Opinion
05-17-1892
STITES et al. v. CHAMPION et al.
S. C. Woodhull and S. W. Beldon, for complainants. A. B. Endicott and D. J. Pancoast, for defendants.
(Syllabus by the Court.)
Bill by Stites & Co. against Champion, Risley and others to enforce a judgment against Champion, and to set aside a conveyance of land and a sale of personal property by him to Risley. On order to show cause why injunction should not issue to restrain defendants from disposing of such property and real estate.
S. C. Woodhull and S. W. Beldon, for complainants.
A. B. Endicott and D. J. Pancoast, for defendants.
PITNEY, V. C. This is a bill in the nature of a creditors' bill. It alleges that on the 19th of August, 1891, the complainant recovered a judgment in the supreme court against the defendant Champion for $712.66 damages and costs; that on the same day execution against the goods and lands was issued thereon, directed and deliveredto the sheriff of the county of Cape May; that the sheriff returned the writ immediately, unsatisfied for want of goods, chattels, lands, or real estate of the defendant; that on the 8th of September next ensuing the complainants presented their petition for discovery to one of the justices of the supreme court, who on the same day made an order directing the defendant Champion to appear and make discovery under oath before a commissioner of the supreme court on the 19th of September; that the defendant failed to appear, and obtained adjournments from time to time on the ground of illness, and then left his home, and remained away, and has never appeared before the commissioner. The bill alleges that the illness of the defendant was in a large degree feigned, and that he might have appeared if he had been so disposed. The bill then alleges that on the 10th of August, and three days after the service of the summons in the complainants' suit, the defendant Champion conveyed to his father-in-law, Risley, the other defendant, 11 lots of land in Cape May county, being all of his real estate, by an absolute deed of conveyance, for the alleged consideration of $6,500, which deed was duly recorded immediately afterwards; and also on the same day that Champion executed to Risley an assignment of all his book accounts, and a bill of sale of all his goods and chattels, for the consideration of $1, which assignment and bill of sale was also recorded in a book of Miscellaneous Records of Cape May county. The bill then alleges that no part of the consideration of this conveyance was ever paid by Risley to Champion, directly or indirectly; that these conveyances were without consideration, and were made and executed for the use and benefit of Champion, and were contrived in fraud, covin, and collusion, with intent to hinder, delay, and defraud the complainants in the collection of their debt. The bill further alleges that Champion continued in the possession and control of the lands and personal property mentioned in the said deed and bill of sale, and continued to personally conduct the business previously in operation with the use of the chattels mentioned in the bill of sale, and to collect the accounts mentioned in the assignment, in the same manner that he had done previously; that be never delivered any possession to Risley, and that Risley never assumed any control or management of any of the property. It further alleges that the property conveyed was of the value of $20,000, and alleges an advertisement by Risley of a sale of the real estate and personal property covered by the conveyance and assignment to take place on. December 28, 1891, the day that the bill was filed, and charges that the advertisement was not made in such a manner as to produce a fair price for the property proposed to be sold. The bill further sets out a judgment recovered on the 17th day of August, after the conveyance and transfer by Champion to Risley, but he fore the date of the complainants' judgment, entered upon confession of Champion in favor of Whitney & Kemmerer for the penal sum of $3,900 damages, issue of execution thereon, and a levy by virtue of it upon the lands of Champion, and that no proceedings subsequent to said execution and levy had been had. It further sets out a judgment in favor of one Henry Jonas, recovered after the complainants' judgment, and that execution was issued thereon upon the lands and goods of Champion, without alleging whether they are the same lands and goods as those covered by the assignment. The bill prays an answer without oath, and that Champion and Risley may make full and true discovery and disclosure of and concerning the said conveyance, assignment, and bill of sale, and all matters touching and concerning the same, arid of any and all relations between them, whether written or unwritten, and that the conveyance, bill of sale, and assignment may be decreed to be void as to complainants, and that it may be decreed that Champion or Risley pay the amount of the complainants' judgment, and apply for that purpose any money or property or debts, choses, and actions, and equitable interests belonging to Champion or held in trust for him, and that the property above mentioned and described be decreed to be held in trust by Risley for Champion, subject to the lien of the complainants' judgment; and, further, a prayer for an injunction against the sale or transferor any of the property, and for the appointment of a receiver.
On filing that bill an order was made upon the defendants Champion and Risley to show cause why an injunction should not issue, with interim restraint against selling, transferring, mortgaging, incumbering, or in any way disposing of any of the property, real or personal, covered by the conveyance and assignment in question. Risley and Champion have answered separately, but in substance their answers are the same. They admit the recovery of complainants' judgment, the issuing of the execution, and the return of the sheriff without levy, as stated in the bill. They admit that Champion conveyed to Risley on the 10th of August the several lots of land in the county of Cape May, by deed of conveyance absolute on its face, for the consideration of $0,500, mentioned in it, and that the deed is recorded as set forth in the bill, and that on the same day Champion executed to Risley an assignment of his book accounts and a bill of sale of his goods and chattels for the sum of $1, and that the same was recorded as set forth in the bill. They also admit the recovery of the judgment in favor of Whitney & Kemmerer, and the judgment obtained by Henry Jonas; admit the advertisement of the property as set forth in the bill; but allege that the property was well advertised; that the time of the sale was a favorable one for the purposes of a sale. The answer of Risley further alleges "that there are mortgages upon the real estate conveyed to this defendant by said Frank E. Champion to the amount of $4,849, besides arrearages of interest," without setting forth to whom the several mortgages were given, or by whom held, nor the amount due upon each; and "that the said mortgagees areand have been threatening foreclosure proceedings for some time past, and that this defendant (Kisley) was impelled to advertise said property for sale for the following reasons: First, because this defendant, after a careful examination, was fully convinced that the said business could not be conducted at a profit," without saying what the business was, though it afterwards appeared to be that of dealing in coal, ice, and making and selling ice-cream; "second, because the mortgagees are threatening foreclosure; and, third, because said business, in the judgment of this defendant, would sell better at this season of the year than at any other time." He denies that the value of the property is $20,000, or that it is sufficient, when rightfully managed, to pay the judgment of the complainants, or the debts due by Champion to his other creditors. Denies that no part of the consideration mentioned of $6,500, set forth in the deed from Champion to Risley, was paid to Champion by Risley, directly or indirectly, and that the said conveyance was wholly and utterly without consideration, and that it was made and executed for the use of Champion, or that said conveyance was made with any collusion or intent to hinder, delay, or defraud the complainants or other creditors of said Champion; denying the allegations of the bill in this respect by using the same language found in the bill. Defendant further denies that Champion was permitted, after the conveyance, to conduct the business in the same manner as before, or that Risley never assumed possession, management, or control of the property mentioned in the conveyance or bill of sale, but alleges the truth to be that Risley did assume control, but that he permitted Champion to act as his agent, because he was better acquainted with the business, and could render better service to the defendant than any other person.
The answer then proceeds to allege that Champion was the son-in-law of the defendant; that he started in the milk business in Ocean City some 10 years previously, and that he continued the milk business, and engaged in the further business of buying and selling coal and wood and ice, and that he purchased the 11 lots of land referred to in the bill for that purpose, at a cost of $1,950, and made improvements on them to the extent of $7,000, and that he purchased fixtures, horses, wagons, carts, etc., to the amount of $10,000; that there were mortgages upon the real estate of Champion when the same was conveyed to Risley, held by five different persons, without setting out who they were, or the amount of each, aggregating $4,849; and that there was also a chattel mortgage on three of the horses included in the bill of sale to the sum of $300, without setting out who held the chattel mortgage. The answer then proceeds to allege that Champion during the last five years had frequently applied to the defendant Risley to loan him money, and to indorse notes for use in his business, without saying directly that Risley indorsed any notes or loaned him any money, but proceeding to say "some of which were discounted in the Second National and Union National Bank in Atlantic City, the payment of which said notes this defendant has assumed," without stating what notes, how many there are, or the amount due on each. Risley's answer further alleges that in October, 1889, "he having paid or assumed the payment of $2,965 of the indebtedness of the said Champion to the Second National Bank of Atlantic City, of the Pleasantville Loan & Building Association," without stating how many notes were paid, and how many assumed, and the amount due upon each, or the date of each, proceeds: "As evidenced by an agreement in writing dated October 11, 1889, signed by this defendant and the said Frank E. Champion, and witnessed by E. B. Learning,"—without giving any further statement of the contents of this agreement in writing, or producing it as an exhibit on the return of the order; and then proceeds: "That Champion, in order to secure this defendant from loss because of the assumption of his indebtedness, executed a bond and mortgage on two of the eleven lots of land mentioned in complainants' bill, as well as two separate mortgages on the goods and chattels of Champion, all of which said papers bear date October 11, 1889, and are in the handwriting and acknowledged by the said Learning, but none of which were placed on record; which said papers are in the possession of this defendant, and ready to be produced when and where this honorable court shall direct,"—without producing any or either of them at the return of the order.
The answer then proceeds to say that "Champion, on the 10th of August, 1891, was indebted to the defendant for money loaned and for notes indorsed by this defendant for said Champion, the payment of which this defendant had to assume, to the amount of $6,832.57 or thereabouts," without stating the particulars or details of the promissory notes or of the money loaned, when loaned, or by whom the notes were held, and how many had been paid, and how many he had assumed. The answer then proceeds to say that Champion, being largely indebted to other creditors, and his business enterprise in Ocean City having proved a failure, and Champion finding himself unable to successfully conduct said business, he conveyed to Risley, who was his largest creditor, the 11 lots of land in Ocean City, and the goods and chattels described in the bill of sale referred to in complainants' bill, as well as the book accounts of said Champion, "in trust to manage, control, sell, or dispose of the same, and from the proceeds thereof this defendant (Risley) was to reimburse himself the amount of the indebtedness of said Champion to him, and in further trust, but after this defendant should be repaid such indebtedness, all other and further moneys realized from said property or from the sale thereof should be applied to the payment of Frank E. Champion's debts due his other creditors;" and that, in pursuance of said agreement, Risley did, at the sametime such conveyance was made by Champion, make and execute a declaration of trust in writing, which is set forth in these words: "To all persons to whom these presents shall come, I, Nathaniel Risley, of Pleasantville, of the county of Atlantic and state of New Jersey, send greeting: Whereas, by indenture of deed bearing even date herewith, and by two separate bills of sale bearing even date herewith, Frank E. Champion has conveyed to me his real estate and personal property situate in Ocean City, county of Cape May, in the state of New Jersey, and elsewhere: Know ye, that I, the said Nathaniel Risley, do hereby acknowledge and declare that the said lands and houses, goods and chattels, are conveyed to me in trust, first, to manage, control, sell, or dispose of the same, and from the proceeds thereof reimburse myself the amount of said Champion's indebtedness to me, being about $6,500.00; and in trust further, that, after 1 shall receive the said sum of $6,500.00, such other or further sums as I receive from said property shall be applied to liquidate or reduce the indebtedness of Frank E. Champion to his other creditors. In witness whereof I have hereunto set my hand and seal this tenth day of August, in the year of our Lord one thousand eight hundred and ninety-one. Nathaniel Risley. [Seal.]"
The original deed of the con veyance of the land and the assignment of the personal property and chattels were not produced, nor their contents set forth, except as hereinbefore stated, but it appears by this declaration of trust, which is set forth in full, that those transfers must have included all of his property, both real and personal, not only in Ocean City, but elsewhere.
The first question to be determined is, what is the true character of these conveyances? Being made at one time, and upon a single consideration, and for a single purpose, they, together with the declaration of trust, must be treated, for the purposes of construction, precisely as if all had been included in one writing. It seems clear enough that, thus considered, they constitute something more than, and far different from, a mortgage, as distinguished from an assignment in trust for the benefit of creditors, when subjected to the criterion established by the prevailing opinion in Muchmore v. Budd, 53 N. J. Law, 369, 22 Atl. Rep. 518. No right of redemption or to the surplus moneys is expressly reserved to the grantor. He has entirely divested himself of all interest in the subject-matter. It is true that a trust will result to himself for any proceeds of the trust property that may remain after paying his debts in full, but that results in the very nature of the case in all assignments for creditors. At the same time it is to be observed that the writings are plainly framed on the idea that the trust property is insufficient to pay all creditors in full, and that the grantor is insolvent. Speaking of the bill of sale in that case, (53 N. J. Law, 385, 22 Atl. Rep. 521,) the learned judge says: "The parol agreement reserved the right to redeem. A new debt was practically created at the time by the assumption by the corporation to pay the price of the goods delivered by Muchmore. If the company had attempted to hold the goods as absolute owners by virtue of the bill of sale, a court of equity would have transformed it into a security. Had the amount of the advances and debts been tendered to Somerville before ho sold, no one would doubt for a moment that he would have been compelled to return the property. Unless it was intended as security, there existed no right to redeem, and therefore the reservation of that right manifests the intention of the parties to so regard it." "If it was for security, then it was a chattel mortgage." And again, on page 386, 63 N.J. Law, and page 521, 22 Atl. Rep.: "The distinction between a mortgage and an assignment exists principally in the interest which the mortgagor retains in the property, namely, his equity of redemption. This can be levied upon under a common-law execution, and a judgment creditor or a purchaser can protect his rights by redemption or any other act of which the mortgagor was capable. An assignment is intended as a payment, and a mortgage as security. Incidentally there is a power of sale under the latter, and there may be said to be security in the former; but the primary objects are as stated. The equity of redemption in the one and the want of it in the other is their distinguishing feature of difference. Burrill, Assignm. §§ 6, 7." Mr. Burrill, (section 6 of his book on Assignments) says: "An assignment is more than a security for the payment of debts; it is an absolute appropriation of property to their payment. It does not create a lien in favor of creditors upon property which in equity is still regarded as the assignor's, but it passes both the legal and the equitable title to the property absolutely beyond the control of the assignor. There remains, therefore, no equity of redemption in the property, and the trust which results to the assignor in the unemployed balance does not indicate such an equity." No further citation of authority is necessary to show that the transaction in the present case was in no case a mortgage.
If these writings do not constitute a mortgage, then it seems clear enough that they do constitute a conveyance of all the grantor's property to a trustee, in trust thereout to pay all the grantor's creditors, but in unequal proportions. This seems to me to include all the essential elements of a voluntary assignment for the benefit of creditors. To adopt the language of the opinion before referred to (53 N. J. Law, 386, 22 Atl. Rep. 521) in describing an assignment of this character, it was employed by a person who thought himself insolvent to distribute his property to his creditors through a trustee. The transfer became effective without the assent of the creditors. It conveyed to the trustee an irrevocable power to sell the property and distribute the trust, and it stripped the debtor of all interest whatever in the property. The present case is distinguishable from Stokes v. Middleton, 28 N. J. Law, 32. There the question was as to the validity of a title derivedthrough a conveyance made by a trustee without advertisement, as directed by the twelfth section of the act. One of the trusts declared in the conveyance to the trustee was that he should pay the debts of the grantor; but the conveyance was not made in contemplation of insolvency for the purpose of paying debts, but to effect a settlement upon the grantor's wife and children, and the provision for the payment of debts was made in order to protect the title against any suspicion of being in contravention of the statute against fraudulent conveyances; and the debts were in fact all paid, and no creditor complained. The opinion in that case was written by Chief Justice Green, and read at November term, 1850. The same learned judge afterwards, when chancellor, in Fairchild v. Hunt, 14 N. J. Eq. 367, had to deal with a case much like the present, and there held that a deed which, though not in form an assignment for the benefit of creditors, is made when the party making it is insolvent, and which is a transfer of all the grantor's residuary interest under a former assignment in New York, and all his estate, real and personal, in New Jersey and elsewhere, and creates a trust for creditors, contains all the elements of an assignment. As there, so here, it is true that the parties probably did not understand that a statutory assignment was being made. There does not appear to have been any list of creditors. No bond was given by the trustee, nor any proceedings taken under direction of the statute; but it is to be inferred from the statement of its contents found in the pleadings that they did make an inventory of the property conveyed and assigned. But the same absence of statutory proceedings was found in the case of Fairchild v. Hunt, and it seems clear that here, as there, the absence of these incidents peculiar to our practice cannot alter the intrinsic character of the affair, and render it any less a voluntary assignment to a trustee of all the assignor's property for the benefit of his creditors without reserve to himself. Having arrived at this result, the question then arises, what is the effect upon the validity of the transfer of the preference of the debt of the trustee? In every decided case in this state previous to Muchmore v. Budd such contravention of the provisions of the statute has been held to render the transfer absolutely void. It was so held in Varnum v. Camp. 13 N. J. Law. 326, (1833.) by the opinion of Chief Justice Ewing, adopted by his survivors on the bench as the opinion of the court after his death. The question was considered, though not directly involved, in Garretson v. Brown, 26 N. J. Law, 425, (1857,) and the doctrine of Varnum v. Camp was reaffirmed by Chief Justice Green, Justices Elmer, Potts, and Viedenburgh. This case was affirmed on appeal, (27 N. J. Law, 644.) The same doctrine was recognized by Chancellor Zabriskie in Bentley v. Whittemore. 18 N. J. Eq. 366; and again by the court of errors and appeals in review of that case in 19 N. J. Eq. 462. In Moore v. Bonnell, 31 N.J. Law, 90,(1864,) the doctrine of Varnum v. Camp was reviewed by Chief Justice BEASLEY and reaffirmed. In Brown v. Holcomb, 9 N. J. Eq. 297, at page 299, at the bottom, such an assignment was declared to be void by Chancellor Williamson. In Fairchild v. Hunt, 14 N. J. Eq. 367, (1862,) before referred to, Chancellor Green held the assignment there absolutely void because its effect and operation was to give preference to one class of creditors over another in direct violation of the terms of the statute. The soundness of the doctrine of these cases was questioned in the prevailing opinion in Muchmore v. Budd, and it was said that it had never received the direct, approval of the court of errors and appeals; but the learned judge, in making this criticism, expressly said that the question was not involved in the case then before that court, and the decision of it was put on the distinct ground that the transaction under review was a mortgage, and not an assignment for the benefit of creditors, and therefore not affected by the doctrine of the train of cases so criticised. The dictum just referred to, being upon a point not involved in the cause, must be treated as obiter, and not authorizing this court to decline to follow a rule adopted and acted upon in a line of cases decided in the supreme court and in this court. I must therefore hold the transfers of property here in question to be absolutely void. In coming to this result I have treated the allegations of the answers of Champion and Risley as true, and hence there is no reason why, if complainants so elect, a decree to that effect should not at once be made. A receiver must, of course, be appointed to take possession of the personal property and choses in action.