Opinion
10-16-1888
LEE v. COLE et al.
Jackson & Coddington, for complainant. R. V. Lindabury, for defendants.
Bill for relief.
Jackson & Coddington, for complainant. R. V. Lindabury, for defendants.
MCGILL, Ch. The bill is filed by a judgment creditor of the defendant Mulford Cole, for the purpose of setting aside certain conveyances of Cole's lands as fraudulent and void against creditors. It is exhibited for the benefit of the complainant, and all other creditors who are similarly situated, and shall come in and contribute to the expenses of the suit. Before the recovery of the complainant's judgment, on the 1st day of October, 1883, Mulford Cole made an assignment of all his property to one Elias R. Pope for the benefit of his creditors. Pope, as such assignee, has been made a party defendant in the suit. The complainant alleges that Pope, when requested to do so, refused and neglected to take proceedings to have the conveyances questioned declared fraudulent and void. By his answer Pope denies that allegation; and by that part of his answer which is exhibited by way of cross-bill against the complainant and the defendants alleges that the complainant has presented to him, as assignee, a claim against the estate of Mulford Cole for the moneys covered by the judgment, and that he joins in the charges of fraud that are made in the bill. He prays that the relief sought by the complainant may be accorded to him in behalf of all the creditors of Mulford Colo. It is objected, by the defendant Mulford Cole, that the complainant cannot maintain his bill, because he has no lien upon the property in question to enable him to challenge the transfers he attacks. The argument is this: that his judgment is against Mulford Cole, and that before the entry of that judgment Cole made a valid transfer, of whatever titles he had in the property affected by the complainant's suit, to Elias R. Pope, for the benefit of his creditors, and that when the complainant's judgment was entered against Mulford Cole it did not become a lien upon the lands of Elias R. Pope, assignee. The complainant, by his action at law, has established his claim against Mulford Cole, and thereby determined his status as a creditor. He has also presented his claim as a creditor to the assignee, Pope, and has been recognized, by such assignee, as a creditor of Cole. The assignee is trustee for the benefit of the creditors of Mulford Cole. He cannot surrender or destroy that trust, except by the consent of those creditors; and this court will execute the trust, by appointing a new trustee, if it be necessary to do so. Scull v. Reeves, 3 N. J.Eq. 84, 131; Alpaugh v. Roberson, 27 N. J. Eq. 96; Pillsbury v. Kingon, 33 N. J. Eq. 287, 299. In Pillsbury v. Kingon, just cited, it was settled in this state that assignees, under the assignment act for the benefit of creditors, may, by suit, set aside conveyances by the assignor in fraud of his creditors, to the extent that such property is needed for the payment of their debts. In virtue of the trust, the complainant, as a creditor cestui que trust, has substantially a lien upon the property. The statute (Revision, p. 38, § 8) directs that the assets which come to the hands of the assignee shall be divided among the creditors. Each creditor, as to whom the conveyances attacked are void, has a right to a share of the proceeds of the recovery had in a suit to set such conveyances aside. In Haston v. Castner, 31 N. J. Eq. 697, the court of errors and appeals held that the statutory direction that the lands of a decedent shall be liable for the payment of his debts creates a lien in favor of creditors at large, which gives them a right to impeach a conveyance made by the decedent in fraud of creditors; and in Currie v. Knight, 34 N. J. Eq. 485, Vice-Chancellor VAN FLFET, following the reasoning in Haston v. Castner, held that the direction of the statute, that the assets of an insolvent estate shall be ratably distributed among the creditors of the decedent, gives the creditors a lien on such assets, and entitles them to a standing to contest the validity of a chattel mortgage not filed according to the statute. The reasoning of those cases is analogous to that by which I am guided in this case.
The bill alleges that the assignee was applied to to bring suit similar to this, and that he neglected and refused to do so. The proofs show that he did not respond favorably when he was asked to commence the suit, and that, at the time the request was made, nearly two years had elapsed from the date of the assignment to him. He testifies that he has no remembrance that the request was made. I think that he was correct in this statement. The request was made at the post-office in the city of Plainfield, by a solicitor of the complainant, and probably did not impress him as important. It is evident, from the testimony, that he was regarded as a friend of Mulford Cole and the other defendants in this suit, and, for that reason, was not expected to comply with the request. Appearances, in a measure, justify this estimate of the position of the assignee; for he testifies that the first information he remembers, in reference to the complainant's suit, was conveyed to him by a son of Mulford Cole, one of his co-defendants. For two years after the assignment to him the idea that there may have been fraudulent conveyances by the assignor does not seem to have occurred to him. He answers in this suit by Mulford Cole's solicitor. His refusal to proceed in the suit, or his neglect to do so under the circumstances, I think clearly gave the complainant a standing to institute it, and make the assignee a party defendant. Haston v. Castner, 31 N. J. Eq. 697, 701; 2 Perry, Trusts, § 886. This situation, together with the fact that the assignee, as defendant, comes in by cross-bill, and substantially asks that he may be afforded the relief prayed for by the complainant, leads me to the conclusion that I should retain the bill, and decide the case upon its merits. The assignee will be entitled to take whatever may be realized through the instrumentality of the suit, for the benefit of the creditors of the assignor, as to whom the conveyances may be fraudulent, who have presented their claims to him. Grant v. Crowell, 42 N. J. Eq. 524, 527, 9 Atl. Rep. 201. He is before the court, willing to take those moneys, and to perform his duty with reference to them. There can be no impropriety in allowing the complainant to prosecute the suit to its conclusion.
The defendant Mulford Cole resides in Plainfield, this state. Prior to 1875 he dealt extensively in real estate, and in mortgages upon real estate, and rapidly amassed a considerable fortune. Because of liberal discounts and bonuses allowed to him upon second and third mortgages, many of his investments and ventures were in such securities. When the prices of land depreciated, in 1875, his losses were very large, and he speedily became financially distressed.Between June, 1875, and September, 1877, he became indebted to the complainant, and the complainant's brother, in an amount aggregating more than $15,000. Ultimately that entire indebtedness became the property of the complainant, and, with interest, constituted the $21,028.21 damages, for which he recovered judgment in November, 1883. It now constitutes more than two-thirds of Mr. Cole's entire indebtedness. Without it, the $14,000 assets, in the hands of the assignee, would more than pay all creditors in full. In 1887, Mulford Cole commenced to foreclose two mortgages upon about an acre and a quarter of land in Plainfield, fronting on Mountain avenue, upon which was built a small house, and in 1878 obtained a decree in his favor for nearly $4,000. The mortgaged property was worth from $1,200 to $2,000. He attended the sheriff's sale, with his lawyer and his son Elias, and had the property sold by the sheriff to Elias for $500. It satisfactorily appears that Elias knew of his father's indebtedness and distressed circumstances, and also knew that the property was worth much more than double the amount he bid for it; and also that the decree in favor of his father was very much more than the price he was paying for the property, or that his father could afford to let it be sold for. When I consider these circumstances, and also the similar and other conveyances to Elias hereafter mentioned, and the fact that the father could have bid to the full value of the property, and have taken credit for his bid upon his decree, which does not appear to have had any value beyond its lien upon the mortgaged premises, I am satisfied (under the principles declared in Tantum v. Green, 21 N. J. Eq. 364,) that the conveyance must be held to be fraudulent and void, as against the creditors of Mulford Cole. That the sale was affected through the medium of a sheriff's sale will not afford protection in a court of equity. Bank v. Durant, 22 N. J. Eq. 35, 41, on appeal, 24 N. J. Eq. 556. Just prior to the entry of the complainant's judgment, Elias Cole mortgaged this land to Joseph Brick to secure the payment of $600. No fraud can be imputed to that transaction on the part of Brick. Upon principles announced in Post v. Stiger, 29 N. J. Eq. 554, Elias Cole must be held accountable for the amount due upon this mortgage. A similar transaction to this is the purchase of property at Dunellen, which was sold under a decree in favor of Mulford Cole for $2,200, upon the foreclosure of a mortgage. There the property was worth about $2,000, and was bought by Elias for $500. This purchase was about a month after the purchase of the Mountain-Avenue property. In November, 1883, ju3t prior to the entry of the complainant's judgment, it was mortgaged to one McGuire for $900. No fraud can be imputed to McGuire. I think that this transaction must be regarded and treated, in all respects, as that of the Mountain-Avenue property. Property on the corner of Exchange alley and Second street, in Plainfield, was sold, after the fashion of the two sales above mentioned, under a decree of foreclosure, in favor of Mulford Cole, for over $7,000, in May, 1879, to Elias Cole, for $2,100. The property was worth about $3,200. This property was also mortgaged by Elias to McGuire, a short time before the entry of the complainant's judgment, for $2,000. I am constrained to regard this purchase as fraudulent, and to deal with it as I have determined to deal with the transactions above mentioned. On November 18, 1882, under a decree in foreclosure in favor of Mulford Cole for over $3,200, one and seventy-two one hundredths of an acre of land, at Plainfield, were sold by the sheriff to Elias Cole, under circumstances in all respects similar to the transactions above mentioned. The last-mentioned mortgage, to McGuire, covers also this land. This transaction must also be dealt with as those I have already mentioned. In this case, if the testimony of Elias and Mulford Cole is believed, Elias gave $1,500, the full value, for this land. But, if he did so, I am satisfied that it was in pursuance of a fraudulent intent to shield it from his father's creditors. His purchase must not only be for good consideration, but must also be without fraudulent intent to hinder and delay creditors.
The complainant next attacks six conveyances of real estate by Mulford Cole, in none of which Mulford's wife joined. Five of them were to his son Elias, and one of them was to another son, George. The first was a conveyance of two undivided thirds of a tract of about 12 acres of mountain lands near Plainfield, on March 20, 1880. The consideration paid was $100. The land conveyed was worth upwards of $200. It is explained that only $100 was paid, because one undivided third had been conveyed to Mulford Cole by an infant. After the sale to Elias, the title was made good to him by a confirmatory deed from the former owner, who had become of age. The second conveyance was of about 70 acres of land in Warren township, in Somerset county, dated on December 13, 1881. The defendants claim that this conveyance was made as security to Elias for his indorsement of notes for his father. The property was subject to a mortgage of $1,700. In January, 1883, Elias sold the property to one Christopher Kotchline, for $4,500, out of which he paid the $1,700 mortgage. He claims that he expended the remainder of the purchase money, in the payment of notes of Mulford, on which he was liable as in-dorser. The third deed was for a house and lot on Steiner place, in North Plainfield, as security for an indorsement of Elias upon a note for $600 that his father had given to one Leland. That deed was dated on June 16, 1882. It is claimed that Elias has since paid that note. The fourth deed bears date on the 12th day of October, 1882, and conveys to Elias about six and a half acres of land at Plainfield. It is claimed that this land was transferred to Elias as security for his indorsements upon a note of $1,000 to one Morris. This property was sold, in 1883, by Elias, to one McArthur, for $1,100. It is also claimed that with the proceeds of sale he paid the Morris note. The fifth deed bears date on the 7th of October, 1882, and conveys to Mulford's son George nearly eight acres of land at Plainfield. It is claimed that Mulford was indebted to this son, who was 22 or 23 years old, and resident with his father, the sum of $450, and that the deed was made to secure the payment of that sum to George. The consideration mentioned in the deed is $1,500. In July, 1883, George sold this land to McArthur for $1,100. The sixth of these conveyances was made on the 1st of March, 1882, and transfers to Elias Cole a house and lot on Duer street, in North Plainfield, as security for notes bearing the indorsement of Elias, that were given to one Rossiter. This property was subject to a mortgage of $1,000. In July, 1883, Elias sold the property to Isaac Brokaw for $2,500. Mulford, Elias, and George, in their answer, say: "Soon after the panic of 1874 said Mulford Cole began to lose money by depreciation of values in real estate, and, during the years 1879, 1880, and 1881, said losses became very heavy; and said Elias Cole, knowing of the same, grew reluctant, and on many occasions refused altogether to further indorse for Mulford Cole;" and that, in consequence of his demands for security, the deeds in question were made to him. I think that the first of these deeds was made for inadequate consideration, and for the purpose of putting the property out of the reach of Mulford's creditors. It is clear that Elias knew of his father's condition; and certainly, from the many conveyances by the father through sheriff's sales, in which he was concerned, he knew that his father was making every effort to put his property where his creditors could not get it. This very deed conveyed the property subject to the wife's right of dower. I think it is void against creditors. The other five conveyances—four to Elias and one to George—were professedly by way of security only. The Steiner place property has not been sold. Elias must account for its rents, issues, and profits. An account will also be taken of the amount for which the property is liable as security to him. From the rents, issues, and profits added to the proceeds of the sale of the property will be paid to Elias the amount which shall be found to be due to him on account of this security, and the balance will be paid to the assignee, Pope, for the benefit of his cestuis que trustent who may be entitled to the same. The otherfour parcels of land have been sold, I think, with reasonable fairness. Elias and George will respectively be required to account for the rents, issues, and profits of such of these lands as were in their hands while they were in their possession, and for the proceeds of the sales of them, and will be allowed the amounts they shall respectively show themselves to be entitled to from each parcel of land; and the balance, in the case of each parcel, shall be paid to the assignee, Pope. If it shall appear, upon the accounting, that any of these deeds were not taken, as alleged, in good faith, for security, but were taken in secret trust, to sell and hold the proceeds of sale for the use of Mulford Cole, with the intention of preventing his creditors from resorting to them, the grantee in the deed must account for the entire proceeds of sale of those parcels of land. Bump, Fraud. Conv. 42.
The complainant also attacks a mortgage for $3,000, made by Mulford Cole to his son Elias, on June 27, 1882, upon six acres of land at Plainfield. It is not pretended that Elias gave any consideration for this mortgage. It was made to him to be immediately transferred to his mother, the wife of Mulford Cole. Mulford in his testimony says that it was given for moneys that ho had from his wife at the times she was paid portions of her father's estate. He says that as the estate was divided his wife was paid her share in cash, and that he got from her $1,500 in 1855, and another $1,500 in 1865 or 1866. He says that he put off giving her a mortgage, believing that he would pay her in cash, and that he finally gave her the mortgage, when she "wanted the money or security for the amount." He also says that Elias did not give any consideration for the mortgage, but that the day it was delivered to him he assigned it to his mother, Emeline D. Cole. The answer of the defendants, without oath, alleges that the $3,000 mortgage was given in repayment of two loans, by the wife to the husband,—one for $1,500 in 1855, and the other for the same amount, in 1866. It alleges, also, that there was a distinct promise to repay the sums thus borrowed. That allegation, however, is not proved. Mulford Cole does not say so, and Mrs. Cole was not sworn as a witness. It does not appear that any evidences of indebtedness were given by the husband to the wife when the moneys were loaned, nor that any interest was ever paid upon the debt, nor that any moneys were ever paid on account of the principal of the debt, nor that any payment of either principal or interest was asked for until the mortgage in question was made, in 1882. In the case of the first loan 27 years had then elapsed, and in the case of the second loan 16 years had elapsed. It does not appear that in all that time the wife ever spoke to her husband, upon the subject of the repayment of her loans, until the time of making this mortgage, when he was embarrassed, and his creditors were upon him. And as to her demanding payment and security in 1882, we have the solitary testimony of the man who is striving to maintain the bona fides of this mortgage, uncorroborated by his wife, or by a particle of other evidence of any kind. In Post v. Stiger, 29 N. J. Eq. 554, 556, Vice-Chancellor VAN FLEET says: "A claim by a wife against a husband, first put in writing when his liabilities begin to jeopardize his future, should always be regarded with watchful suspicion, and, when attempted to be asserted against creditors upon the evidence of the parties alone, uncorroborated by other proof, should be rejected at once, unless their statements be so full and convincing as to make the fairness and justness of the claim manifest. Any other course will encourage fraud, and greatly multiply the hazards of business." In Luers v. Brunjes, 34 N. J. Eq. 19, 562, it was held that moneys given by a married woman to her husband, in 1855, and for which she received no evidence or security until 1877, when he had become insolvent, would not sustain a transfer of property to her as against his creditors. The appropriation, by a husband, of his wife's separate estate, with her knowledge and consent, will not constitute a good consideration to support a conveyance by the husband, as against his creditors, unless a definite agreement for its repayment is satisfactorilyshown. Clark v. Rosenkrans, 31 N. J. Eq. 665; Liters v. Brunjes, and Post v. Stiger, supra; Bump, Fraud. Conv. 311. I think that the proofs, in support of the mortgage in question, signally fail to prove that this was a loan by Mrs. Cole to her husband. If he did have her money, I think she did not expect him to repay it. I do not think that he would ever have thought of repaying it if he had not become insolvent, and cast about him for an excuse to support a conveyance as against his creditors. The mortgage must be declared to be fraudulent as to creditors. 1 fail to find that any of the other conveyances attacked should be set aside. While the fraudulent intent with which Mulford Cole made them is apparent, I am unable to say that the conveyances were accepted by the purchasers of the lands with the same intent. It appears that they gave valuable consideration for each conveyance. And I am not satisfied that Elias Cole holds the farm, that was conveyed to him in 1865, in trust for his father.