Opinion
11-25-1901
PERRINE et al. v. PERRINE et al.
William T. Hoffman and John T. Rosell, for complainants. Howard W. Hayes, for defendant S. E. Perrine. R, L. Lawrence, for defendant Brown.
Action by Joseph M. Perrine and others against William D. Perrine and others to set aside fraudulent conveyances. Judgment for plaintiffs.
William T. Hoffman and John T. Rosell, for complainants.
Howard W. Hayes, for defendant S. E.
Perrine. R, L. Lawrence, for defendant Brown.
PITNEY, V. C. (orally). The complainants are judgment creditors of William D. Perrine. They hold two judgments, one recovered in the supreme court, and the other in the court of common pleas of Middlesex county; and, as such judgment creditors, they attack, and seek to have set aside, four conveyances made by Perrine to different persons,—two to his wife, Sarah M. Perrine; one to his son Samuel E. Perrine; and a fourth, by way of mortgage, to his son Elmer Perrine. The two conveyances to his wife were made in the year 1896, but were not recorded until the year 1898. The other conveyance and the mortgage were made in the months of June and July and August in 1898. Perrine was a man doing considerable business, and owning a large amount of property, mainly farm land, as I recollect, and the three conveyances in question devested him of all his property. At the time he made them he was embarrassed, and had been for some months; had been sued, and some judgments had been recovered against him, about which I do not recollect there was any proof; but it was stated by counsel that some of his property —not this conveyed—had been sold under those judgments. The circumstances under which the conveyances were made are such as to excite what may be termed the suspicion of the court, being made to members of his own family, at a time when he was embarrassed, and all made substantially at one time, because the deeds to the wife were recorded at that time. No charge of possession took place at the time the conveyances were made to the wife, and no change of possession took place at the time the conveyances were delivered. For some time, at least, after the conveyances, the situation of the property as to possession was precisely the same as before. The bill was filed, and several answers filed by the wife and by Samuel E. Perrine. Elmer Perrine permitted a decree pro confesso to go against him. But before, I think, this bill was filed, or about the time this bill was filed, a creditor of Elmer Perrine obtained judgment against him, took supplementary proceedings against him at law, had a receiver (the defendant Brown) appointed, and by order of the court he (Elmer) assigned to that receiver the mortgage which his father had given him in the summer of 1898, and which is alleged here to be fraudulent. The property conveyed to the son Samuel was free and clear of incumbrance. If I made any error in that I would be glad if the counsel will correct me. The property mortgaged to Elmer was not free and clear of incumbrance. It was considerably encumbered. Is that right?
Mr. Rosell: One piece of property conveyed to Elmer had been sold at sheriff's sale, and the balance of it did not amount to a great deal.
THE COURT. The receiver appointed under the judgment against Elmer was made a party, and answered, and has set up and proved his claim, so to speak. His Judgment amounts to less than $400, or about "$400. The judgments of the complainants, with interest at this time, will amount to about $1,000. After some evidence was given on each side, it was decided that there should be a stet processus in the part of the case which involved the conveyance to the wife. It was admitted by Elmer in open court, by the mouth of his counsel, that his mortgage was fraudulent and void. That admission left for litigation, for present purposes, only the conveyance to Samuel. The consideration named in the conveyance to Samuel is $2,500. By his answer, called for under oath, Samuel says that the true considerationof that conveyance was eight years' services rendered by him to his father six years as laborer on his father's farm at the rate of $250 a year, a little over $20 a month; and two years' services as clerk in a store which his father kept in the city of Newark, at $500 a year—making the sum of $2,500. Samuel is called as a witness in support of his answer, and swears that he commenced to work for his father, as I recollect the evidence, either directly or inferentially, in the fall of the year 1890, and that he worked for him six years on the farm at $250 a year, until late in the fall of 1896; after husking com time, I think, was the time he fixed. Then he went to work for him at an increased wage of $500 a year in the store in Newark, and worked for him two years there. He was 18 years old when he went to work on the farm, or 2 or 3 months before that; had been educated by his father, so he says, in a business college in Newark, all his expenses paid; and that the bargain was that he was at once to have $250 a year (a little over $20 a month) besides his living (his board and washing). That, he says, went on for six years, and then came in the Newark arrangement at double the price, on the same terms,—he was to be boarded. Now, he swears that he never received $1 on account of his wage for eight years, not even for spending money, nor for clothes; that his mother gave him 50 cents once in a while, or perhaps the father gave him a dollar; that he never went away from home to spend any money; that he never had occasion or opportunity to spend any; and that his clothes were furnished him by an uncle, now deceased, who lived in Newark, whose namesake he was. The examination of this witness on that subject was unsatisfactory to the court, and the amount of time that he worked in Newark was overstated by about eight months,—between seven and eight months,—because he swore that the store in Newark was closed three or four months before he got his deed, and that was the last of June, which would bring it in March, and I think somewhere in the evidence there was other evidence to that effect. So he did not work in the store in Newark for two years. That would at once reduce his claim by two or three hundred dollars. Then the story that he did not get any pay whatever from his father to be credited on this large contract is in itself extremely improbable. A young man who had the feelings and desires of ordinary young men to go out into the world, and to have a little fun, and to have some spending money,—one can hardly believe that he did not get it, that it was not paid. And, in the next place, the story that he got all his clothing from his uncle, except some old clothes from his father that he wore; and then the price paid. There was no particular evidence given about the wage, but I think it may be said to be common knowledge (certainly is on my part) that farmers are not in the habit of giving $20 a month and board to boys,—$20 and board, without any reduction for absence and sickness, or anything of that kind,—for a boy from 18 to 20 years old. My experience as a juryman is quite the other way, viz. that farmers do not pay such wages. The whole thing shows inflation; that the $2,500 was arrived at by a process of deliberate inflation. That is the result of my judgment on the case. If it had been $1,500 or $1,600, I should have been willing to believe it; but I am not willing to believe that the father justly owed that boy $2,500 when this deed was given. Now, that is the result of my consideration of that part of the case.
The rule—I think I may state it offhand with substantial accuracy—is this: That every conveyance made for the purpose of defrauding creditors is absolutely void as against those creditors, unless there be an element of consideration in it, paid by the grantee to the grantor; and then it is saved only and to the extent of the consideration paid, and when the grantee is absolutely free from any collusion with or assistance to the grantor in attempting to defraud his creditors. To make myself perfectly plain, I repeat what I said to counsel before the argument commenced. If a man has a valuable lot of personal chattels which he Wishes to turn into money, so that he can go to a distant state or distant country, and avoid his creditors, and sells the lot at its whole value, to a man for cash, and the purchaser knows what the seller intends to do with it, —that his object in selling is to get the cash in his pocket, and run away with it and defraud his creditors,—then the fact that the purchaser pays the seller the money does not help him at all. He is no better off in having paid the consideration money than if he had not paid anything. That is the rule of law. That severe rule, however, does not apply where the grantee is not aware of the fraudulent intent of the grantor; and that was the conclusion which 1 came to in this court in the case of Warner v. Withrow, 35 Atl. 1057, although I had a strong suspicion, and was almost ready to hold the other way. There a grantor desiring plainly and palpably to defraud his creditors conveyed valuable real estate to Withrow, who paid him, he said, $2,500 for it. I hardly believed he paid the money, but I gave him the benefit of the doubt, and held that he did pay the money; and he denied point blank that he knew anything about the fraudulent intentions of the judgment debtor, his grantor, and I gave him the benefit of. the doubt of that, and I held the property as security to Withrow for the $2,500, and the court of errors and appeals sustained me. The leading case is Demarest v. Terhune, 18 N. J. Eq. 532. There the grantee held two mortgages on the property, amounting to over $2,000, and he obtainedfrom the mortgagor a deed for the property for the nominal consideration of $3,000, which was several hundred dollars more than the amount of his two mortgages; and a bill was filed to set the conveyance aside. The grantee attempted to show items to make up the difference between the amount of the mortgages and $3,000, and failed. The conveyance, I think, was set aside below (18 N. J. Eq. 45), including the old mortgages; but the court above (18 N. J. Eq. 532) said that they could not positively charge the grantee with a fraud, and so they let the deed stand as a mortgage for what was actually due, and ordered an inquiry as to that. You see that there the grantee had old mortgages that were, beyond all peradventure, honest liens on the property. Now, in this case there is another element that I did not mention, and that is the value of the property. There are 170 acres of land, which the judgment debtor, Perrine, says cost him $2,500, and that that is the reason he sold it to his son for $2,500; but from the son's account of what crops he raised on it in the way of wheat and potatoes, and all that sort of thing, and his description of the land, I thought it must be worth a good deal more, and I called for evidence on that subject. The father swore that it was not worth more than $2,500. That was the effect of his evidence. And in came a respectable real estate man in the neighborhood, and swore that it was worth from $20 to $25 an acre. That would be from $3,400 to $4,000, while the sale was at $2,500. That was one of the elements in the Terhune and Demarest Case. It was one of the elements in Warner v. Withrow (N. J. Ch.) 35 Atl. 1057. The property was worth a great deal more than the amount of the consideration money set up. Now, in the case in hand, if the property is worth $3,000, —and I cannot find it worth much less than that on the evidence,—a debt which it is possible to believe amounted to $1,500 or $1,600 is stretched out to $2,500, and the property is shrunk down to $2,500, to make the two ends meet. There is an element of fraud.
Now, this young man knew all about that property. He knew all about his father's circumstances. There is no dispute about that. He knew all about the conveyances to his mother, and the mortgage to his brother, for he was present when it was made, —not when the conveyances were made to his mother, but he knew all about it; he was cognizant of it. There is no kind of doubt about that. He knew what the effect of all those conveyances must be,—to denude his father of all his property. He knew that the putting on record of a deed to him, with a consideration named of $2,500, would make the creditors hesitate a great deal more than if there had been an exact accounting between them. If the old gentleman had put a mortgage on the farm, to him for what was rightly due,—$1,500, or $1,600, or $1,800,—based upon an accounting as between strangers, the case would have been different. But here, as I have said, there is an expansion of the debt and a contraction of the value of the property to make one cover the other. Now, in my judgment, that is the worst kind of a fraud, because it is well calculated to set creditors at defiance, embarrass and hinder them. Those are the considerations which I have before me in determining whether this deed is to be held as a mortgage for what is actually due, or as absolutely void. It cannot make much difference to the parties which conclusion I reach. But the other element in the case does make it important. I shall deal with that in a moment,—that is, the rights here of Mr. Brown, Mr. Lawrence's client; that makes it quite important. Upon the whole, I have come to the conclusion that justice in this case requires that the deed to Samuel shall be declared absolutely void as against the complainants as judgment creditors. It will make very little difference in the result, but the equity works out better. The complainants, then, are entitled to have a lien declared on both these premises,—the one covered by the mortgage to Elmer, and the one conveyed to Samuel. But one is worth a great deal more than the other. Now, let us see where Mr. Lawrence stands with his client. Suppose there had been two farms, each worth $2,500, and the old gentleman had been indebted in $2,500, and, in order to defraud his creditors, he conveyed each of those farms, one to one son, and the other to another, and the creditor had obtained judgment, and struck at the two farms, what would have been the rights between the two grantees? Why, I think they would have been exactly equal as between their father's creditors, and yet those conveyances were perfectly good, and each son had a right to say to the other: "You must pay your share of this debt. Father conveyed this property to us, but it was subject to a lien for his debts, and could not be used by us before the discharge of that lien." In such case one would say to the other, "You have no right to cast the whole burden of that debt on my property;" and the other would reply, "You have no right to cast it on my property." Now, in my judgment, the true division of the burden of the lien between each grantee is according to the values of the two properties,—what proportion the debt bears to the value of each piece of property. Now, Mr. Lawrence's client stands exactly in the shoes of Elmer, and the mortgage to Elmer is good as between him and his father. Brown has no right to say to Samuel, "You must bear the whole burden of this judgment of complainants," and Samuel has no right to say to Brown, "You must bear the whole burden of this." The rights are mutual. I think it is precisely the same as if the conveyances had been made subject, both of them, to a mortgage. I donot think the mere priority of a few weeks or months in this case makes any difference. That is my present judgment. Therefore Samuel has a right to have a part of this burden of complainants' judgment thrown on the property mortgaged to Elmer. But there I do not think it makes much difference, because there is no dispute but that the Elmer property must be sold for what it will bring; and my impression is that the equity must be worked out something like this: That the property mortgaged to Elmer must be sold first, and without any application yet to be made of the money, without saying that the proceeds are first to be paid to Mr. Lawrence in preference to the complainants, I will say that whatever the Elmer property, when conveyed, falls short of paying both claims, must be raised out of the Samuel property, but not exceeding the amount of the complainants' claim. Do you get it, Mr. Lawrence?
Mr. Lawrence: Yes, sir; I understand it,
THE COURT. And the costs of the suit are to be added to the complainants' claim, the costs of the defendant Brown must be added to his claim, and the costs of the complainants must be added to their claim.
Now, I think the parties had better settle this, as I advised them to a long time ago. There is no use of going through with this sale. Raise the money and pay it. It does not make much difference whether I say, as to the property of Samuel, that he shall have a mortgage on it for about $1,500, which is about all I think he is entitled to, or whether the claim is made pro rata or not. There is property enough to pay all, and it is foolish to litigate. That will be the decree.
One word more as to the debts upon which these Judgments were founded. It was argued by Mr. Hayes that it was not strictly proven that these debts arose before the conveyance to Samuel was made. As I have found that that conveyance was actually fraudulent on the part of both parties, it makes very little difference whether the debts upon which the judgments were founded arose before or just after the conveyance, because it is perfectly well settled that under ordinary circumstances a conveyance made by a debtor to a member of his family, which is tainted by actual fraud as against his creditors, and is unaccompanied by an open and notorious change of possession, is fraudulent as against subsequent creditors. But I think the proof here is sufficient to show that the debts which are the foundation of both these judgments arose before the conveyance. The date of the debt of the judgment in the supreme court is manifested by the bill of particulars annexed to the declaration, a certified copy of which is produced; and every item, except a few, amounting to less than $10, arose before the date of the judgment The proof as to the common pleas judgment is not so direct. The suit was commenced shortly after the conveyances were made, and the natural presumption would arise that it was based on a debt which arose at or shortly after the time of the conveyances. But a promissory note was produced and proven, made by the judgment debtor to the complainants, dated some time before the conveyance. The precise defect claimed by Mr. Hayes is that there was no direct proof to show that that note was the foundation of the common pleas judgment and in that he is correct. But if you compute the interest on the note up to the time the judgment was entered it appears that it amounts to just about the amount of the judgment. Taking these circumstances together, it seems to me that it sufficiently appears that that note was the foundation of the common pleas judgment, although I cannot help but remark upon the carelessness of the complainants in making their proof in that respect.