her judgment. The production and proof of a judgment in her favor for a sum of money against the debtor, rendered by a court of competent jurisdiction, was, if not impeached for fraud, conclusive evidence in such an action of her character as such creditor. To establish the issue on her part in this action the plaintiff put in evidence the respective judgment rolls in the several actions above referred to, and the several executions issued thereon, each of which were severally duly returned unsatisfied. She also proved the written agreement above referred to, and gave evidence tending to show that the several conveyances assailed were voluntarily made by her husband with intent to defraud his creditors, and that the several grantees therein had knowledge of such intent, and participated therein. The evidence, we think, sustained the conclusions of fact found by the trial court, which rendered judgment for the plaintiff, and it does not appear to us that any error of law was committed by that court which requires a reversal of such judgment. The principal questions presented by the appellants' counsel upon the argument before us related to the invalidity of the separation agreement of January, 1873, and the incompetency of husband and wife to thus contract with each other. Since we have held that the defendants are precluded from raising those questions in this action, the further discussion of them would be unprofitable and unnecessary." To the same effect is the text of Black on Judgments, (volume 2, § 605,) where many cases are cited.
But the defendants herein went further, and claimed that the court would not aid the complainant to enforce this judgment as against the defendant Henry N. Smith himself on account of the inequitable character of its consideration; but I think that the judgment and decree in New York, and the subsequent judgment in this state, are entirely conclusive upon that point, and that it does not lie in the mouth of Henry N. Smith to take any such position. I am unable to discover anything inequitable in the standing of the complainant.
This brings me to the merits, and here the case naturally divides itself into two parts, viz., that relating to the five lots conveyed to Mrs. Smith in 1872-73, and that relating to the seven lots conveyed by Mr. Smith to her in 1885
The complainant attacks the settlement of 1872-73 on several grounds: (1) That its subject was not such a property as was suitable for or useful to the wife, but, on the contrary, one which was peculiarly suited to gratify the tastes and desires of the husband, and one which he may have thought he might derive a profit from. (2) That at the time it was made the husband was engaged largely in extremely hazardous operations, and at or about that time increased his ventures and risks, and continued them with varying fortune, and with but trifling cessation, until his financial failure in 1885, caused by a turn of fortune against him stronger than he could withstand. (3) That, with the knowledge and acquiescence of the wife, he used the property as his own for his individual purposes, and took the rents and profits, and expended enormous sums of money upon it, and appeared to the world as its owner. That he purchased in his own name adjoining property of greater extent, and obliterated the landmarks between them, and consolidated and merged the two into one large estate. And, finally, that, at the last, when the question of giving him further credit arose, his creditors actually relied upon his ostensible ownership of this estate, and gave him further credit upon it. With regard to the conveyance of 1885, the complainant says that the alleged consideration was a myth and a sham, and that it was clearly in fraud of his then present creditors, the greater part of whom are represented by the complainant. The defendants' position, as to the first, is that it was a fair and reasonable settlement made at a time when the settler was possessed of a large estate; and as to the second, that it was made upon a full and valuable consideration. I will consider these in their order.
First. Mr. Smith was originally a banker in Buffalo, whence he came to New York city in 1865, and engaged in the business of a stockbroker, and seems to have confined himself mainly to his legitimate business as such for four or five years, and to have speculated on his own account during that time to a very limited extent. In 1867 he became one of the celebrated firm of Smith, Gould & Martin, who, as brokers for Mr. Gould, speculated in gold in 1869. These speculations culminated in the famous "Black Friday," September 23, 1869, when the firm had purchased and were carrying gold, at prices varying from 135 to 160, to the amount of about $55,000,000. From this elevation of 160, to which it was forced by the operations of Smith, Gould & Martin, it was suddenly reduced to 135 by a large sale by order of the secretary of the treasury, and Mr. Smith's firm would probably have been ruined but for the circumstance, as Mr. Smith swears, that their contracts were all made to be completed and cleared through the Gold Exchange Bank, which institution was unable to clear all the transactions, and by that means the firm was relieved of their legal liability. Mr. Quincey, however, who was then in the employ of Heath & Co., of which firm he became a member the next year, swears that that firm executed large orders in gold for Smith, Gould & Martin, and that the last-named firm lost largely by those transactions on Black Friday. Mr. Smith swears that he lost nothing by the events of that day; that Mr. Gould indemnified the firm; and, according to his own account, he went out of the firm at its dissolution in August, 1870, with a handsome sum in his pocket. He then became, successively, a special partner in several firms of brokers up to1873. and was at the same time operating on the stock market heavily, and largely on his own account. The extent of his operations will appear by several statements of his financial condition furnished and presented by himself, and to be referred to further on. In the fall of 1872 he was largely on the "short" side of the market in what is known as the "common" stock of the Chicago & Northwestern Railway; that is to say, he had sold large quantities of this stock, and had borrowed stock from other owners to make his deliveries, upon an agreement to return it upon demand. This is called selling "short," and, if the stock falls in price, the seller is able to buy it, and return it to the person from whom he has borrowed it at a less price than he paid for it when he borrowed it; and, if the stock rises in price, he is obliged to pay for it to the person from whom he borrowed it at the current price, and will lose accordingly. At this time—the fall of 1872—Jay Gould "cornered" the market on that stock, and pushed its price up from about 80 to about 240, and Mr. Smith's losses would have been not much short of $2,000,000, but for the device he adopted of buying a large quantity of the preferred stock of the same railroad, and tendering that to Mr. Gould in place of the common stock, which was the actual subject of the contract. The result was that he got off, as he swears, with the loss of three or four hundred thousand dollars. But a trial balance which he exhibited of December 6, 1872, shows his total loss on account of Northwestern to have been $566,600.87. In the fall of 1873, in the general panic and fall in prices which resulted from the failure of Jay Cooke & Co., he was a large holder of stocks, and was on the "long" side of the market, and lost heavily, probably several millions, but got through without failure, and paid all his obligations in full. Mr. Quincey and Mr. McCanless both swear that he was obliged to withdraw from the street, and that in 1874 he was given a credit on Heath & Co.'s books, with which to operate. Smith denies this, but admitted that he borrowed $100,000 of Com. Vanderbilt upon a mortgage upon his wife's Fifth avenue house, which he used as a margin for fresh speculations. This shows that he was seriously crippled. In the mean time, at and prior to 1872, he was largely interested in the turf, and owned several expensive stallions and mares, the cost of which approached a quarter of a million of dollars, and which he was in the habit of putting on the various race courses of the country. In 1869, a few days after "Black Friday," he purchased a leasehold on 62 1/2 feet front on the south side of West Forty-Third street, between Fifth and Sixth avenues, upon which was a stable, for which lease he paid $13,000, and took the title in the name of his wife, and shortly afterwards expended $15,000 to $20,000 in improvements on the property in the shape of a carriage house and living rooms. In the spring of 1870 he purchased and took title in his wife's name to the house No. 247 Fifth avenue, at a cost of $130,000, and repaired, decorated, and furnished it at great cost, so that it stood on his books at over $300,000, in which item, however, may have been included the cost of the stable on Forty-Third street. There was, besides, a picture account of $45,000. He thus had settled upon his wife over $300,000 in the Fifth avenue house and its belongings. He was never a permanent stockholder or manager in any of the great enterprises of the day. He was not interested in the building of any new railroad lines, or in the combination of existing lines into great through routes, or anything of that kind. He simply sometimes purchased stock of all kinds, including gold, in anticipation of a rise in their market price, and sometimes sold the same stocks in anticipation of a fall in their market price. He was simply and purely a stock speculator and a patron of the turf. His financial condition in the year 1872 and the first part of 1873, covering the period of the purchase and settlement upon his wife of the original Fashion Stud Farm, was shown by a series of contemporaneous balance sheets, made up by him, or under his direction. All books of account of that period, and for a long time afterwards, appear to have been destroyed, but these balance sheets were preserved and produced. I will give their substance.
The balance sheet of January 16, 1872, showed assets, $7,972,215.83; liabilities, $5,744,990.27; surplus, $2,227,225.56. An examination of the statement in detail shows that the assets were made up of a great variety of stocks and some gold amounting to about $8,000,000, upon which he had borrowed about five and three quarter millions on a margin of about two and a quarter millions. This is on the supposition that the items of stock represented in the list of assets were all purchases, and not sales. If he was on the other side of the market, and had sold the stocks "short," and had, as he must have done, borrowed them for delivery, the result would be the same, for he would count the stock at its price of the day, and the difference between that and his margin, lodged with his brokers as security, was what he in substance owed. Selling a stock "short" in anticipation of a fall in its market price is managed as follows: The seller borrows from some actual owner the stock which he has contracted to sell, and actually delivers it to the vendee, and receives pay for it, and, with the price so received, he pays the person from whom he has borrowed the actual price of the stock, and enters into a contract with the lender to return the same quantity of stock on demand, upon being paid again the price, with interest, at which he borrowed it. If the stock falls in price, the seller gains; if it rises, he loses. In the mean time he owes the whole price of the stock, and has put with his brokers a deposit to secure them on his contract to return it when called for. This balance sheet of January 16, 1872, showed Mr. Smith to be worth two and a quarter millions, subject to the fluctuation in price of eight millions' worth of stock of various kinds. On February 15, 1872, the statement shows assets, $5,683,916.56; liabilities, $3,030,066.48; surplus, $2,653,850.08,—showing that in one month he had been able to close outseveral of his transactions and to gain $400,000. On March 26, 1872, shortly before the purchase of the principal part of the Fashion Stud Farm, his assets were $6,094,294.65; liabilities, $3,078,828.33; surplus, $3,015,466.32. Here we have a gain, in six weeks, of nearly $400,000, due entirely to the fluctuation in the price of stock; in all, since January 16th, three quarters of a million dollars. On or before May 9th,— and it will be perceived, just after the time that he made the first purchase of the Fashion Stud Farm,—he had plunged much deeper, and his statement shows assets, $15,747,075.18; liabilities, $12,555,564.76; surplus, $3,191,510.42. This included his special capital in his firm of brokers, and, as they were liable for all his contracts, he had, in effect, pledged all his available assets to pay this enormous debt of twelve and a half millions. The hazard of this position is manifest. If he gained three quarters of a million dollars between the 16th of January and the 26th of March by a fortunate turn of the market on an investment of $8,000,000 and a margin of $2,000,000 he could easily lose his whole margin by a like turn against him on an investment of $15,000,000. On June 19, 1872, his assets, including his special capital, were: Assets, $16,463,163.83; liabilities, $13,329,574.54; surplus, $3,133,589.29. July 13, 1872: Assets, including special capital, $16,643,673.54; liabilities, $13,324,536.96; surplus, $3,319,136.58. October 11, 1872: Assets, including an item "M. E. Smith, cash, $88,173.26," $12,891,579.86; liabilities, $9,697,048.02; surplus, $3, 194,531.84. November 12, 1872: Assets, $15,789,134.41; liabilities, $12,743,411.41; surplus, $3,045,723. December 18, 1872: Assets, (including a yacht at $46,000,) $7,476,918.07; liabilities, $4,868,519.90; surplus, $2,608,398.17, —showing a loss, since November 12th, of nearly $500,000, and since July 13th, of over $700,000. After November 12th occurred the "Northwest" corner, in which, as shown by his trial balance of December 6,
1872, he lost, as above stated, $566,600.87. On January 24, 1873, his assets were: Assets, $11,013,444.66; liabilities, $8,303,476.67; surplus, $2,709,967.99. And on February 1, 1873, his assets were $14,580,240.26; liabilities. $11,814,687.53; surplus, $2,765,552.73. On April 5, 1872, he caused the Central Agricultural Society of New Jersey to convey to his wife 83.45 acres of land for the consideration of $23,000. Upon this tract was a race course, a dwelling, a grand stand, and appropriate stabling. The dwelling was a plain farmhouse. August 26, 1873, he purchased of Henry T. Cox a small house and lot immediately adjoining the race course for $1,450; and September 5, 1872, purchased of Richard R. Whitehead 6 acres, more or less, also adjoining the original tract, for $1,200. On September 5, 1872, he purchased of Jacob Bowen 13.62 acres of land, also adjoining the race tract, for $3,650; and on April 7, 1873, he purchased of George E. Fell 33.33 acres at the price of $6,606. The total cost of these purchases was $35,906, and of acreage 136.38, all conveyed to Mrs. Smith. The original premises were the agricultural society grounds, and upon it, in addition to the race course, as I have remarked, were stabling, and the ordinary improvements for a race course and a fair ground, besides a plain dwelling. He immediately transferred to these grounds all his racing stud and mares, and commenced the business of breeding horses. These horses, he now swears, he then gave to Mrs. Smith as a part of the settlement. He also commenced to spend money in improvements. On his trial balance of June 19, 1872, his horse account stands at $185,964.63. Nothing seems to have been charged, as yet, to the Fashion Stud Farm. On the trial balance of October 11, 1872, the horse account has risen to $193,680.24, and we also find an item of "Mary E. Smith, cash, $88,173.26." On the trial balance of December 18, 1872, the horse account has risen to $208,933.91, and then, for the first time, appears the following item: "Fashion Stud Farm, $77,039.92;" so that — the last purchase of $6,606 not having been then made—he had already spent upon the farm $48,000 in addition to its purchase price. The same item appears in the trial balances of January 24, 1873, and February 1, 1873, but the item of "Mary E. Smith, cash," appears but the once. The charges relating to the Fashion Stud Farm were entered on two sets of books,—but not all on each set,—one kept at the farm, and another kept in Mr. Smith's private office in New York, by his private secretary and bookkeeper. There have been in existence three ledgers in each of these places, in which these entries appeared, of which have been produced only the third or last one at each place. The farm was managed by a superintendent, who bred horses on the farm, and received mares from abroad, and an account was kept of the earnings of the stallions. The transactions were very large, but the farm never paid its expenses, going behind about $1,000 per month; and all the improvements, and whatever the receipts were short of the expenses, were paid by Mr. Smith, and the amount he advanced from his New York office was charged to the Fashion Stud Farm; so that the cost of the improvements, including the excess of cost over receipts of running the farm, appear on the New York ledgers. The cash transactions of the farm were carried on by a bank account kept in one of the Trenton banks in the name of "H. N. Smith, Agent." He visited the farm weekly, employed all the hands, gave them all their orders, and his wife paid no attention whatever to the transactions there. It was admitted that a large balance appeared against the farm on each of the two ledgers kept in New York, which have been destroyed, and that at the end of each book whatever stood against the farm was charged to "Profit & Loss." The amount of charges against the farm on the last ledger kept in New York, which commences October, 1879, foot up, on the 12th of December, 1884, to over $300,000.
In 1880 and 1881 Mr. Smith added largely to the original Fashion Stud Farm by purchasing and taking title in his own name the seven tracts of land adjoining it, which form the second subject of controversy here. These tracts amounted, in the aggregate, to 232.92 acres, and the aggregate of the consideration named in the several deeds for them is $47,982.87, thoughthe actual cost would appear, from certain entries in his books, to be something less. He at once proceeded to improve the two properties as one plantation by obliterating in many instances the landmarks, and making new fields, which included parts of the old and parts of the new purchases, so that a stranger going over them would not be aware that there was any diversity of title or possession. From that time forward he used them as one farm. The cost of operating and the cost of repairs and permanent improvements on each were commingled, and so with the proceeds of the crops. No distinction was made anywhere, or for any purpose, between the two estates. The evidence on this subject is clear and conclusive. Mr. Smith was in possession of all, and operated all at his own expense, and took the rents and profits, if any there were. He erected improvements in the shape of new stables and barns; a large carriage house and office, with living accommodations, which he called the "Clubhouse;" repaired the old barns and buildings; erected an expensive fence around the whole; built an expensive bridge over the creek, and a serpentine macadamized road running through both properties. A careful estimate of the cost and value of the permanent improvements put upon the new purchase of 1880-81 amounts to over $40,000. At the same time he was adding large and expensive buildings to those already upon the purchase of 1872, and charging them all in one account to the Fashion Stud Farm. All the operations in breeding and raising horses and putting them on the market were carried on in his own name, and as late as the spring of 1885 he sent a consignment of horses to be sold at Mr. Kellogg's annual horse sale, and they were all sold in his own name, and the proceeds credited on the New York ledger to the Fashion Stud Farm. The evidence of his manager and bookkeeper on the farm from 1878 to 1884, and also of several of the other laborers and farm hands, showed that during all that period Mr. Smith acted as though he was the actual owner of the premises, and that his wife never interfered, or took any interest whatever, in the operations there carried on. And this is as one might expect. It is well-nigh incredible that a refined lady, who for the greater part of the year lived in an elegant Fifth avenue house, would care to undertake, on her own account, the business of keeping stallions and mares for breeding horses. In short, I think the complainant's contention with regard to the settlement of 1872-73 has been fully made out in all its parts. I think the property settled was entirely unsuited for Mrs. Smith's tastes and wants. The house on the agricultural grounds, which Mrs. Smith occupied for several summers, was, as before remarked, a plain farmhouse, and it does not appear that any extensive additions or improvements were ever put upon it, or that it was ever rendered such a country home as would correspond with the wealth and tastes of Mr. and Mrs. Smith. There was nothing attractive or picturesque in its situation or surroundings. It was admitted to be on a level and rather low piece of ground, and near a race course, and surrounded by horse stables and all the paraphernalia of a race course. In order to have a proper place to entertain his friends, Mr. Smith erected, at great expense, a large building, which was used in part as a clubhouse, and on the occasion of the several expensive entertainments which he gave he received his friends in this clubhouse. It seems to me plain enough that Mrs. Smith endured these few weeks in the summer which she spent there on her husband's account, rather than for any attraction which the place had for her. It had, and could have, no value as a settlement on Mrs. Smith. It could furnish her no income. I am satisfied that it was bought by Mr. Smith, not as a summer residence for his wife, but for his own purposes, and for his own personal gratification and enjoyment, with the idea that, if he succeeded in his stock operations, he could amuse himself (as, indeed, he says he did amuse himself) with it, and indulge his fancy for fine horses and for trotting and racing; and that, if at any time misfortune should overtake him in his speculations, he would have this place in the country to fall back upon, and be able there to carry on the business of breeding fine horses, which he was probably foolish enough to think he could do at a profit. It is impossible not to believe that Mrs. Smith was cognizant of her husband's dealings with the property, and that he treated it as his own, and must have been considered by the world at large as its owner. In such dealing with the property she must be held to have acquiesced. In my judgment, it is a plain case of her holding him out to the world as the owner of the property, as, indeed, he was, after 1850, of the larger part of it.
In the mean time Mr. Smith was, from 1874 onward, almost without intermission, operating on one side or the other of the stock market upon margins, mainly through Heath & Co. He took a vacation for a few months in 1882 for a trip abroad, during which his speculative accounts were mostly closed out, but he left the greater part of his available fortune, amounting at that time to about $800,000, in the hands of his brokers, and made few, if any, permanent investments; and on his return from abroad plunged again deeply into speculation, and in the spring of 1885 was largely on the "short" side of the market, having sold stocks of all sorts heavily in anticipation of a fall in the market. Heath & Co. were carrying for him 150,000 shares, amounting, at par value, to $15,000,000, including a variety of stocks, some selling below and some selling above par, so that Mr. McCanless swears they cost in the neighborhood of $15,000,000. At that time—spring of 1885 —the price of stocks began to rise, and by July 1, 1885, as Mr. McCanless swears, Mr. Smith's margin was exhausted; that is, if the stocks he had borrowed to make his deliveries of stock sold were actually bought and paid for he would be quite cleaned out. According to the contract and the practice of brokers, Heath & Co. were entitled to a certain margin—some10 or 15 per cent.—of this large amount of stocks, and when the market rose so that the stocks which they had borrowed to deliver could not be actually paid for and purchased for a price which would leave in their hands a margin of Smith's money equal to this per cent. of the price, they were entitled to actually buy the stocks in, and close out the transaction, unless he, Mr. Smith, increased his margin. This he could not do. Heath & Co., however, did not close him out, but, at his request, held on in the hope of a fall in the price of stocks, and in reliance upon Mr. Smith's personal wealth outside his deposit with them. In this outside wealth they included the Fashion Stud Farm. The evidence of both Mr. McCanless and Mr. Quincey is clear on this point. Messrs. Heath & Quincey, and Mr. McCanless, their confidential clerk, all supposed and believed that Mr. Smith was the owner of the Trenton establishment. They so inferred from what they saw and knew of his dealings with it,—using it for a stock-breeding farm, and expending upon it large sums of money, drawn for that purpose from his account with them. And it should be remarked, in this connection, that Mr. Smith, who was sworn four or five months after Messrs. McCanless and Quincey were sworn, and after their testimony was printed, did not contradict them in this respect. He was, for years prior to July, 1885, a daily frequenter of Heath & Co.'s office, and on intimate terms with the individual members of the firm, and was probably aware of the state of their belief as to the title of the Trenton property. By October 1, 1885, the market had risen so far that Heath & Co. failed, Smith owing them over a million, and being the immediate cause of their failure.
I have said that I thought the complainant had made out by the proofs his contention as to this settlement. Several matters are urged by the defendants' counsel in support of the settlement, which I will now consider.
First. Reliance is placed on the fact that at times during the summer of 1872, when Mr. Smith was speculating so heavily, he had a considerable block — $100,000 or more, the amount was not clearly shown—of stocks and bonds in his own safe, not pledged as collateral for any loan, or deposited as a margin on any speculation. Some of these free assets, however, formed part of his special capital in the firm of brokers in which he was a member, and were thus security for all their contracts for him. However that may be, it is plain that a person operating so heavily on so small a margin, and through several different brokers, should, if exercising a proper caution, reserve a fund to be used, as occasion might require, to make up a temporary deficiency in any of his margins resulting from a sudden, and, it might be hoped, temporary, disturbance of the market. This reserve, kept for this purpose, became as much subject to the risk of the general speculation as if it had been actually pledged with his brokers. The proofs fail to show that Mr. Smith ever withdrew a fund from use in his speculations, and invested it permanently, and beyond the reach of his temptation to use it in case emergency should require it.
Again, reliance was placed on the fact that he on one or two occasions between 1874 and 1885 withdrew from the street, and had a fair balance to his credit, and was out of debt; but I am unable to see the value of this circumstance. Complainant does not rely upon a condition of continued indebtedness, but upon his devotion to a hazardous practice, (I will not say business.) This he never gave up, but simply rested a few months to give tone and strength to his nerves, and fit him for further speculations. It is here a question of object, intention, and use. I cannot see that either the original object and intention with which he made this so-called "settlement" upon his wife, or the use which he made of it, ever changed from the time he made it until he finally failed. His apparent ownership continued without interruption.
Again, it was argued that stockbrokers do not rely upon the personal responsibility of their clients, but exclusively upon the margin they put up. This is not true, in fact. They do, in fact, require and receive the personal contract of their clients to make good all losses, and they do in point of fact inquire into and rely upon their personal responsibility. Heath & Co. did it in this instance. Brokers generally are obliged to do so, for it is a well-known fact that stocks are liable to fluctuate so suddenly and severely that brokers do not always have time and opportunity to call for more margin, and, in case of failure to receive it, sell out or buy in, as the case may be, in time to save themselves. Mr. Back, a partner in several of the broker firms in which Mr. Smith was a special partner, swears that those firms made no money, and assigned as a reason losses incurred by them by small, irresponsible speculators and dealers.
Again, reliance is placed upon the fact that the settlement of 1872 was published to the world by placing the deeds of conveyance upon the public records, by which it appeared that the title stood in Mrs. Smith's name, and it is argued that Heath & Co. are chargeable with notice of that fact. This is certainly a circumstance tending to negative fraud. Sexton v. Wheaton, 8 Wheat. 229; Wallace v. Penfield, 106 U. S. 262, 1 Sup. Ct. Rep. 216. It strikes at the very foundation and essence of the fraud necessary to be found in order to make a settlement void as against subsequent creditors, viz., that the settler and debtor was the apparent owner by possession and control of the settled property, and that creditors were justified in believing him to be the owner, and that the wife or other beneficiary of the settlement held him out to the world as such owner; and, if the settled property be a dwelling suitable and proper for a home for the wife, the mere occupation by the husband with the wife of such dwelling, her title being published by the record, is not, ordinarily, misleading to persons dealing with the husband. But the fact that the title stands upon the public records in the name of the wife or other beneficiary at the time the debt was contractedis but a circumstance, and is by no means conclusive against fraud. It has been so held in many cases. In fact, if the conveyance, though made before the debt is contracted, is withheld from the record until afterwards, and there is no exclusive possession by the beneficiary, it would seem that it would necessarily be held to be effective only from the date of its record, and not from the date of its execution, and for that reason constructively fraudulent as against the debt in question. So that the question whether a conveyance by way of a settlement is good as against subsequent debts of the settler can rarely arise, unless it be not only executed and delivered, but actually recorded before the debt is incurred. In Ramsey v. Voorhees, 38 N. J. Eq. 282, two distinct properties were in dispute, one called the "Bound Brook Property," conveyed to Ramsey's wife May 26, 1879, and, as I infer from the report, duly recorded at that time, and over two years before the debt was incurred. The other property was called the "Flemington Property," and was conveyed by Ramsey to his wife by deed dated, but not recorded, until after the origin of the debt. The Bound Brook property, as well as the other, was subjected to the lien of the judgment, on the ground that Ramsey, the debtor, spent money on it, and was its apparent owner. The case is much like this, and the result was affirmed on appeal. In Mellon v. Mulvey, 23 N. J. Eq. 198, the conveyance from the husband to the wife was recorded as soon as executed, and was set aside in favor of subsequently incurred debts on the ground that it was given to protect the property from the future debts of the husband. In Gardner v. Kleinke, 46 N. J. Eq. 90.18 Atl. Rep. 457, the conveyance was also recorded as soon as executed. The reason why the mere publication of the conveyance by placing it upon the public records is not conclusive in its favor as against subsequent creditors is that business men do not ordinarily examine the records to see whether the title to real estate, of which a trader has possession, and is the apparent owner, stands in his name or not, especially if it be of a character not likely to be settled upon his wife. In the case in hand we have a man buying and taking possession and spending large sums of money upon a race course and its usual improvements, putting on it a stock of stallions and brood mares, and engaging in the business of breeding horses. One dealing with him would hardly suspect, under these circumstances, that he had settled all this property, including the stallions and mares, on his wife, and that she, and not he, was conducting the business; and hence would not think to examine the records to see where the title stood. I think Heath & Co. fully justified in supposing the property in question to belong to Mr. Smith.
Again, it is said that the value of the property settled was not excessive, considering the amount of Mr. Smith's estate. The cost of the New York property settled upon his wife was about $300,000. The cost of the Trenton property, including improvements put on it in December, 1872, was $77,000. The value of the horses given to Mrs. Smith with the farm is not easy to estimate. They cost about $200,000; so that altogether she had nearly $600,000 settled upon her at a time when her husband thought himself worth $2,000,000 or more. But it is not necessary to consider whether the settlement was reasonable in amount or not. The serious objection to it is not to the amount that it cost, but, as before remarked, to its character, and the circumstances under which it was made, and the use which was made of it. I can conceive of no motive Mr. Smith could have had in making it, except to put it beyond the risk of the fluctuations of the stock exchange, so that, in case of misfortune, he might have it for his own use and benefit. Had he failed in 1872 or 1873, instead of 1885, it seems to me that the transaction would have been quite indefensible. This original inherent vice, which would have subjected the property to the payment of his debts if he had failed at the period just mentioned, was never cured or eliminated by any subsequent act. He never entirely abandoned his hazardous operations; and he continued for years, and up to within a short time before his failure, to expend large sums in permanent improvements upon it, and to use it as his own. All this was done with the knowledge and silent acquiescence of his wife. Nor does the time which has elapsed cure the defect, since the character of the possession and use did not change. In Stileman v. Ashdown, 2 Atl. 477, Lord Hardwicke, in 1742, set aside a settlement made in 1700, and another in 1708; and in Taylor v. Jones, Id. 600, the master of the rolls set aside a settlement in 1734 in favor of a creditor on a judgment recovered in 1741. For these reasons I think this settlement cannot stand. But if I had come to a different conclusion I should have thought the complainant was entitled to relief, at least, as to the permanent improvements put upon the property between 1880 and 1883. In coming to this conclusion I do not charge Mr. Smith with any actual fraud involving moral turpitude. It is not necessary to do so. I think the observations of Malins, V. C, in Mackay v. Douglas, L. R. 14 Eq. Cas. 120, (1872,)—a case of a subsequent creditor,—on this subject, are apt. He says that it is not at all necessary to show that a man had any fraudulent intent in making a settlement as the law is now settled." The statute speaks of cases where the creditors' are, shall, or might be in any wise disturbed, hindered, delayed, or defrauded,' and it is not necessary to show an intention to do that; because, if the settlement must have that effect, the court presumes the intention, and will attribute it to the settler." Now, the fraud in these cases, where the debt accrues after the settlement is made, consists, as it seems to me, in the fact that the debtor is knowingly permitted by the beneficiary to have the possession, control, and apparent ownership of the property settled, so that persons dealing with him are misled by appearances, and suppose him to be the owner, and give him credit on the faith of such ownership.If that be so, it matters not what may be the motive of the parties. Their conscious acts have worked a fraud, and that is the "actual fraud" requisite in these cases, as distinguished from the "constructive fraud," which is presumed in favor of a creditor whose debt accrued before the settlement was made.
Second. As to the 232 acres, composed of seven tracts, purchased by Smith in 1880, and conveyed to his wife July 20, 1885. It was very properly conceded by the defendants' counsel that this conveyance could not stand without a full consideration, and must be upheld, if at all, because it was given for such. Mr. Smith's margin was exhausted—so swears McCanless— July 1, 1885, and stocks continued to rise in price, so that on the 20th of July, if all the transactions had been closed out, Smith would have owed the firm nearly $400,000. The mortgages given on that date admit a large indebtedness. The question, then, is, was this conveyance made for a full and valuable consideration? In dealing with it, it is well to recall the allegations of the answers. They are that on July 16, 1883,—two years prior to the transactions in question,—the wife was the owner in her own right of a leasehold estate, which had been settled upon her by her husband in 1869, in certain lands on the south side of Forty-Third street, between Fifth and Sixth avenues, New York, which was of the value of $45,000, and that her husband, being then the owner of a leasehold estate in adjoining property, induced her to surrender her lease in his favor, and promised to account to her for the value of her said leasehold, and to pay her the value thereof, or to vest in her the title to other lands of a value equal to that of the leasehold. Observe, the allegation is not that he promised to pay her $45,000, but that he promised to pay her their value, whatever it might be; and that the value was $45,000. There is no allegation that any valuation was fixed upon at that time. These answers were prepared by different counsel, —as able as the state produces,—and evidently after a conference. The wife was then living. It seems to me that their frame and verbiage are significant. There is no allegation, nor any pretense, that this bargain, or any note of it, was put in writing. Mr. Smith is positive on this subject. It is further alleged that the husband held the title to a house on Fifth avenue, adjoining that of the wife, worth $60,000, in which the wife had an inchoate right of dower; that in July, 1885, he wished her to join in a mortgage of this house to Heath & Co., and she declined to do so, unless he would pay her the value of the leasehold so surrendered in his favor two years previously, or would convey to her in payment therefor the seven tracts of land now in question; and she alleges the value of the leasehold estate, with interest, and her right of dower was $46,073.75, which is just, the consideration inserted in the deed which conveyed these tracts to her. The New York judgment roll shows that the Fifth avenue house was subject to a mortgage of $30,000, and the proof was that Mr. Smith was but a few years older than his wife, so that her inchoate right of dower was of but trifling value. By the tables I make it about 5 per cent. of the equity of $30,000. (The defendants did not make proof of Mr. Smith's age. I have taken it at five years more than his wife's. Defendants counsel seem to have gone on the notion that her inchoate right was equal in value to the dower of a widow of the same age,—a clear mistake.) But if the leasehold was of the value of $45,000 in 1883, and interest for two years had been added to it, it would have brought the item up to over $50,000. Just how the sum of $46,073.75 was arrived at does not appear. Mr. Smith swears it was put in at pretty nearly the cost of the property conveyed, and that, as appears by the consideration mentioned in the conveyances, was $47,982.87. Just here Smith's New York ledger throws light on the subject. It appears that he kept, or attempted to keep, an account of the cost of these tracts, separate from his general account with the farm, and he there made entries of the cost of five of the seven tracts, (omitting two of the smaller ones,) which amounted to $45,094.50. The cost of these five tracts, as expressed by the deeds, is $47,003.65. The discrepancy is accounted for by the fact that in one the consideration expressed is some $700 greater than it is entered in the ledger, and as to another, an outstanding undivided interest was acquired by a separate deed, the cost of which did not find its way upon the book. At any rate, it is plain from Smith's evidence and the entry on his book that the consideration named was not made up or fixed by the alleged value, $45,000, of the leasehold in 1883, with interest, together with the value of the inchoate right of dower in the Fifth avenue house, but was made up, or attempted to be made up, from the cost of the lands conveyed; and that the object was to fix it at such cost. But with that as the basis, the large sums which Mr. Smith had spent on those lands in permanent improvements and additions, amounting, by a careful estimate made up by Mr. Quien, to over $40,000, should have been taken into consideration. The late Mr. A. J. Vanderpool was the counsel for the parties in this transaction, and his death in 1887, as well as that of Mr. Heath and Mrs. Smith, leaves the allegations of the answer in this behalf to be supported by the evidence of Smith alone, except the bare fact that Mrs. Smith did surrender the lease at the time and in the manner alleged. It is hardly necessary to remark that courts look upon contracts such as is here set up with suspicion; and in numerous cases where, as here, settlements were attempted to be sustained upon the basis of a debt owing by the wife to the husband, which never assumed the shape of a written obligation, they have been set aside. The distrust of the courts in such cases is tersely expressed by Vice Chancellor Van Fleet in Post v. Stiger, 29 N. J. Eq. 556, as follows: "A claim by a wife against a husband, first put in writing when his liabilities begin to jeopardize his future, should always be regarded with watchful suspicion, and, when attempted to be assertedagainst creditors upon the evidence of the parties alone, uncorroborated by other proof, should be rejected at once, unless their statements are so full and convincing as to make the fairness and justice of the claim manifest. Any other course will encourage fraud, and greatly multiply the hazards of business." The absence of any written evidence of the contract when the subject is so large excites suspicion, and raises doubts as to its ever having been made, and that is increased here by the evidence of Smith; for, while the answers set up that the promise of 1883 was to pay what the estate was worth, coupled with the allegation that it was worth $45,000, Smith swears that the value, $45,000, was fixed at the time of the surrender, and that he promised his wife to pay her that sum. If so, why did he not give her a note for it, or deliver her stocks or other good securities for that amount? Observe, he does not swear that he promised, in the alternative, either to pay her or to convey her other property, as alleged in the answers, but simply and only to pay her cash. This evidence was given after that of Messrs. Coleman, King, and Petri, called by complainant, which, if reliable, shows this leasehold to be worth not more than $14,000, and raises a suspicion that the allegation of the answers was varied from in the evidence in the hope that a bargain for a specific sum would be likely to stand, notwithstanding the overvaluation. Then, again, he at first swears positively, both on direct and cross examination, that he stated to both Mr. Heath and Mr. Quincey on July 16, 1885, as Mr. Quincey was about to sail for Europe, that he was about to convey these lands to his wife, in order to induce her to sign the mortgage on the Fifth avenue house. Mr. Quincey had been sworn at a previous sitting of the court, and was not present when Mr. Smith took the stand, but came into the room just as Mr. Smith was stating this interview. Afterwards Smith was recalled to correct his statement by saying, as was the truth, that he had no such conversation with Quincey, but that it was with Heath alone. These and various other similar matters in Mr. Smith's evidence, and his manner on the stand, lead me to place little reliance upon his evidence.
But complainant contends that in July, 1883, the leasehold interest surrendered by Mrs. Smith in favor of her husband was not worth $45,000, nor half of that sum, and that its value was inflated, and the value of the seven tracts conveyed was reduced, in order to give the transaction the appearance of solidity. The leasehold in question consisted of three leases made by a Mr. Livingstone, who owned property in the neighborhood, dated March, 1865, for 21 years from May 1, 1865, covering 20 feet and 10 inches each,—62 1/2 feet in all,—front, and 100 feet and 5 inches in depth, at a yearly rent of $300 each,—$900 in all,—besides all taxes and assessments, with the privilege of removing buildings at the end of the term; and of two renewals,—one May 1, 1886, and the other May 1, 1907, for 21 years each; the rent at each renewal to be recast upon a basis of 5 per cent. upon the value of the land, to be fixed by appraisement. Upon these 62 1/2 feet was a stable, covering the whole rear, and a carriage house covering part of the front, with dwellings over it for coachman, etc. The leasehold had cost $13,000 in 1869, when it had 17 years to run, and some $15,000 to $20,000 had been spent in improving the carriage house. The fixing a value upon property of this kind is not a simple matter, but requires the exercise of a sound judgment, based upon extensive and intelligent experience. It depends, of course, upon the excess of the rental value over the ground rent, taxes, assessments, and repairs, taken in connection with the length of time the lease has yet to run, and the probable increase of the rent at the next renewal and appraisement. It was not shown or contended that these premises were, in their then condition, July, 1883, capable of being rented for a sum which would greatly exceed the ground rent and other outgoes, and whatever excess there might have been had less than three years to run. Forty-Third street, between Fifth and Sixth avenues, was a stable street, with few dwellings, and those, in main, undesirable. Nearly opposite Mrs. Smith's stable, and a little further towards Sixth avenue, were the stables of the Fifth Avenue Omnibus Line, which, in their use, created a decided nuisance. Between Mrs. Smith's property and Fifth avenue were three other lots, of the same aggregate size, held by a Mr. McReynolds under Livingstone leases, similar to, and being of the same date, and subject to the same rent, as, Mrs. Smith's. Upon the rear of these lots was also a stable, and on the front were three four-story brown stone front dwellings, which, with the stables, rented for some $8,000 a year or more. In 1883, at about the same time that Mr. Smith acquired his wife's lease, he also bought McReynolds' leases, paying him $37,000 for them. But McReynolds' leases were manifestly worth more than Mrs. Smith's, not only by reason of their having upon them buildings which would produce a greater rent, but on account of their greater proximity to Fifth avenue, and greater distance from the nuisance of the omnibus stables. Mr. Smith's idea in consolidating these two properties, covering in the aggregate 125 feet front, was to tear down the buildings on them, and erect in place thereof an apartment house, and he thereupon proceeded to remove them. But the fact that the buildings on the McReynolds one half were destroyed as well as those on Mrs. Smith's did not alter the fact that, in its condition before destruction, the McReynolds leasehold was of much greater value than Mrs. Smith's. Mr. Smith may or may not have shown good judgment in what he did. Five witnesses were sworn as experts as to the value of Mrs. Smith's lease in 1883. On the part of the complainant, Mr. Coleman, for many years tax commissioner of the city of New York, fixes the value at from $12,000 to $14,000; Mr. Petri at from $6,000 to $8,000; and Mr. King at $10,000. On the part of the defendants, Mr. Curtis fixes the value from $32,000 to$34,000, and Mr. McAndrews at $40,000. But both these witnesses put their appraisement not on the value of Mrs. Smith's old leases before they were surrendered, but upon the new ones which Mr. Smith procured from Mr. Livingstone after the surrender of his wife's lease; and Mr. Curtis puts it on the ground that the new leases were taken at a ground rent of $1,087.50 for 62 1/2 feet in place of $900, which $1,687.50 was on a basis of a valuation of about $34,000 for the fee of 62 1/2 feet, which he thought worth $75,000. He thus values the leasehold as high as the fee was valued by the owner. Of these witnesses Mr. Coleman seemed to me to manifest the most intelligent acquaintance with the subject, founded on his long and extensive experience in ascertaining and appraising the value of such property. He gives the most satisfactory reasons for his opinion, and I consider it reliable. If, however, we take the average of the five opinions, we have, as a result, a value of $20,000, which I am satisfied is quite enough, even when gauged by the price, $37,000, paid by Mr. Smith for the adjoining lease. Furthermore, the judgment roll in the New York foreclosure suit of McCanless v. Smith, before referred to, shows that the referee in that suit, who was directed to compute the amount due from Smith to Heath & Co., was ordered to credit Mr. Smith with the net proceeds of the sale of his leasehold in the whole 125 feet on Forty-Third street, including the 62 1/2 feet once covered by Mrs. Smith's leases, and 62 1/2 feet covered by the McReynolds' leases, all of which were mortgaged to Heath & Quincey by a separate mortgage, which was foreclosed at the same time that the mortgage on the Fifth avenue house was foreclosed; and the credit so given by the referee was $18,500 for the whole 125 feet, which would be $9,250 for the half originally owned by Mrs. Smith. The sale was made by the same referee. Upon the whole case, I am satisfied that the price of this leasehold was inflated far beyond its actual value, in order to make it reach that of the seven lots at Trenton, and that those lots were valued at their original purchase price, ignoring the expensive and valuable buildings afterwards added to them, in order to bring them down as near as possible to the value of the Forty-Third street property.
It was conceded that Mrs. Smith had contributed nothing towards the purchase of either of these properties. Both are put in the answer upon the basis of a pure gift and settlement upon her, and yet Mr. Smith swore that the Forty-Third street property was purchased with the proceeds of a fortunate speculation he had made in Mrs. Smith's name, upon a margin furnished by himself. If that be true, it does not strengthen her title. With regard to the alleged contract made between Smith and his wife in 1883 to pay her $45,000, or any other sum, for this property, I am not satisfied that it was ever made. A mass of evidence was introduced to show that the Trenton property was worth much less than it cost, which, of that purchased in 1881-82 and conveyed to Mrs. Smith in 1885, was just about $200 per acre; and the buildings, improvements, fences, and roads put upon it cost over $40,000, besides large sums in fertilizers, which appear on the account in Mr. Smith's ledger. The evidence of value tended to show that these lots in 1882 and 1885 were not worth one half their cost for farming purposes, and were, in general, poorly adapted for raising hay and grass. But no evidence was offered as to the market value of the whole establishment, either as a fancy stock breeding establishment, or to cut up into farms, or for manufacturing purposes. There was evidence tending to show that the various improvements were well adapted for use in stock breeding and raising, but were much more expensive than were necessary or profitable, and that, generally, such fancy establishments could not be sold for more than a fraction of their cost. But I do not see how this evidence helps the defendants, since there is no proof that Smith made an appraisement of the market value of these seven tracts, and found it about equal to that of the lease-bold in question. On the contrary, he fixed a value on the leasehold just equal to the original cost, or what he at the moment thought was the original cost, of these tracts, and put that sum as the consideration in the conveyance, allowing nothing for the buildings, fences, and bridges added after the purchase; and the crucial question is, was that a bona fide transaction, based upon the value of properties, or was it a mere contrivance and sham, adopted for the purpose of keeping this property from his creditors?
Again, Mr. Smith swears that before the execution by him of the several mortgages to Heath & Co. upon the Forty-Third street property and the Fifth avenue house he informed Mr. Heath—he at first swore he informed both Heath and Quincey—of the situation. The evidence is this, on examination by his own counsel: "Question. What did you say to Mr. Heath about giving him mortgages upon 549 Fifth avenue and Forty-Third street property, after your conversation with Mrs. Smith? Answer. I told Mr. Heath that there was a difficulty about my carrying out my agreement with him, and he desired me to hasten the matter as much as possible, and convey these outlying pieces of property in the country to Mrs. Smith, and get the mortgages made, and her to sign. Q. Have you finished your answer to my question? A. Yes. Q. What did Mr. Heath say after you told him what Mrs. Smith said? A. I have forgotten almost what the question was. Q. I ask you, what you said to Mr. Heath on the subject after you had your conversation with Mrs. Smith? A. I told him the exact situation; that Mrs. Smith would not sign the mortgage on 549 Fifth avenue, or permit me to assign her right in the Forty-Third street property, until she had been reimbursed; and Mr. Vanderpool advised her not to do it until I made the land over to her in the country, which I owned. Q. Do you remember what the consideration of that land was? A. It was put down at (my recollection of it) pretty nearly the cost. I don'tknow as to the exact cost. I didn't examine the papers to see what the exact cost was." Taken in connection with the fact, before alluded to, that Mr. Heath had up to about that time supposed the Trenton establishment belonged to Mr. Smith, it is fair to infer from these answers that, Mr. Smith then told him that Mrs. Smith owned that establishment, but that he, Smith, owned some "outlying," that is, unconnected, lots, and these she required him to convey to her before she would join in the mortgage on the Fifth avenue house, or permit him to assign "her right in the Forty-Third street property." Here, also, is, in effect, an assertion—untrue, of course—that Mrs. Smith was still the owner of that Forty-Third street property, else how could she prevent him from assigning it? And if Mr. Heath did, upon those deceptive representations, consent to the transfer, it cannot bind his assignee; and defendant's counsel did not insist that it did. On that date—July 20th—Smith's margin was not only exhausted, but he was nearly $400,000 behind, and Mr. Heath was no doubt glad to get what he could. Besides, there is not the least proof that he was truly informed of the value of the "outlying pieces." There are certain entries in Smith 3 New York ledger which seem to me of some significance in this connection. Between October 1, 1879, and January 1, 1885, the charges against the Fashion Stud Farm amount to $299,109.59, after deducting credits for horses and grain sold, amounting to about $15,000. This balance—$299,109.59—was on January 1, 1885, charged to profit and loss. The account commences again January 1, 1885, and the debts of the same general character amount, June 15th, to about $22,000. Then follow in the same account, under date of July 24th, charges of the cost of the five principal tracts of the seven conveyed to his wife, amounting to $45,094.50. Then follows a charge for "Cash, $5,000." Then is credited, under the same date,— July 24. 1885,—the leasehold property on Forty-Third street, $45,000, and interest from May 1, 1883, $6,030; in all, $51,030; and then follow further charges, such as precede these entries. It would seem that the charges of the cost of the five tracts, with the "Cash, $5,000," was intended to be offset by the value of the Forty-Third street property, with interest. The bringing into this Fashion Stud Farm account of the items of cost of these lots now in question places them, of course, in the same category with all the other items. They became merged in the mass—several hundred thousands of dollars in amount —of charges which preceded them. Now, those charges were either debits to Mrs. Smith, or to a mere imaginary account,— Fashion Stud Farm. If the former, then Mrs. Smith was on July 16, 1883, the date of the surrender and transfer of the Forty-Third street lease, in debt to her husband —as the account then shows—over $200,000, and should have been credited then, if ever, with the value of these leases. It was a fraud on Smith's creditors to wipe out that debt by charging it to profit and loss, and, after such formal discharge, to give Mrs. Smith credit on the subsequent account for an item which existed, if at all, previous to such discharge. If, however, this Fashion Stud Farm was an imaginary account, and did not indicate an indebtedness from anybody, then it seems to me that the credit of the value of the Forty-Third street leasehold had no place there, since it did not come directly or indirectly, nor in any sense, from that farm; and it seems to me that these entries indicate an attempt to give an air of business reality to this transfer which it did not have.
I believe I have now considered all the matters urged in support of this transfer of 1885, and my conclusion on this part of the case is that the attempt to create a consideration for the conveyance in question fails, except as to the inchoate right of dower, and that is so small in value, and the attempt to commit a fraud is so palpable, that I cannot give Mrs. Smith's estate the benefit of the exception to the rule recognized in Demarest v. Terhune, 18 N. J. Eq. 532, and allow the conveyance to stand here as a mortgage. In my opinion, the complainant is entitled to the relief prayed for.
I cannot leave the case without expressing my obligation to the counsel on both sides for the aid which I have received from their very able and exhaustive arguments. If I have fallen into error, it is not the fault of counsel.