Opinion
No. 38/666.
06-10-1918
BOURGEOIS v. EDWARDS et al.
George A. Bourgeois, of Atlantic City, for complainant. Wilson & Carr, of Camden, for defendants.
Suit for specific performance by Rebecca Estell Bourgeois against Martha Edwards and others. Decree for complainant.
George A. Bourgeois, of Atlantic City, for complainant. Wilson & Carr, of Camden, for defendants.
BCAKES, V. C. In 1908 Martha Edwards, trading as Charles B. Edwards Company, recovered four judgments in the Supreme Court against Anderson Bourgeois and others, aggregating $6,149.58. They were assigned to her son Earl S. Edwards, who, in July, 1914, sold and agreed to assign them to Rebecca Estell Bourgeois for $2,250. $1,853 of the purchase price has been paid, and the balance was tendered and refused, and this bill is filed to compel an assignment. The verbal agreement of sale is set out in the bill and admitted by the answer, and is evidenced by a receipt which reads as follows: "$200.00. Ocean City, July 16, 1914.
"Received of Rebecca Estell Bourgeois check for $200, which, when paid shall be a receipt on account of $2,250, which is to be paid inside of 60 days from the date hereof, said $2,250 when paid shall be in full for all claims Earl Edwards has or had against Anderson Bourgeois et al., and which said Edwards agrees to assign to said Rebecca Estell Bourgeois.
"[Signed] C. L. Smyth, "Attorney for Earl S. Edwards."
The $1,853 was paid in four installments within the 60 days agreed upon, as mentioned in the receipt, and when the balance was offered a few days after the expiration of that time Edwards refused to receive it and live up to his bargain, on the shallow pretext that time was of the essence of the contract, and he sets it up as one of his defenses. It lacks merit, if for no other reason than that the delay was brought about by Smyth, the attorney of Edwards. At the time fixed for the transfer, and payment of the balance, a few days before the expiration of the period, Smyth had not provided himself with an assignment, and time was given him to obtain it. The real ground for refusing to perform the contract, and the main defense offered, is that Anderson Bourgeois, the judgment debtor, procured it by falsely representing that he was possessed of no property out of which the judgments could be made, and that he was execution proof, whereas in truth he was the owner of the Hotel Normandie at Ocean City, held for him by his wife, Annie Estell Bourgeois, in trust, in fraud of creditors; that he carried on the hotel business in her name; that the money used to buy the judgment was his money, the proceeds of said business; that he was the actual purchaser; and that thecomplainant, Rebecca Estell Bourgeois, his daughter, was a mere figurehead. By crossbill the defendant Edwards seeks to impress his judgments as liens upon the hotel property.
It is established that Anderson Bourgeois negotiated the purchase of the judgments in the name of the complainant; that he represented his financial condition as alleged; that the purchase money came from the hotel business; and that the hotel was managed by him and the funds of the business banked in the name of his daughter. The explanation is that the property and business were those of the wife; that he managed both for her without fixed compensation; that the trade funds were handled by the daughter as the agent of the wife; and that the judgments were purchased with the wife's funds, for her, in the name of the daughter. That a contract to purchase a debt may be enforced in equity (Pomeroy on Cont. § 20); that specific performance of a contract obtained by deceitful practices will be denied (36 Cyc. 600; 6 Pomeroy, Eq. Jur., § 785); that a parol contract of purchase by a debtor of his own debt for a sum less than the amount due is unenforceable for want of consideration (Eckert v. Wallace, 75 N. J. Law, 171, 67 Atl. 76); and that a husband may give his time and labor to the management of his wife's business, without remuneration, and immune from creditors' attack (Taylor v. Wands, 55 N. J. Eq. 491, 37 Atl. 315, 62 Am. St. Rep. 818)—are all well-settled and pertinent principles asserted, but not debated, by counsel. The proposition of law advanced by the complainant that Edwards, at the time the contract was made, knowing that the representations were false and that the business was that of his debtor, is without redress, citing Baker v. Spencer, 47 N. Y. 562, Adams v. Sage, 28 N. Y. 103, Parsons v. Hughes, 9 Paige (N. Y.) 591, Ackerman v. Ackerman, 44 N. J. Law, 173, and Lembeck v. Gerken, 86 N. J. Law, 111, 90 Atl. 698, is inapplicable; for, if both falsity and knowledge of deceit be admitted, then the situation would be governed by the rule already stated that a purchase by a debtor of his debt for a lesser sum than the amount due does not liquidate it.
There was no testimony offered to impeach the representations that induced the making of the contract, other than that which related to the ownership of the hotel and the proprietorship of the enterprise, and the question to be decided is: Does the evidence establish that the hotel was the debtor's property, or that the business belonged to him? The conclusion reached as to the former will have a strong bearing in disposing of the latter, and that subject will be first examined.
The history of the hotel ownership is somewhat involved, tedious to follow, and difficult to miniature. The Normandie Hotel was owned originally by the Ocean City Real Estate & Investment Company, of which Anderson Bourgeois was the holder of 60 per cent., and his wife, Annie Estell Bourgeois, the owner of 40 per cent. of the capital stock. In September, 1907, the company sold the hotel to Phillip H. S. Cake for $55,000; $10,000 in cash, and mortgages for $30,000 and $15,000 respectively. Only $7,000 of the cash consideration was paid. The company at that time went into liquidation, and the $30,000 mortgage was taken in the name of its directors, statutory trustees, and shortly after assigned to Mrs. Bourgeois. The property was sold to Cake, subject to a $16,000 mortgage held by one Wiley, which was to have been paid off by the company, but, as only part payment was made, reducing the principal to $11,600, the $15,000 mortgage given by Cake was assigned to Wiley in escrow. Cake immediately began to remodel the hotel, and purchased an adjoining strip of land, upon which he started to build an addition or annex. Mrs. Bourgeois advanced the money necessary to buy this strip over and above a mortgage of $3,500 held by one Corson. In the spring following, 1908, after Cake had dismantled the hotel and partly erected the annex, he was stalled in his operations for want of cash or credit. Mrs. Bourgeois had advanced to him considerable money, and in this fix she had to step in, in self-protection, and advance more to finish the jobs. At that time, May 20, 1908, Cake executed to her a mortgage on the hotel and annex for $60,000, to secure past loans and future advances. While the building operations were still going on, foreclosure proceedings were begun on the Wiley mortgage, and at the sheriff's sale, June 7, 1909, the property was struck off to Mrs. Bourgeois for $19,500. Nixon v. Cake, Docket 30, p. 544. The Corson mortgage was also foreclosed and struck off to Mrs. Bourgeois September 20, 1909, for $6,900. Corson v. Cake, Docket 31, p. 72. In both cases Mrs. Bourgeois was a party defendant, by reason of her subsequent mortgages, and in the latter suit the assignor of Edwards was a defendant because of the judgments here involved. After the sale Mrs. Bourgeois found herself unable to negotiate a loan upon the property or to otherwise raise a sufficient sum to pay the sheriff and other obligations which were then pressing, approximately $35,000, and in this dilemma Mr. George A. Bourgeois, her brother-in-law, and an esteemed member of our bar, came to her rescue, and by joining her in a bond to the Central Trust Company of Camden, secured by a mortgage on the hotel property, obtained a loan of $30,000, and by indorsing her note secured $4,500 from the Marine Trust Company of Atlantic City, which put her in funds to square her liabilities. To secure himself against lossMr. Bourgeois incorporated the Ætna Company, which he controlled and to which he had the property transferred, and by means of which he managed the hotel business during the following season. Immediately upon the conveyance the company executed to Mrs. Bourgeois three mortgages of $17,500, $60,000, and $2,000 respectively, concurrent liens, the first two presumably representing her investment, and the latter to secure the balance due a materialman, American Art Marble Company, and thereafter conveyed the premises to Rebecca Estell Bourgeois, the conveyance being made to her instead of to her mother, to prevent a merger of the mortgages. In 1913 the Central Trust Company foreclosed its mortgage, and at the sale the property was bid in by Mrs. Bourgeois and conveyed to her by the sheriff on August 28, 1913. She financed the purchase by a loan of $30,000 from the Economy Building & Loan Association, to which she also gave two mortgages of $15,000 each. This ends the recital of the title, and at this point we may properly pause to consider the efficacy of the title conveyed to Mrs. Bourgeois by the sheriff under the two foreclosure proceedings of the Nixon and Corson mortgages; for it is thoroughly settled by abundance of authority that a purchaser under a foreclosure sale acquires the title of the mortgagee and the interest of all the defendants as of the time of the institution of the suit. Mount v. Manhattan Co., 43 N. J. Eq. 25, 9 Atl. 114, affirmed 44 N. J. Eq. 297, 18 Atl. 80; Boorum v. Tucker, 51 N. J. Eq. 135, 26 Atl. 456; Henninger v. Heald. 52 N. J. Eq. 431, 29 Atl. 190; Wimpfheimer v. Prudential Insurance Co., 56 N. J. Eq. 585, 39 Atl. 916. It is true, as the defendant asserts, that refuge cannot be taken behind them if it is satisfactorily made out that Anderson Bourgeois thereby concealed his interest in the hotel and caused this interest to be transferred to his wife in fraud of creditors. The form of the transaction is immaterial. Equity looks to the substance. A fraud perpetrated by means of judicial procedure is as vulnerable and impotent as any other imposition, whatever the scheme may be. Metropolitan Bank v. Durant, 22 N. J. Eq. 35, affirmed 24 N. J. Eq. 556; Lee v. Cole. 44 N. J. Eq. 318, 15 Atl. 531, reversed on facts, 45 N. J. Eq. 779, 18 Atl. 854. A decree in a mortgage foreclosure is not res judicata as between defendants whose rights have not been litigated. 23 Cyc. 1279; Gardner v. Raisbeck, 28 N. J. Eq. 71. Now, unless it is shown that the foreclosure sales were effected in promotion of a fraudulent design to cheat the creditors of her husband, or that she acted as trustee for her husband, Mrs. Bourgeois' new title, born of the two mortgages, which admittedly were bona fide, is unimpeachable. The charge and the insistence that the mortgage foreclosures were brought about by the connivance of Mr. and Mrs. Bourgeois are not in the slightest degree supported by evidence. There is not a shred of testimony that they, or either of them, contrived or were instrumental in the bringing of the suits, and for aught that appears they were unwilling parties to it; there is nothing in the circumstances to justify the inference that they in any manner invited them, nor is there anything in the case upon which to found a belief that in purchasing the property at the sheriff's sale Mrs. Bourgeois acted otherwise than for herself. The desperate financial straits in which she then was and which required the assistance of her brother-in-law to relieve her argues profoundly against inviting so distressing a situation. So far as the ownership is concerned, these conclusions could end here, but I surmise it will be more satisfying to the contending parties to discuss the circumstances from which it is argued that fraud is inferable, and I will state them as succinctly as possible.
Mrs. Bourgeois was possessed of an extensive land estate inherited from her parents, and, having the business capacity and experience of the ordinary gentlewoman only, she throughout her married life left its management and disposition to her husband who used it according to his own good judgment and accounted for it when and as he willed, and undoubtedly fairly and honestly. He had used considerable of her money, collected from the sale of her land, and in repayment gave her the 40 per cent. of the stock in the Ocean City Real Estate & Investment Company when it was formed in 1899. From that time until 1908, when the corporation went into liquidation, he had appropriated considerable more of her estate. When Cake purchased the Normandie, he contracted with him to erect the annex for $33,000, and to build bathrooms for $6,600. He completed these contracts, but was never paid. It is claimed that he obtained the lumber from his wife's estate, and that she furnished him with money to carry on the operation, in the aggregate to the value and amount of $20,000, and to secure her he caused to be assigned his three fifths interest in the $30,000 purchase-money mortgage given by Cake; the remaining two fifths belonged to her by reason of her proportionate stockholdings in the real estate company. That Mrs. Bourgeois advanced to her husband $8,000 towards this undertaking, that he procured lumber of the value of $12,000 from her sawmill, and that she lent to Cake and paid for his use, in remodeling the hotel, approximately $60,000, for which Cake gave his mortgage of that amount is the testimony of Mr. and Mrs. Bourgeois. It is not clear whether this mortgage was intended to refund the Nixon and Corson mortgages. The explanations of the various transactions are not harmonious, and the proof of the advances equal to the securitiesis inconclusive, but withal it is satisfactorily shown that Mrs. Bourgeois invested a vast sum of her private estate; that she borrowed much money from banks and friends and pledged her resources to the point of exhaustion to save the hotel; that her husband's appropriations were large; and that the assignment and execution of the two mortgages to her were actuated by motives of good faith and for the single purpose of securing her against loss. That the testimony is in confusion and that Mr. and Mrs. Bourgeois were unable to account to the amount of her securities after the lapse of seven years, when accounts and vouchers were no longer available and memory had failed, is not surprising and her diligent, but unsuccessful, efforts to round out the grand total is in np sense compelling evidence against the integrity of her claims. The onus of establishing it is not upon her; the burden of proof that her claims were untrue and fraudulent was upon the defendant Edwards. Taylor v. Wands, supra. This burden the defendant has not sustained.
There is one additional aspect to which allusion should be made, which counsel urges as a badge of fraud, and as demonstrating that a valuable interest in the hotel is held by Mrs. Bourgeois in trust for her husband. His outlay in performing his contract with Cake of $33,000 for the annex and $25,000 for extras, gave additional value to his wife's mortgage liens, and it is the insistence that fraud is to be inferred from his failure to secure his debt by mechanic's lien or mortgage on the property; in other words, the argument is that he should have protected himself at the expense of his wife and sacrificed her interests for his own gain. An all-sufficient answer to this is that, in view of the confidence reposed in him, under the influence of which his wife surrendered to him the management and control of her fortune, which he jeopardized, such an advantage, in the crisis, would have been unconscionable and unpardonable. In the circumstances common honesty and justice dictated that he should forego his own rights rather than that she should suffer. It was his privilege to grant her the preference, and I know of no rule of law or equity that required him to subordinate her interests to his or to those of his creditors. Furthermore, it is to be noted that at the time the preferences were given Mr. Bourgeois was only contingently liable as surety of Cake to the defendant Edwards' assignor, and fraudulent intent as a matter of law, is therefore not to be implied. Severs v. Dodson, 53 N. J. Eq. 633, 34 Atl. 7, 51 Am. St. Rep. 641.
Nor is there anything in the contention that Mrs. Bourgeois holds the hotel in trust for her husband to the extent of the value added to the property by reason of the performance of his contract with Cake. There is no proof of a trust relation, and none is inferable from the circumstances. There is no evidence of the present value of the property, to show that it exceeds the amount of Mrs. Bourgeois' investment, nor is there any as to the state of the hotel at the time it was sold to her by the sheriff and that in its then incomplete condition it was worth more than the amount of her bids. And in support of the new title acquired by Mrs. Bourgeois from the mortgagees under the foreclosure sale is the undisputed fact that the purchase price was her money exclusively, obtained by her without the participation of her husband in its procurement.
Now, as to the business: The management of this, like the other affairs of Mrs. Bourgeois, is in the hands of her husband, who has general charge of the conduct of the hotel. The finances, however, are under the control of her daughter, the complainant. Annually, at the beginning of each season, she is put in funds by her mother which, together with the proceeds of the business, are deposited in her name and checked out by her as the requirements of the business demand and as her mother and father may direct. She accounts to her mother. During the prosperous season Mrs. Bourgeois received the profits and in lean years she has been compelled to resort to other funds to keep the concern going. I have little doubt that the enterprise is hers, and that the moneys used to buy the judgments belonged to her, and that they were bought for her in the name of her daughter. The profits of a wife's business, though derived through the activities of her husband, nevertheless belong to the wife. Tresch v. Wirtz, 34 N. J. Eq. 124; Elliot v. Bodine, 59 N. J. Law, 567, 36 Atl. 1038; Taylor v. Wands, supra; Kutcher v. Williams, 40 N. J. Eq. 436, 3 Atl. 257; Dickson v. Shay, 45 N. J. Eq. 821, 18 Atl. 688; Arnold v. Talcott, 55 N. J. Eq. 519, 37 Atl. 891.
A decree will be advised in favor of the complainant, with costs.