Opinion
01-13-1898
NASH v. HALL et al.
Bill by James Nash against Samuel Hall and others. Decree for complainant. Otto Crouse, for complainant. John W. Beekman and James S. Wight, for defendants.
Bill by James Nash against Samuel Hall and others. Decree for complainant.
Otto Crouse, for complainant.
John W. Beekman and James S. Wight, for defendants.
PITNEY, V. C. This is a bill by a judgment creditor to set aside a transfer of personal property made by one of the judgment debtors to a third party, pending the suit, and before judgment, on the ground that it was fraudulent and void as against his judgment. The judgment was recovered by the complainant against Isaac and Tunis G. B. Cortelyou and Walter C. Bunn, composing the firm of Cortelyou Bros. & Co., on the 9th day of April, 1896; and the bill in this cause was filed on the next day, the 10th of April. The property consisted of a feed and grain store, a building standing on leased premises, a stock of grain, feed, hay, etc., in it, and also the movable plant, consisting of furniture, implements, wagons, and horses. These, together with outstanding debts due on the books of the concern, were seized by a receiver of this court, and converted into cash under its direction; and the contest is over the proceeds. The facts in the case are complicated, but must be fully understood in order to be properly dealt with.
The complainant, Nash, and the defendant Isaac Cortelyou were engaged in business as partners, in Perth Amboy, some time prior to the year 1893, when the complainant went out of the business; and the same was continued by Isaac Cortelyou in partnership with his brother-in-law Walter C. Bunn, who was and is a practicing lawyer in New York City. Bunn put some capital into the concern, but gave it no personal attention. Subsequently (December 1, 1894), Tunis G. B. Cortelyou, another brother of Isaac Cortelyou, and also a resident of New York, became a partner in the concern, and made a contribution to the capital. Prior to December 1, 1894, Nash had loaned the firm considerable sums of money, which were finally consolidated into a promissory note, made by Cortelyou Bros. & Co. dated December 1,
1894, for $1,800, payable in one year, with interest, the interest upon which was paid to the 1st of August, 1895. Bunn, on May 1,
1895, dropped out of the firm, leaving in and sinking his money contribution to the capital, but taking a written agreement from the remaining partners to protect him against the debts of the firm, including Nash's note. Isaac and Tunis Cortelyou continued the business until November 16, 1895. when Tunis retired, leaving Isaac the sole owner. Isaac, in his turn, guarantied Tunis against his liabilities as a member of the firm. This left Isaac primarily liable as between him and Tunis Cortelyou and Bunn. to pay this note, and Tunis primarily liable as between him and Bunn.
Mr. Nash's note maturing on December 1, 1895, he pressed for its payment. In the meantime the firm, while composed of the two brothers, became indebted to Bunn for money borrowed, to the extent of $1,200. Then Isaac, being pressed by Nash, set about making arrangements to pay Nash's note, and save his brother and brother-in-law in New York from further trouble. The assets of the business consisted (1) of the storehouse, standing on leased ground, worth about $1,500, upon which was a chattel mortgage, held by the defendant Hall, for $500; (2) of a delivery truck, with horses and harness, weigh scales, bales, bags, and office furniture; (3) grain, feed, flour, and hay in the store; and (4) book accounts and bills receivable. On the last day of December, 1895, Isaac Cortelyou executed three chattel mortgages on the premises,—one to Mr. Nash, upon the store building, for $1,000, payable in one year after date; another to Mr. Bunn, on the horses, truck, harness, and office furniture and other implements, together with 3,000 bushels of oats, to secure $2,000; and the other to Tunis Cortelyou, to secure $3,000, covering corn, bran, meal ground feed, hay, straw, rock salt, wheat, buckwheat, and other stock in trade, also, all books of account and outstanding balances due Cortelyou. The storehouse had been purchased from the defendant Hall in January, 1894; and Isaac Cortelyou had given to him a chattel mortgage on it for $500, which was uncanceled of record. Isaac Cortelyou's avowed plan in making the mortgages to Bunn and Cortelyou was to induce Bunn to indorse his notes, having a long time to run, for $800, and to induce Nash totake those on account of his $1,800 note, and to induce Hall to pay Nash $1,000, and take an assignment of Nash's $1,000 mortgage, and thus get clear of Nash's claim. These three chattel mortgages were all executed on the 30th of December, 1895, before Isaac Cortelyou's personal counsel, Mr. Terhune, and retained in Cortelyou's possession; and the two to Tunis Cortelyou and Bunn were taken by Isaac to New York, and the two mortgagees made the necessary affidavits to the consideration money on the 31st of December, and handed the instruments to Isaac for record. They were put on record by Isaac on January 7, 1896. The mortgage to Nash appears not to have been delivered to him until the 7th of January, 1896, when he made the affidavit as to its consideration, and it was lodged for record on the 8th of January. It appears that Mr. Bunn came to Perth Amboy to close the transaction, but that it fell through. Mr. Nash refused to accept the settlement unless he either had the cash for the $1,000 mortgage, or that a previous mortgage which Hall held, for $500, on the building, should be discharged. In addition to this note of $1,800, Isaac Cortelyou was individually indebted to Nash, as Nash claims, for money lent, in a sum something less than $100. He had all the time been, and was still, employed by Isaac as a salesman. Shortly after the proposed settlement fell through, he made a collection on Cortelyou's account of a considerable sum of money, and insisted upon Cortelyou turning a portion of that collection against his item of borrowed money. To this Cortelyou consented, but became angry, and declared that he would prevent Nash from getting a dollar on his large note. Nash thereupon left Isaac's employment, and appears to have commenced a suit upon his note in the city of New York, against Tunis and Isaac Cortelyou and Bunn, and shortly afterwards, on the 16th of January, 1896, commenced a like suit in the supreme court of New Jersey, resulting in a service upon Isaac alone.
Isaac had been in negotiation with Mr. Hall to advance the money to Nash on the $1,000 mortgage, and Hall was cognizant of the situation between Nash and Isaac, the giving of the three chattel mortgages, and the commencement of the suit in New York, but, as he swears, not of that in New Jersey. On January 24, 1896, Hall took with him a check in blank, signed by Mr. English, who was co-executor with him of an estate, and went with Isaac Cortelyou to Long Branch, to the office of Isaac's counsel, Mr. Henry S. Terhune; and there the bill of sale which is here attacked was made and executed. The consideration named is $1,890, and it purports to grant to Hall all his right, title, and interest in his flour, feed, hay, and straw business at Perth Amboy, including horses, trucks, fixtures, office furniture, safe, stock in trade, books of account, good will, and everything, of whatsoever name or description, appertaining to or in any connected with it; also, the frame building and storehouse, with a covenant of warranty of the title. It contains no defeasance, and no affidavit is attached,—simply an acknowledgment before Mr. Terhune, as master in chancery. This instrument was recorded on the next day, in the Middlesex county clerk's office. The executors' check was filled up by Mr. Terhune for $1,000, and paid to Isaac. At the time of the execution and delivery of the instrument, however, Mr. Hall gave back to Isaac a paper signed by himself, reciting that Isaac had that day conveyed to him (Hall) all his right, title, and interest in the flour and feed business located at Perth Amboy, by bill of sale of even date therewith, and was about to take possession and control of the business, retaining Isaac Cortelyou as his managing clerk. The agreement witness-eth "that, so long as the said Cortelyou shall give his undivided attention and services to the management of said business, I do hereby agree to pay him at the rate of twenty-five dollars per week, which said sum he is permitted to deduct each week from the proceeds of said business." The $1,890 named as consideration was supposed to be made up of the $1,000 in cash paid by the executors' check, and $500 due on Hall's chattel mortgage, with some arrears of interest, and the balance in cash advanced within a short time previously by Hall. On the same day (January 25th) Isaac made an affidavit of merits in the suit of Nash, and later on, in time, put in a plea of the general issue. That plea was filed in behalf of all the defendants, including Tunis Cortelyou and Bunn, although the latter were not served with process. The declaration was founded not only on the $1,800 note, but on a claim of $80 for rent. The defenses, specified on demand, were (1) that there was no rent due, and (2) that the plaintiff had accepted a chattel mortgage for $1,000 in part payment of the note. When the case came on for trial, at the April term of the Middlesex circuit, the defendant's attorney gave a relicta for the amount due on the note, the claim for rent being stricken out. There was proof also tending to show that there was an understanding at the time between the attorneys of the parties that the chattel mortgage should be delivered up, but it never was delivered up.
The first question is as to the true character of the bill of sale of January 24th. Was it a bill of sale, or was it a mortgage? I am entirely satisfied from the evidence that it was intended, as between the parties, to operate simply as a mortgage. Isaac Cortelyou swears distinctly that there was an understanding that he was to have an interest in the business, was to manage it, and that it was to be conveyed to him or to his wife. Then, the paper employing him at the extravagant salary of $25 a week to conduct what all the time was a losing business, to be paid without regard to the profits of the business or the actual value of his services, indicates the same thing. Mr. Hall himself hardly denies itIn the next place, the conduct of the business afterwards is very significant. No change whatever was made in the mode of conducting it. The $1,000 received was put to the credit in bank of Cortelyou Bros. & Co., and all of the subsequent collections and payments up to the time of the appointment of the receiver in this case, on the 10th of April, were so deposited; and the funds resulting from such deposits were used indiscriminately to pay the debts of the old concern, and to buy new goods. There was absolutely no stop or rest made in the business, or any serious attempt made to separate the affairs of the old and new concern. A set of books was started about the 1st of February in the name of the Perth Amboy Feed Company, under which name the business was nominally conducted'; and a bank account was opened in the name of the Perth Amboy Feed Company in the same bank (the People's Bank of Keyport) in which Mr. Cortelyou had previously kept his account, and still continued to keep it. But the great bulk of the banking business was done in the name of Cortelyou Bros. & Co., and the transactions in the bank in the name of the Perth Amboy Feed Company were but few in number, and consisted almost wholly of cashing checks for individuals who wished to exchange currency for a check on a bank, and currency was deposited to the credit of the Perth Amboy Feed Company to meet the check when it came in. Most of the business transactions were entered in the account books of Cortelyou Bros. & Co. Hall gave no personal attention to the business. His name nowhere appeared. It was conducted by Isaac with the same assistants as before, and without the least apparent change.
Then, again, it is quite apparent that, when Mr. Hall started with Isaac for Long Branch to see Isaac's counsel, he did not contemplate making an absolute purchase of the plant, but had in mind only a chattel mortgage; for no inventory was taken, no statement either of the chattels or book accounts was made up, nor was any careful statement made of the amount due from Isaac to Hall over and above the $1,000. The use of an absolute bill of sale, instead of a mortgage, was undoubtedly an afterthought, and in point of fact, was suggested, as both swear, by Isaac's counsel, Mr. Terhune; and it is a significant circumstance that that gentleman was not called to prove what were the circumstances attending the transaction.
Then, again, we have the question of the value of the property assigned. This was placed by Isaac at over $5,000, and was shown to be worth that much by an inventory taken on the 1st of February. Then, we have the circumstance that Hall knew that three chattel mortgages on the premises had been executed on tie last of December or the early part of January, to Nash, the complainant, to Bunn, Isaac's brother-in-law, and to Tunis, his brother. The mortgages to Tunis Cortelyou and Bunn were in Isaac's possession, and were, as both swear, exhibited to Hall at the time the bill of sale was executed. Hall swore positively that there was no indorsement showing that they were recorded, but in this he was mistaken, for they both had such indorsements at that time. But Isaac did not have in his possession Nash's mortgage, and Hall swears that he contented himself with the promise of Isaac to have all three mortgages canceled. He swore that Isaac told him that he had an arrangement by which Nash was to take notes indorsed by Bunn. But this evidently relates to what Hall had previously heard was the arrangement; and, while he might have supposed that the two chattel mortgages to Bunn and Tunis Cortelyou which were in Isaac's possession might be canceled of record, he must have known that Nash's mortgage could not be disposed of in that way, or his debt settled, especially if the mortgages to Bunn and Tunis were canceled, one of which was given to secure Bunn for indorsing the very notes which Nash was to take. Now, it is difficult to believe that a business man would buy out and out a plant, and pay the money for it, with the expectation of getting a clear title, with so many chattel mortgages outstanding against it. It is possible to believe, however, that Hall credited Isaac's statement of the value of the plant and the book accounts, and that he was willing to advance upon that security $1,000 over and above his own debt, which he put at about $900, and the $1,000 mortgage held by Nash. If he asked advice, he must have been informed that the chattel mortgages did not cover the book accounts, and Isaac's estimate of those accounts showed them to be a good security for the advance. Then, Isaac's book account, against Hall had been running for a year or two, and a considerable balance appeared on the books gainst Hall, which, of course, passed to Hall by the bill of sale, if in fact it was what it appeared on its face to be. And yet in February, 1896, Hall paid to Cortelyou, first, $150 on account, and, later, $46.05 in full of this account, and took his receipt for it. I consider this a very significant circumstance.
These considerations lead me to the conclusion that the instrument was intended, as between the parties, to operate as a mortgage, and is within the strict letter of the language of the fourth section of the chattel mortgage act, which declares "that every mortgage or conveyance intended to operate as a mortgage of goods and chattels hereafter made," etc. Laws 1885, p. 319. And hence, in the absence of any affidavit, it must be held to be void as against a subsequent judgment creditor, like the complainant. To hold otherwise would be to substantially repeal the wholesome provision of the chattel mortgage act, requiring an affidavit to be made of the true consideration,to accompany every mortgage, and would have the effect of giving an absolute bill of sale the force of a chattel mortgage, without an affidavit. This leaves Hall's instrument effective only as to the book accounts which were in existence on the 24th of January, 1896. To a mortgage of book accounts I do not understand that the chattel mortgage act applies.
The money in the receiver's hands consists of the following items, as he reports:
| Cash sales by receiver at retail | $ 262 13 |
| Sale of building | 1,225 00 |
| Sale of fixtures | 395 56 |
| Sale of stock | 241 00 |
| $2,123 69 | |
| Less auctioneer's fees, etc. $ 98 58 | |
| "other expenses...... 206 36 | |
| 304 94 | |
| Net proceeds of sale by the receiver | $1,818 75 |
| Further receipts collected from accounts made after January 24, 1896 | 611 80 |
| $2,430 55 | |
| Paid to receiver by Hall, as proceeds of sale by Cortelyou after restraining order served, and before receiver appointed | 245 35 |
| collected by receiver on book accounts made before January 24, 1896 | 186 66 |
| Interest received | 60 45 |
| $2,923 01 |
This, however, is subject to whatever was due, if anything, upon Hall's first mortgage of $500 on the building. The circumstances of that were these: Hall sold the building in January, 1894, to Cortelyou, for $800, and took a chattel mortgage upon it for $500. Hall was a constant purchaser of goods—grain, hay, feed, etc.—from Cortelyou Bros. & Co. On the 8th of February, 1894, Mr. Cortelyou gave credit on his books to Hall for the whole purchase price of $800; and on the 28th of February, after giving that credit, and deducting charges for merchandise up to that time, there was due to Hall a balance of $556.64. This was carried forward to the 31st of December, 1894, further charges for goods sold to Hall being made from time to time, and credits given for cash paid on account. On that day (December 31, 1894) there was a balance due Hall of $87.64, which, for some unexplained reason, probably through oversight, was never carried forward. The account for goods sold proceeded against Hall, and he made payments from time to time, sometimes cash in full, until the 4th of March, 1896, when, as we have seen, by a payment made shortly before of $100, and another of $150, and a final payment of $46.05, on that day the account is fully balanced. But that did not include the $87.64, which was not carried forward, as we have seen, from the 31st of December, 1894. There is another entry after that of $475 credited to Hall, which the bookkeeper admitted was an error; and it was palpably so, for there was no cash or other thing received by Cortelyou to warrant it. In order, however, to reduce Hall's balance to $87.64, on the 31st of December, 1894, a charge is made in the ledger against him of the date of November 30, 1894, of $245.86. By a reference to the journal from which that item is posted, it appears to be made up in this wise: "Samuel Hall, Dr., to Merchandise, Amount from Old Books, $1:45.86." Then is interlined, first in pencil, and then written over in ink, and I think in a different handwriting, four items,— $136.87, $28.45, $75.54, $5— making $245.86. The origin of these four items was not, and, as I presume, cannot be, pointed out, excepting as to that of $136.87; and that is the precise amount of a balance against Hall on the ledger on the 1st of February, 1894, viz. $136.87, which was carried forward and forms a part of the debit against Hall at the time the $800 for the building was credited to him. That makes the amount of error in that charge of $245.80 the sum of $136.87, which, together with the balance of $87.64 not carried forward, makes a total of $224.51 due, according to the ledger, on the $500 mortgage on the 1st of January, 1895.
This result, as we have seen, is arrived at by a proper balancing of the books of Cortelyou Bros. & Co. As against it, divers bills of merchandise and receipts and checks on account thereof are produced by Hall. For all of these payments, except one, credit is given on the books of Cortelyou Bros. & Co., and no discrepancy is raised thereby, with a single exception. Among the papers produced by Hall is a statement of account (made out on a printed blank) of Mr. Hall with Isaac, Cortelyou, dated March 22, 1895, and he is there charged as follows: "1894, Nov. 30. Mdse. as per bills, $519.73; credit by building, $300; check, $175,— total, $475; leaving a balance of $44.73,"—under which is written: "Received payment. Cortelyou Bros. & Co." The $44.73 is regularly credited to Hall on the ledger of Cortelyou Bros. & Co. as of the 29th of March, 1895. To support the credit of "check, $175," in that statement, a check is produced drawn by Hall in favor of I. Cortelyou & Co., dated February 17, 1894 (more than a year before the date of the statement), for $175, on the Middlesex County Bank. That is indorsed by I. Cortelyou & Co., and is stamped "Paid" by the Middlesex County Bank on the same day, February 17, 1894. It appears that I. Cortelyou & Co. kept their account in a bank at Keyport, and that, by the usual course of business, that check, if used by I. Cortelyou & Co., should have been deposited to their credit in the Keyport bank, and sent from that bank through intermediaries to the Perth Amboy bank; but in this case it appears to have been paid over the counter on the day it was drawn. I can find no entry whatever on any of the books of Cortelyou of that check. As we have seen, it was drawn and paid more than a year before the statement of account is made up and credit given for it; and subsequently, as we have seen, the account was continued against Hall without giving credit for that check, and he paid a balance on March 4, 1890, of $46.05. Hall swears with regardto this check that it was an exchange of checks between him and Cortelyou; that he held Cortelyou's check a long time, at his request, and finally tore it up, and took this bill and receipt in its place. The statement of March 22, 1895, was made up apparently by Cortelyou's bookkeeper; but he was not called to explain this rather puzzling transaction, or to show why Hall should be, and was, credited with the payment of §44.73, and not with the check for $175. Nor was any explanation given of the circumstance that Mr. Hall paid subsequent bills, and finally settled his account, as we have seen, in March, 1896, without having credit for this check for $175. Upon the evidence and such examination of the documentary evidence as I have been able to give, I am not entirely satisfied that Mr. Hall is entitled to a credit for this item of $175 in such a way as to increase his chattel mortgage beyond the sum that I have already fixed. However, if it becomes important in the end to determine definitively whether or not he is entitled to such credit, I will give an opportunity for further evidence to be offered on that subject, or for a reference to a master to determine it.
If you add interest, on the sum of $224.51, above arrived at, to the 15th of April, 1896, which amounts to $17.36, we have $241.87 as the amount due on the $500 mortgage on the 16th of April, 1896, when the complainant's bill was filed. Deducting that from the sum of $2,430.55, proceeds of sale in the receiver's hands, we have the sum of $2, 188.68 subject to the complainant's equitable lien, without taking into account the amount of $245.35 paid into court by Hall as the proceeds of sales of goods made by Cortelyou after the restraining order was served upon him, and before the receiver took possession, such payment being made to stop contempt proceedings, and without taking into account the sum of $186.66, which was collected by the receiver on book accounts made prior to January 24, 1896, or $60.45 for interest received. This amount is sufficient to pay the complainant's claim in full.
I include in the amount subject to the equitable lien of complainant's judgment the sum of $611.80, collected from accounts made after January 24, 1896, for the following reasons: The bill of sale of January 24, 1896, which, as between the parties, I have held to be a mere mortgage, not only had the vital defect of having no affidavit annexed to it, but there was no actual or visible change of possession of the property conveyed. Such possession, as well as the actual control, remained in Cortelyou, and the business, as we have seen, was conducted precisely as it had been before. The only visible change was in using the name of the Perth Amboy Peed Company, and this, I think, the facts compel me to hold was a mere cover and makeshift. It is perfectly plain that Cortelyou's object was to defeat Nash's claim. He was the actual and substantial owner, and he never delivered any actual possession to Hall. This feature distinguishes the case from that of Bank v. August, 54 N. J. Eq. 182, 33 Atl. 803, affirmed on appeal in 55 N. J. Eq. 590. There it was held that the mortgagors in an unrecorded bill of sale, which was void as to creditors, might sell the goods, and actually pay the money to one of their creditors, and that such payment would be good as against the judgment creditors who had failed to make a levy. Had Mr. Cortelyou collected these moneys for the goods which he sold after January 24, 1896, and paid the money to Hall on account of what he owed him, a different question would arise; but, as I have held, the relation of Hall to Cortelyou's business was that of a creditor, and not of an owner, and the amounts due for goods sold after January 24, 1896, remained the property of Cortelyou. He put in a plea, which had no merit whatever, to the complainant's suit at law, and thereby deferred judgment until April 9th. These accounts are the proceeds of sales of goods which, as between him and his creditors, belonged to him during the time that he succeeded in postponing Nash's Judgment. They are therefore equitable assets, to which Nash, under his judgment, is justly and in equity entitled.
This result renders it unnecessary to consider a very strong argument addresed to me by the complainant to show that the whole transaction between Hall and Isaac Cortelyou was a fraud as to Nash; and the further argument that, under all the circumstances, the complainant was entitled, not only to the benefit of the $1,000 chattel mortgage delivered to him On the 7th of January, 1896, but also to the benefit of the two chattel mortgages which preceded it in registry, given by Isaac to his brother Tunis and his brother-in-law Bunn, who were both defendants in the judgment; the argument being that the mortgages were, in part at least, given for a good and valuable consideration, especially that of Bunn, and that the complainant, as a judgment creditor, is entitled to be subrogated to their rights as mortgagees against Cortelyou. I will advise a decree in accordance with the foregoing views.