Opinion
03-01-1897
DOYING et al. v. CHESEBROUGH et al.
John W. Queen, Charles L. Corbin, and John C. Shaw, for complainants. J. B. Vredenburgh and Abel I. Smith, for defendant Chesebrough. J. O. H. Pitney, for defendant Cranstoun.
Bill by Henry J. E. Doying and others against Nicholas H. Chesebrough and another to have a deed declared a mortgage, and to restrain proceedings at law to recover possession of the premises conveyed. Decree for defendants.
John W. Queen, Charles L. Corbin, and John C. Shaw, for complainants.
J. B. Vredenburgh and Abel I. Smith, for defendant Chesebrough.
J. O. H. Pitney, for defendant Cranstoun.
EMERY, V. C. This bill is filed by Henry J. E. Doying, William A. E. Doying, and Arthur S. Doying, three sons of Ira E. Doying, against Nicholas H. Chesebrough and William Cranstoun, the last named being made party defendant for discovery only, no relief being asked against him. The object of the bill is twofold: First and mainly, to obtain a declaration and decree that a deed executed by one Mary D. Francis to the defendant Chesebrough, on or about April 6, 1894, and conveying a property known as the "Hotel Beechwood," in Summit, N. J., although absolute on its face, was in reality a mortgage on lands held by Mary D. Francis, in trust for complainants, and is held by Dr. Chesebrough as security for money advanced by him to the complainants; and, in the second place, to restrain proceedings at law begun by Dr. Chesebrough to recover from one of the complainants the possession of the premises included in the deed. These proceedings were commenced before a district court under the landlord and tenant acts, and were based on a lease (or alleged lease) of these premises, made by Chesebrough to Henry J. E. Doying, one of the complainants. This lease of the premises, dated July 24, 1894, by its terms, expired on May 1, 1896, and on its expiration the proceedings for dispossession were at once instituted. Complainants allege that the lease was never executed or delivered. Complainants, at the commencement of the suit (or one of them), were in possession of the premises; and a bill is filed for an account of the money due to Chesebrough from complainants, to obtain a decree that the lands are held by him as security for this debt, and then in trust for complainants, to set aside the lease, and restrain proceedings under it. The defendant Chesebrough denies that the title is held by him in trust for complainant, or as other than his absolute property, and sets up the statute of frauds specially as a defense. As to the lease, he asserts its execution and delivery, and claims that the only interest of complainants, or of any of them, in the premises, was the interest derived from the lease, which has expired by its terms. As to the execution and delivery of the lease, the bill charges (paragraph 8) that, at the time Henry J. E. Doying signed the lease, there was no amount of rent specified in the lease; and that there was a blank option for the purchase of the property; and that, after signing the lease in this condition, Henry Doying refused to deliver the lease; and that it was taken from complainants' possession without their authority; and that it was never fully executed, and was never delivered. The defendants deny these allegations as to the condition of the lease when signed by Henry Doying, and allege that it was executed by him in its present form, and was a valid lease.
The issues raised in reference to the execution and delivery of the lease are manifestly purely of a legal character, and, if these were the only questions involved, the decision of these questions would properly be left to the court of law and the tribunal of a jury. But the main equitable question on the whole case is whether the deed of April 6, 1894, was an absolute deed, or was made by way of security or mortgage to Chesebrough; and, if it should be found to be in reality a mortgage, then the question properly arises for decision in this court whether the execution and delivery of a lease has extinguished the equity. The lease, moreover, contains an express provision or option of purchase of the premises by the lessee, and if, in fact, the lease was executed and delivered, then the question of mortgage or no mortgage is narrowed down to the question whether there was a mortgage, or merely a lease, with a privilege of purchase or reconveyance. And not only is the legal question as to the lease thus of importance on the equitable issues involved in the pleadings, but the complainants and defendant have both consented to orders made in this suit putting the premises in the hands of a receiver pendente lite, thus committing to this court, in this suit, the control of their legal rights as to the possession of the premises under the lease. The question as to the execution and delivery of the lease is therefore of vital importance on the questions here involved, and, as it seems to me, is the first issue of fact to be settled in order to arrive at a sure starting point to deal with the equities of the ease. This issue of fact I decide in favor of the defendant, and, upon the whole evidence, conclude that the defendant has satisfactorily made out that the lease was executed and delivered by the complainant Henry J. E. Doying, at or about the day of its date, July 24, 1894. The direct evidence upon the question of the condition of the lease at the time it was signed by Henry J. E. Doying is that of Ira E. Doying, father of the complainants, on one side, and the defendant Mr. Cranstoun, on the other. Their accounts of the transaction are flatly contradictory, but Mr. Cranstoun's statement is the more reliable in my judgment, and it is corroborated by the evidence of Dr. Chesebrough, by the appearance of the paper itself, and by the conduct of the parties, which conformed to its terms, after its execution, and has not been otherwise satisfactorily explained. Mr. Doying's account is to some extent corroborated by the evidence of two witnesses, but their evidence is plainly insufficient to overcome the defendant's direct, testimony; and the credibility of Ira E. Doying's present statement as to the custody of the lease is seriously impaired by the evidence of Mr. Williams, to whom he made different statements upon this point, and by his sworn statements made in suits pendingduring the term of the lease. The failure, moreover, of the complainant Henry J. E. Doying to give any evidence, either on complainants' case or on rebuttal, after the clear and distinct statement by Mr. Cranstoun of the circumstances of Henry's execution of the lease, is of itself sufficient to arouse suspicion and doubt as to the reliability of Ira E. Doying's evidence on this point; and, on the whole evidence, I conclude, therefore, that the lease was executed and delivered by the complainant Henry J. E. Doying in its present condition.
This lease, dated July 24, 1894, was for the term of one year and nine months from August 1, 1894, reserving to the lessor rooms 303 and 305 in the hotel, and, as executed by Henry J. E. Doying, contained the following clause for purchase: 'And the said party of the first part [the lessor], for himself, his heirs, executors, administrators, and assigns, further covenants and agrees to and with the said party of the second part, his heirs, executors, administrators, and assigns, to grant and give him the option of purchasing the said above-demised premises, at any time during said term, together with the furniture and other things contained in the said house, at and for the sum of—dollars, the amount due to the said party of the first part at the time of such purchase." The lease had been previously signed by Dr. Chesebrough at the office of Mr. Cranstoun, his counsel, in Hoboken, and executed by him. The amount of the purchase option was stated in the lease at $173,000, being the total amount which up to that time, according to the statement given to him by his counsel, he had advanced or become liable for in the purchase of the lands for the hotel, and the construction and furnishing of the hotel. Before the execution by Henry Doying, and at the request of Ira E. Doying, who really acted for his son, the words "one hundred and seventy-three thousand" were erased, and the words "the amount due to the said party of the first part at the time of such purchase" inserted. Dr. Chesebrough was advised of this change by his counsel, who either told him of it, or showed him the lease, as executed by Doying, within a day or two after the change, and before Dr. Chesebrough occupied the rooms reserved, which he did about July 29 or 30, 1894.
Treating the lease in its present form as one of the written evidences of title regulating the legal status of the complainant Henry Doying and the defendant Chesebrough, I come to the consideration of the main question of fact involved in the case, viz. whether this defendant holds the absolute title under the deed, or whether it should be declared that he holds the legal title only as security for debts due to him from complainants, and then in trust for complainants after the payment of these debts. The evidence bearing on this main question is voluminous, and I shall state merely those facts which I find to be established by the pleadings and proofs, and which seem to me to be material.
In the fall of 1892, Ira E. Doying, William A. Davis, and William Cranstoun formed a plan of building an hotel at Summit, and purchasing lands for the purpose from the Beechwood Land Company. Doying was a contractor and builder of large experience, but without means or credit, and unsatisfied judgments were outstanding against him. Davis was a brother-in-law of Doying, and also a builder, of small means. Cranstoun was a counselor at law, living at Summit, with his office at Hoboken. Neither of the three, nor all of them combined, had sufficient financial responsibility to carry out the scheme without the assistance of loans from other sources; and it was agreed between the three that Cranstoun was to procure the loan, Doying and Davis to erect the building, and contribute their services, and the profits of the transaction, if any, were to be equally divided. The plan of building, as originally proposed, required the raising of $35,000 besides the cost of the land, for which an equal amount was necessary. In the execution of this scheme, Davis alone, on October 22, 1892. entered into a written contract with the Beechwood Land Company for the land now in question, the agreement providing for the payment of $30,000 as the price of the lands, —$2,000 on the execution of the agreement, and $34,000, with interest, on July 1, 1893. Davis paid the $2,000 from funds obtained by mortgaging lands the title of which stood in his wife's name, and, soon after, entered into possession of the property, and commenced excavations. In these he expended about $1,000 more, no part of this being advanced by either Doying or Cranstoun. On December 31, 1892, Davis assigned the contract to Cranstoun, who then executed a written declaration that he held the contract for the equal benefit of the three parties. Subsequently, and on February 1, 1893, Davis withdrew from the scheme, and assigned his interest to Henry J. E. Doying, one of Ira E. Doying's sons, and Henry further assigned to Cranstoun, who thereupon executed a declaration that he held the contract in trust for the joint benefit of himself and Ira E. Doying; and this was the status of the legal and equitable title in the contract at the time the defendant Chesebrough first became connected with the enterprise.
Cranstoun, in the spring of 1893, made efforts to procure loans from another source, but was unsuccessful, and thereupon, before July, 1893, when the contract expired, made application to Dr. Chesebrough. The latter was a retired physician, over 70 years of age, of large means, and then living at Hoboken. His fortune was invested mainly in first-class mortgages, many of them placed through Cranstoun, who had been his counsel for 20 years, and who had acquired his entireconfidence, and then attended to all his legal affairs. At Cranstoun's office, in Hoboken, where Doying came to explain the plans for the building, in order to procure the loan, the plans were produced, and explained to the doctor. The representation then was that the building could be erected for $35,000, and the plan proposed was that the doctor should advance this amount, and that, on the completion of the building, a large permanent loan should be procured from other sources, and the doctor's loan repaid. The doctor, as both he and Cranstoun say, knew of Cranstoun's joint interest with Doying in the scheme; but Cranstoun did not suggest to his client the taking of any independent advice, and the doctor agreed to make the loan, for the benefit of his counsel and his associate, without any independent advice. The loan was undoubtedly influenced by Cranstoun's relation as counsel, and his client's reliance on him, and desire to assist him; and both Cranstoun and Doying, on this application, intended that these relations should influence the making of the loan. Doying, indeed, now swears that Cranstoun's interest in the scheme was intentionally concealed from his client, and at Cranstoun's request; but, in view of the evidence of both counsel and client, I do not credit this statement, which would prove conclusively a deliberate intention to make use of the counsel's position for the purpose of actively deceiving his client, and I consider the case one where, on an application by a counsel to a client for a personal benefit for himself and his associate, it was intended by both of the applicants that the application should be influenced by Cranstoun's relation as counsel, and not be subject to any independent advice. The application was so acted upon by the client under the influence of this relation, and he agreed to advance the amount of $35,000, provided it could be advanced in installments. No details as to the method proposed to secure him were explained to the client, and he relied altogether on Cranstoun to protect him.
Cranstoun and Doying at once set about taking the land, had the contract extended to August 1, 1893, and arranged with the land company for the payment of the balance of the purchase money,—$34,000, with interest, about $1,000,—as follows: $20,000 to be paid by assuming a prior lien (a final decree in a foreclosure suit) on the lands; $5,000 by a purchase-money mortgage; and $10,000 in cash. This latter sum was to be advanced by the doctor, and secured by a subsequent mortgage. The title was to be taken in the name of Mary D. Francis, a sister of Cranstoun, and who was subject to his control, and she was to execute the bonds. She was not financially responsible for the amount of the bonds, nor did Cranstoun propose to become personally responsible for any part of this loan, which was made for his speculative benefit No sufficient personal security for the loan was proposed to be given, nor did either Cranstoun or Ira Doying propose to go on the bond, neither intending to incur any personal responsibility; and Doying, in addition, being desirous of securing any interest in the lands on his part from his creditors, Mary D. Francis (representing Cranstoun) and Henry J. E. Doying (representing Ira E. Doying) were to execute the bond for Dr. Chesebrough's loan, and, in addition, Henry J. E. Doying was to execute a collateral mortgage on his equity in other lands at Summit, already largely incumbered. The only additional protection to Dr. Chesebrough, arranged for between Cranstoun and Ira E. Doying, was the agreement that, if the proposed loan to repay Dr. Chesebrough did not go through, then the lands were to be conveyed to the doctor by Mary D. Francis. None of these details for securing the loan seem to have been submitted specially to the doctor before being decided on, nor did he have any independent advice at any stage of the transaction. Another important part of the arrangement, which was also not disclosed to the doctor, was that as between Cranstoun and Doying, the former was to receive from the doctor's funds a commission for procuring the loan, and that the latter was to receive a weekly allowance for his support and services while engaged in erecting the building. Cranstoun, however, did not actually receive anything. This plan was carried out, and on August 5, 1893, Cranstoun and Ira E. Doying, by writing dated July 5, 1893, executed, under seal, the following assignment of their interest in the contract to Mary D. Francis: "Know all men by these presents, that we, William Cranstoun and Ira E. Doying, above mentioned (being the only persons in interest in the above contract except the Beechwood Land Company), for and in consideration of one dollar to each of us in hand paid, do hereby assign, transfer, and set over the within contract to Mary D. Francis, of the city of New York, and direct and request the said Beechwood Land Company to execute and deliver to the said Mary D. Francis the deed for the property therein described, upon her complying with the covenants and agreements therein contained. And we do further each covenant and agree with said Beechwood Land Company that we are the only persons having any right or interest in the said contract (except said Beechwood Land Company), and the right to a deed therefor under said contract" The land company thereupon conveyed the premises to Mary D. Francis, she assuming the payment of the $20,000 decree as part of the purchase money, also the payment of the $5,000 purchase-money mortgage, and this whole $25,000 being, moreover, declared to be a vendor's lien for unpaid purchase money. Mary D. Francis, with Henry J. E. Doying, also executed a joint bond for $10,000 to Dr. Chesebrough for the $10,000 advanced by him, and which was used, not forbuilding, but for paying the purchase money of the land, apparently without any consultation with Dr. Chesebrough. Assured of Dr. Chesebrough's assistance to the extent of $25,000 additional, the plan for building further proceeded as follows: Ira E. Doying was the real contractor and builder, and the hotel was constructed under his direction, and according to his plans. So far as any contracts for building, written or other, were made, these were in the name of Henry J. E. Doying, and, by the close of the year, Dr. Chesebrough had made further advances to the extent of $28,000, all being by his check, payable to Henry Doying's order, and by him indorsed to Cranstoun, who then paid out the money on the order of the Doyings, or bills certified by ira or Henry Doying. These advances were secured by mortgages given by Mary D. Francis on the property, as follows: $6,000, August 11, 1893; $6,000, September 16, 1893; $6,000, October 28, 1893; $10,000, December 20, 1893. Henry J. E. Doying joined in all the bonds, and gave collateral mortgages on the equity in his Summit property to secure the three mortgages of $6,000 each, but not to secure the last mortgage of $10,000.
After the expenditure of this money, the hotel was still only half finished, mainly by reason of changes in the plans originally presented to Dr. Chesebrough, which changes were made by Doying without informing Dr. Chesebrough. In February, 1894, work on the building was stopped, and both Cranstoun and Doying made efforts to procure additional loans from other sources, but were unsuccessful. As then stated to Cranstoun by Doying, it would require $25,000 more to complete the building, and, in view of the failure to obtain loans and of the unfinished condition of the building, the entire security of Dr. Chesebrough was in peril, and the only protection for his large advances was the making of further large advances to complete the hotel. In view of this situation, Cranstoun insisted that the property should be conveyed to the doctor, and Ira Doying, the only one of the Doyings who acted or was consulted, agreed that this should be done; and this conclusion of Doying and Cranstoun that Dr. Chesebrough would have to take the title, and complete the hotel, was communicated to the latter by Cranstoun, and the doctor agreed to take the title on this understanding. Doying had said to Cranstoun that, if they got a loan, he supposed the doctor would take his money, and convey the property to them, and Cranstoun replied that he supposed he would, as the doctor did not want the property. This suggestion was not communicated to the doctor, nor do I find that on his part there was any understanding or agreement that, on taking the deed, it was to be considered as a mortgage. I think it was at the time expected by both Cranstoun and Doying, whose relations were still very close and friendly, that, if the doctor should be repaid his advances on the property, he would convey to them; but the hope of securing this rested on Cranstoun's influence as Dr. Chesebrough's counsel, and there is no sufficient proof to justify the conclusion that, on taking this deed from Mary D. Francis, it was understood or agreed by Dr. Chesebrough that she or the Doyings, or any one else, were to be the owners of the property, or that it was taken only as security. Ira Doying swears that it was agreed at this time between him and Cranstoun that the Doyings were to have a stipulation from Dr. Chesebrough showing that they were the owners of the property, and that he held the title to secure his loan; but, even if this were proved to be the case, there is no evidence that Dr. Chesebrough was personally a party to any such arrangement, and in view of the fact that such a stipulation, if agreed to be made, would, under the arrangement then existing between Doying and Cranstoun, have been for the benefit of the latter, equally with Doying, the doctor could certainly not be bound thereby, unless knowledge of the understanding was communicated to him. Cranstoun's personal interest with Doying in any such arrangement prevented Cranstoun's assuming to act as his client's agent to this extent without the client's actual knowledge.
Previous to this arrangement for his taking the title, Dr. Chesebrough had, in February, 1894, advanced $500 to pay workmen, for which he held no security or evidence of indebtedness from the Doyings; and after agreeing to take the title, and on March 23, 1894, he advanced $3,000, also without any security or evidence of indebtedness from either of the Doyings. At that time, the doctor, or his wife, held $28,000 in mortgages which had been given to them by Mary D. Francis on the property; and, in order to raise money to complete the hotel and pay outstanding bills, they assigned the first mortgage, of $10,000, and the second mortgage, of $6,000, these assignments being made previous to his taking the deed. On April 6. 1894, the deed for the property was executed and delivered by Mary D. Francis, for the expressed consideration of one dollar, "and the assumption of certain incumbrances hereafter stated." The clause of assumption was as follows: "Subject, however, to the same mortgage incumbrances as mentioned in said deed to Mary D. Francis; and subject also to certain mortgages, and the interest thereon, held by the said Nicholas H. Chesebrough and Henrietta Chese brough upon said above-described premises; and subject also to the payment of twenty thousand dollars of a certain decree held by Sarah Oakley against said premises and other premises, and a mortgage for ten thousand dollars, dated Aug. 5th, 1893, upon the said premises, recorded, * * * which payment of $20,000 of the said decree and said mortgages the said party of the secondpart hereby assumes, and agrees to satisfy and discharge." The effect of this assumption, on the face of it, was to relieve Mary D. Francis absolutely from all liability on any of the bonds she had given to Dr. Chesebrough, and also, as between the latter and Henry J. E. Doying, to relieve him from liability on these bonds, on which he stood prima facie as security. Neither Mary D. Francis nor Henry J. E. Doying, nor any one for (hem, at any time executed any writing showing that this transaction had any other effect, or evidencing the continuance of the obligations thus satisfied in equity by the assumption in the deed. The mortgages then held by Dr. Chesebrough on the property, and which had not been transferred before the deed, were not, however, then discharged of record, nor were the bonds delivered up. Subsquently, and on May 12, 1894, when Dr. Chesebrough advanced $12,000 more for construction purposes, the collateral mortgages which had been given by Henry J. E. Doying to secure the bonds were discharged at the request of Ira E. Doying. These collateral mortgages so discharged were the $6,000 mortgage of August 11, 1893, given to Mrs. Chesebrough, and the two $6,000 mortgages given to Dr. Chesebrough, and dated, respectively, September 16, 1893, and October 28, 1893. Dr. Chesebrough signed all of these discharges, and William Cranstoun also signed the discharge on Mrs. Chesebrough's mortgage, in her name, as her attorney. No discharge was executed on the $10,000 collateral mortgage of August 5, 1893, on the original advance. These discharges recite the conveyance to Dr. Chesebrough of the hotel property by Mary D. Francis, and that, in consideration of one dollar paid by Henry J. E. Doying it is consented and requested that the mortgage be canceled of record, this stipulation, however, being added, viz. that "nothing herein contained shall be construed to relinquish or discharge the lien of said mortgage given by the said Mary D. Francis, nor in any way to affect the title to said property described in this mortgage, and conveyed to Dr. Chesebrough." These collateral mortgages were not canceled until after the commencement of this suit, and the three bonds of Mrs. Francis and Doying—viz. $6,000, on September 16, 1893; $6,000, on October 28, 1893; and $10,000, December 20, 1893—were not destroyed or surrendered after the cancellation of the mortgages, but remained in Cranstoun's hands, and were produced on the hearing. The $10,000 raised by Dr. Chesebrough from the sale of the first mortgage held by him was expended by him on the hotel, and neither for this amount, nor the $35,000 previously expended, nor the $6,000 of bills against the hotel, paid by assigning his second mortgage for $6,000, dated August 11, 1893, was there any evidence of indebtedness on the part of any of the Doyings, so as to show, after the delivery of the deed, any liability on their part for any of this money as a debt. The status of the parties, therefore, so far as it was evidenced by writing, at the execution of the deed, was that the indebtedness on the bonds of Henry J. E. Doying then existing—$38,000, with interest—was equitably discharged by Dr. Chesebrough's assumption of them, in the conveyance from Mrs. Francis and for the amount of $19,500, advanced on the faith of the conveyance; there was no evidence of indebtedness against Doying or Francis, nor for the other amounts ($25,000) personally assumed by the doctor. Doying had agreed with Cranstoun, at the time the title was taken and the $10,000 was raised by assigning the mortgage, that $25,000 additional would complete the hotel; and Dr. Chesebrough, through Cranstoun, proceeded to raise this amount, mainly by disposing of his bonds and mortgages through Cranstoun, to whom the money so raised was, after the deed, paid directly by Dr. Chesebrough, Cranstoun then paying the Doyings, or the bills certified by them, by his check. Previous to the deed the checks had been made by Dr. Chesebrough directly to Henry J. E. Doying, who had then indorsed them to Cranstoun, and the latter then made the payments, he being relied on by all parties for the keeping of the accounts. Cranstoun, after April 6, 1894, and up to the time of the completion of the hotel, exercised no special supervision over Doying's accounts for the construction, but paid out the amounts to him or on his certificates. The contracts for construction, so far as any were made, after April 0, 1894, continued to be in the name of Henry J. E. Doying, as the contractor, but the contracts were either guarantied by Dr. Chesebrough or satisfied by him; and, Dr. Chesebrough not being able to realize on his securities as rapidly as money was needed, the discounting of notes was resorted to after the date of the deed, and these were notes made by Henry J. E. Doying, indorsed by Dr. Chesebrough, and all paid by him. Previous to the execution of the lease, July 26, 1894, the amount of notes so discounted was $2,500. For the other moneys advanced between the date of the deed and of the lease, there is no evidence of indebtedness on the part of any of the Doyings.
While the hotel was being finished, Cranstoun and Doying at one time concluded to lease it themselves from the doctor, to which the latter assented; and, neither Cranstoun nor the Doyings being able to or proposing to furnish the hotel, he was further induced or obliged to undertake the furnishing of the hotel, at a cost of $33,000, all of which the doctor eventually paid or secured. Mrs. Francis and Doying, early in July, 1894, and before the execution of the lease, made an agreement with one Newell as manager of the hotel. This was not finally carried out, but it shows the continuance of the mutual interests of Cranstoun and Ira Doyingin the speculation up to this time, and these continued apparently up to the time the lease was drawn. The lease as first drawn contained the name of Mary D. Francis, as well as Henry J. E. Doying; but Cranstoun, by this time being apprehensive of the financial responsibility to be incurred, struck her name out of the lease, and, as he says, then told Doying that he could have the lease alone. The lease, as I have above stated, was then executed to Henry J. E. Doying alone, with the privilege of purchase. At this time it had been found that the $25,000 originally given to Dr. Chesebrough in April, 1894, as the amount required to complete the hotel, would not be sufficient, and that still another $25,000 was required to pay the outstanding bills and finish the hotel. Cranstoun protested to Doying against being obliged to raise this additional amount from the doctor, and on the suggestion of Doying that this additional amount could be paid from the first year's profits of the business, and for the purpose of protecting the interest of his client, in whose interests he was then acting, Cranstoun assumed charge of the hotel bank account, on its being opened in his name as attorney. This continued during 1895. Money was taken from the hotel bank account during this time to pay for the completion of the hotel and its appliances, as they were requested by the Doyings; but in the meantime the enterprise had not proved successful, and Dr. Chesebrough was applied to from time to time to raise money for the running expenses of the hotel, these amounts being usually raised on Henry Doying's notes, indorsed by Dr. Chesebrough, and discounted. These were all paid by Dr. Chesebrough, and the net result of this account of his contributions and receipts from the hotel fund was that his contributions exceeded the receipts by over $4,000, making this additional amount invested. Up to the time of the execution of the lease, neither Mrs. Francis nor either of the Doyings had ever paid anything, by way of principal or interest, on the amounts advanced by Dr. Chesebrough to that time. Cranstoun was able at that time to arrive at this amount by the aid of his check books, but no accounts had been kept by him; and, without the aid of his personal knowledge and explanations to supplement his check books, it would have been impossible to arrive at the amount of these advances. They were then computed by him, and submitted to Doying, in the lease, at $173,000, which includes the amount of obligations assumed, as well as advances made, and Cranstoun has explained in detail how this was made up. Doying made no objection to the account as made up. Both parties relied throughout on Cranstoun for this part of the transaction, and the only" suggestion as to amount made by Doying was that payments might be made to the doctor pending the lease, and the clause in its present form was then substituted in the lease. This $173,000 included the $25,000 remaining outstanding, and to be provided for, and it was this $25,000, which Doying proposed to pay by the receipts of the hotel under the lease. The rental for the property fixed in the lease—$1,125 monthly, $13,500 per year—was based on the calculation of 6 per cent. on the $173,000, together with an amount estimated for taxes and insurance. This rent was paid from August, 1894, to September, 1895; in some instances part of the amount being noted as "interest" on the hotel check book, but credited on the rent account. No rent was paid after September, 1895, because of lack of funds. During the fall of 1894, Ira E. Doying took steps towards procuring a loan, and applied to Cranstoun for a statement from Dr. Chesebrough, and was given the statement annexed to the bill (Exhibit A), in which the whole amount was stated at $203,125.28, on January 1, 1895, including the mortgages assumed, notes and accounts outstanding for which the doctor was liable, and also "amount due Dr. Chesebrough, secured by deed," "$95,480; interest to January 1, 1895, $954.80.' This statement came from Cranstoun's office, but does not appear to have ever been seen by Dr. Chesebrough, and Cranstoun now says he did not see it before it was sent to Doying. In the fall of 1895, and after paying of rent had ceased, Doying took some steps towards procuring a loan for over $200,000, but stopped as he says, because Dr. Chesebrough asked him not to go on with it. The doctor denies this, however, and the steps actually taken by Doying were so purely tentative that he cannot be said to have lost anything by reason of relying on this conversation. If it occurred, it might perhaps be of some effect as estopping the doctor from refusing to specifically perform the agreement to convey under the option, if his conversation had induced Doying to postpone his application for a loan; but in February, 1896, Ira Doying, in a conversation with Cranstoun, for the first time repudiated the lease, and denied its existence. After this repudiation of the lease, amicable relations between Doying and Cranstoun ceased. The Doyings stayed in the hotel, without paying or offering to pay either interest or rent; and on the termination of the lease, and the commencement of the proceedings for dispossession, the three sons of Doying filed this bill, attacking the validity of the lease, and setting up that the transaction with Dr. Chesebrough, from beginning to end, was a loan of money by him to them, and that the deed was held by him as security therefor by way of mortgage only.
None of the complainants have been sworn as witnesses, the complainants' case, outside of evidence of conversations with Dr. Chesebrough and Cranstoun, being chiefly dependent on the evidence of Ira E. Doying, whose parol evidence is mainly relied on to overthrowthree deeds, and establish trusts in the complainants, contrary to the terms of the deeds. These deeds are: First, the absolute assignment of the interest in the contract of purchase to Mary D. Francis, by Cranstoun and Doying; second, the deed from Francis to defendant; and, third, the lease from defendant to Henry Doying. The object of the bill is to have an accounting, and a declaration that the lands are held in trust for complainants after paying the amount found due on the accounting; but the only evidence as to value offered in the case is that the whole property, including the furniture, is not worth over $200,000, and at least $25,000 less than the amount Dr. Chesebrough has advanced or become liable for. All the evidence which either side could offer on the question of account was produced at the hearing, and was directed to be produced, in order that the decree might be settled without a reference on this point. On this evidence, I find that the amount advanced by Dr. Chesebrough, and assumed by him, for the purpose of the purchasing, constructing, and furnishing of the hotel and its appurtenances, and with interest calculated to December 1, 1896, is $227,855.81. This includes the amount expended on the stables, amounting to about $7,000; for, although the lands on which these were erected were not included in the lands originally purchased, the accounts have been taken on the basis of the proposition of defendant that, if decree was made for complainants in relation to the hotel property, the stables should also, at their option, be included.
Upon consideration of pleadings and proofs in the case, I reach the following conclusions: 1. The complainants have failed to show that they, or either of them, were, at the time of the execution of the deed by Mary D. Francis to the defendant Chesebrough, the equitable owners of the premises, or that Mary D. Francis held the title in trust for them or either of them. The complainants' equitable title is claimed under Ira E. Doying, who had an equitable interest in the contract of purchase previous to the conveyance by the land company to Mary D. Francis, on August 5, 1894. But this claim of complainants, that they succeeded to Ira Doying, is not well founded, for the reasons—First, that no assignment in writing of his interest in the lands from Ira E. Doying to complainants, or either of them, has been shown, as required by the statute of frauds; and, second, that in view of the absolute transfer in writing by Ira E. Doying to Mary D. Francis of his interest in the contract, on the condition of her assuming his obligations under the contract, and her performance of this condition, it is not now competent for Ira E. Doying, or any persons subsequently claiming under him, to show by parol that, upon this absolute conveyance to Mary D. Francis, she held the title, either legal or equitable, in trust for him. Lovett v. Taylor (N. J. Ch., Pitney, V. C. 1896) 34 Atl. 896, and eases cited. A money consideration sufficient to raise an equitable use under the statute of uses is stated in the assignment, and the consideration cannot be contradicted for the purpose of destroying the effect of a deed as a conveyance. Mary D. Francis executed no writing declaring a trust for the complainants, or either of them, nor has she been made a party to this suit.
2. Assuming that I am mistaken in this conclusion, and that the complainants, or one of them, had, at the time of the conveyance by Mrs. Francis to Dr. Chesebrough, an equitable interest in the lands, and that she held the legal title upon a trust for them, or either of them, of which Dr. Chesebrough had notice, I conclude, upon the evidence, that this deed was intended as an absolute deed and conveyance of any rights, legal or equitable, of Mary D. Francis or complainants, and not as security by way of mortgage, and also that, under the circumstances of the case, such absolute conveyance, and the surrender thereby of any equity of redemption arising on behalf of Mary D. Francis, or complainants, claiming under her, was not inequitable, but was fair, equitable, and proper, and should be sustained.
The fatal weakness in complainant's case, on this branch of it is the failure to show by sufficient proof that, after the delivery of the deed, the debt previously existing from Henry J. E. Doying to the defendant continued in existence, or that, for the amounts subsequently advanced by Dr. Chesebrough for the construction of the hotel, there was any indebtedness of Henry Doying to him which he could enforce, or was acknowledged by Henry Doying. All of the previous indebtedness of Henry J. E. Doying was equitably discharged by Dr. Chesebrough's assumptions thereof in the deed. Henry Doying was, as between him and Mary D. Francis, prima facie surety only on these bonds, which were given to secure money loaned on Mary D. Francis' property; and the discharge of the principal discharged the surety. For the obligations amounting to $41,000, assumed by Dr. Chesebrough as part consideration of the conveyance, over and above the $22,000, then held by himself or his wife (and which were released by the deed), no evidence of indebtedness or obligation to pay on the part of any of the complainants existed in Dr. Chesebrough's hands. As to any indebtedness on the part of Henry J. E. Doying, or any of the complainants, for the $19,500 advanced before the deed, or for advances made and obligations assumed after the execution of the deed by Dr. Chesebrough on the property or for furnishing it, amounting in all to over $135,000, there are no evidences or acknowledgments of indebtedness on the part of any of the complainants, except notes to the amount of $32,500, signed by Henry Doying, and indorsed by Dr. Chesebrough, for the purpose of obtaining money by discounting, and which were all paid by the indorser, and the proceeds of which were used in the completionof the hotel. The payment of these notes would prima facie give the indorser an evidence of indebtedness against the maker, but proof that the money raised on them was expended on the indorser's lands would be sufficient to overcome this presumption, and make the notes accommodation notes of the maker. In order, therefore, that these notes should become, under the status of these parties, evidence of debts recoverable, either at law or equity, against Henry Doying, independent proof of Henry Doying's liability thereon, by acknowledgment or otherwise, must be shown. This was not shown or attempted; neither is there any evidence in the cause upon which I could base a decree that Henry Doying, or any of the complainants, are indebted to Dr. Chesebrough for any of the sums advanced or obligations assumed by him for the purpose of purchasing or constructing the hotel. No payments, either by way of principal or interest, or for any other purpose, have been shown on behalf of any of them prior to the execution of the lease. This failure to show the existence of any indebtedness, and the status of creditor and debtor, is fatal to the complainants' claim that the deed is a mortgage to secure a debt. 3 Pom. Eq. Jur. §§ 1195, 1196; Pace v. Bartles, 47 N. J. Eq. 170, 20 Atl. 352; Daly v. Ely, 51 N. J. Eq. 104, 26 Atl. 263.
The evidence mainly relied on by complainants to establish this status of indebtedness is the admissions of the defendant and his counsel. One strongly urged is the expression in the option clause of the lease allowing the purchase "for the amount due at the time of the purchase." This would be of vital significance on the question of the continuance of the relation of debtor and creditor, if the relation then existed; but it cannot have the effect of creating the relation if it did not previously exist. Henry Doying did not, by his mere signing of his lease containing the option, become indebted to Dr. Chesebrough either for the $173,000 or any sum. The only construction of the phrase applicable to the situation of the parties at the time is that the amount to be paid under the option was the amount due to Dr. Chesebrough for his advances and obligations in reference to the property or to the lessee; these advances and obligations being, for the purpose of the purchase, treated as and called "due" from said party of the second part. In this sense there would be an amount due from the lessee to the lessor on the purchase, and, unless this is the construction, there was no equitable basis for the option on either side; but it is altogether wrong, in my judgment, to give the expression in the option the effect of creating a debt where none existed, and of converting the lessor into a mortgagee. Other admissions by Dr. Chesebrough and his counsel, Cranstoun, are relied on to show that, after the deed and the lease, they looked on the doctor's interest in the property as one in which security, rather than ownership, was the interest claimed. Some of Cranstoun's acts, such as the failure to cancel the bonds in his hands as Dr. Chesebrough's counsel, and the language of the discharge of the collateral mortgages, are equivocal, and, in a case where the continued existence of a debt was satisfactorily established, these and other acts and admissions would have much weight in determining whether the true nature of the transaction was a mortgage or an option to purchase. But the other admissions were made for the most part during the continuance of the lease and its accompanying option, and, in view of the expectation or hope of both Dr. Chesebrough and his counsel that the Doyings would exercise the option of purchase, these admissions are fairly to be considered as expressions on their part of their opinions in reference to the practical status of the doctor, rather than as admissions which could change, or were intended to change, the legal status created by the deed and lease. Another circumstance alleged in the bill, and proved, and which, unexplained, would have gone far to establish complainants' claim, was that after the lease a large sum was expended upon the construction of the hotel by the lessee, and from the proceeds of the business. But on defendant's case it appears that during the time these advances were being made for defendant's benefit, on his land, the defendant was at the same time making advances to the lessees for the actual running expenses of the hotel, and that the net result of this series of transactions was that Dr. Chesebrough became still further involved to the extent of $4,000. These advances from the business cannot therefore, under these circumstances, be considered as made by the complainants as mortgagors.
3. Assuming that the complainants, after the execution of the deed, had any equitable interest in the lands as mortgagors, and that the deed was held as security only for a debt which they or any of them still owed, I further conclude that the reservation of the oftion to purchase, made in the lease, was, in effect, an agreement in reference to the equity of redemption, changing the character of that equity from an equitable interest as mortgagor into an option to purchase, and that this change was, under all the circumstances of the case, fair and equitable to have been made, and should not be disturbed. The reasons are substantially those above given in referring to the deed, with the additional consideration that, during the three months which had elapsed since the date of the deed, the safety of Dr. Chesebrough's investment in the property had become still further imperiled, by the failure to lease the hotel to responsible parties, and the necessity of further advances of over $30,000 for furnishing the hotel. The Doyings, or one of them, finally took the lease, with the ultimate result that, in addition to the amount invested in the purchase, building, and furnishing the hotel, the doctor, during thelease, furnished about $4,000 more towards the running expenses of the hotel, so that, at the expiration of the lease, the total amount of obligations assumed and money advanced was, as I find, upon the evidence, over $227,000. The Doyings ceased paying rent in September, 1895, for want of funds, and the only rent since paid by them has been that required to be secured and paid from the time of the filing of this bill, as a condition of granting an injunction pendente lite.
4. Upon the assumption that the complainants were originally equitable mortgagors, and that their rights have not been changed in this respect either by the deed or the lease, I further conclude that, upon consideration of the equities as disclosed by the entire case, the complainants are not entitled to the assistance of a court of equity for the purpose of changing the character of the title which they themselves have given to Dr. Chesebrough. This conclusion is based upon these facts. The case shows the investments made by Dr. Chesebrough in this property were originally made by him upon the application of his counsel, and for the ultimate benefit of his counsel and Ira E. Doying, who was associated with him in the enterprise, and that it was the intention that the profits derived from this employment of Dr. Chesebrough's funds, by any increase in the value in the property over the amount he advanced, should go to these two persons. Ira E. Doying, who was without means or credit, relied on Cranstoun's influence as Dr. Chesebrough's counsel to obtain the advance. He, indeed, swears that Cranstoun's interest in the speculation was Intentionally concealed from the doctor; but both Cranstoun and the doctor deny this, and, taking their evidence to be true, the case therefore stands simply as one where a counsel obtains from a client, and for himself and his associate, a personal benefit arising from his relation as counsel. In advancing the money from beginning to end, Dr. Chesebrough relied on Cranstoun's advice and counsel, taking no independent advice, and Doying understood this. It is manifest that no independent counsel would have advised or sanctioned the original loan as a safe or proper investment, for it was in fact simply a purchase of land, and the erection of a hotel, by the use of Dr. Chesebrough's fund, for the benefit of Cranstoun and Ira E. Doying if the investment was a good one, and at Dr. Chesebrough's risk if it was a bad one. No sufficient security for the return of his money was either taken or advised. Neither Cranstoun nor Ira E. Doying was on the bond, or assumed any obligations; and neither Mary D. Francis (Mr. Cranstoun's sister) nor Henry J. E. Doying was financially responsible for the amount loaned. The latter is now insolvent, as was admitted at the hearing. In this perilous situation of the doctor's original advance of $38,000, when it became apparent that he must advance much further and larger sums in this enterprise, even to the extent of imperiling a large part of his fortune, the transfer to him of the entire interest in the property, with all possible chance of saving his investment, was the least which his counsel and his counsel's associate in the enterprise could offer by way of repairing the injury they had done; and having agreed between themselves to transfer this complete legal title, a court of equity should not now be applied to, under the circumstances of this case, to aid in any respect in impairing whatever rights or security, legal or equitable, they have given to Dr. Chesebrough. The total value of the property is not, according to the evidence in this case, equal to the amount of his advances and obligations assumed, nor has either of the complainants any financial responsibility. A decree that they should be responsible for any deficiency as a debt, if it could be made on this bill, which I doubt, would be nugatory. The whole scope of the suit and of the application in the bill is, therefore, to procure now the aid of the court in giving to complainants, instead of to the defendant, the advantage of a possible sale for more than the amount invested, by declaring Dr. Chesebrough a trustee for all over this amount.
In view of the circumstances under which he has been drawn into this investment by the complainants or those under whom they claim, no rights, legal or equitable, should be taken from him by a court of equity; and, on the entire case, I decline to interfere with the condition of the title for which the complainants themselves, or those under whom they claim, are responsible, or to advise any decree impairing or affecting in any way the rights, either legal or equitable, which Dr. Chesebrough has in these premises. The bill will therefore be dismissed, with costs, and an order will also be advised directing the receiver to deliver possession of the premises to the defendant Dr. Chesebrough.