Opinion
05-07-1896
RANKIN v. GARDNER et al.
Edward W. Benjamin, for complainant. William B. Guild, for defendants. Gardner and wife and German National Bank. Adrian Riker, for defendant Condit, assignee.
Creditors' bill by William H. Rankin against Edward D. Gardner, insolvent, and others, to have conveyances of realty and personalty by the insolvent declared fraudulent as to creditors. Judgment for plaintiff as to part of the realty.
Edward W. Benjamin, for complainant.
William B. Guild, for defendants.
Gardner and wife and German National Bank. Adrian Riker, for defendant Condit, assignee.
EMERY, V. C. This is a creditors' bill, filed with two objects. The first is to subject to the claims of the creditors of the defendant Edward D. Gardner lands conveyed to his wife, and the legal title to which is now held by her, or for her benefit by the defendant Condit. The second object is to impeach the validity of a sale of personal property of the defendant Edward D. Gardner,made under a chattel mortgage held by the defendant the German National Bank. At this sale the property, or a large portion of it, was purchased by the bank, and was afterwards sold by it in bulk to the defendant Condit, upon his paying or becoming liable for the amount due to the bank, which was more than the amount secured by the mortgage. The bill, which was amended at the hearing to add this second claim, charges that the bank, in its sale of the goods, acted in collusion with the defendant Gardner and wife and Condit, and had the same sold in such manner as to enable it to buy them in for less than their value. The evidence taken at the hearing fails to support this charge of fraud on the part of the bank in the chattel mortgage sale, and, so far as relates to this branch of the case, relief must be denied. As one of the grounds for attacking the sale the complainant's counsel insists that the circumstances of the subsequent sale by the bank to Condit show fraud in the original sale under the bank's mortgage, but I cannot see that they justify this inference. The purchase of the personal property by Condit from the bank, made after the foreclosure sale, although made in his own name, was made at the request of, and for the benefit of, Mrs. Condit, who held a second chattel mortgage on the property, which was cut off by the sale of the bank; and Condit, on purchasing from the bank, gave his individual note for the indebtedness of Gardner. As between him and Mrs. Gardner, Condit held the title to the personal property only to secure him against loss; and he also at the same time, and as part of the same transaction, received a conveyance from Mr. and Mrs. Gardner of three of the tracts of land standing in her name. This conveyance, although absolute on its face, was intended only to secure him against loss on the note he had given to the bank, and the bank also, on the sale to Condit, transferred to him, or held for his benefit, the notes indorsed to it by Condit, and on which other parties were liable; the intention of the transfer, as between the bank and Condit, being that, if Condit would give his obligation for the indebtedness of Gardner, he (Condit) should have the property and security the bank then held for Gardner's debt. The arrangement between the Gardners and Condit for the purchase of the personal property in Condit's name for the benefit of Mrs. Gardner, and the transfer to Condit of the real estate as further security against loss on the transaction, was not, so far as the personal property of Gardner is concerned, an arrangement which in any wise defrauded Gardner's creditors, if the chattel mortgage sale to the bank was valid; and it was besides a transaction with which, so far as it appears by the proof, the bank was not connected.
Upon the other branch of the case, relating to the character of the conveyances of real estate to the wife, and the right of the complainant to relief in this cause, I reach the following conclusions:
First. The complainant has the right to file the bill to attack the conveyances. The defendant Gardner, previous to the filing of the bill, made an assignment for the benefit of his creditors to the defendant Oscar H. Condit; but it appears by the pleadings and proofs that the assignee has a personal interest in three of the tracts of land in question, adverse to the rights of creditors, and that this interest was conveyed to him subsequently to his appointment, as security for the payment of obligations which he then assumed for the benefit of Mrs. Gardner. So far as relates to these tracts of land, the personal interest of the assignee is directly adverse to any rights of creditors to set aside the conveyances to the wife as fraudulent. The complainant has proved his claim under the assignment, and it is clear, therefore, that in this condition of the assignee's personal title and interest derived through Mrs. Gardner, the complainant, on behalf of himself and other creditors claiming under the assignment, has the right to file this bill for relief, making the assignee a party defendant.
Second. As to the conveyances to Abby D. Gardner of the Clinton avenue tracts, these must be sustained as against the complainant. These conveyances were made to Mrs. Gardner in December, 1886, and January, 1887, and very soon after her marriage. Gardner had at that time been engaged for several years in a business which was of considerable volume,—over $60,000 annually. The business was apparently profitable, and upon his books at that time the value of his interest in the business was at least $17,000. The purchase money for these Clinton avenue lots, which were not improved, was taken from the business to the extent of $1,600, and the title taken in or transferred to the wife. The lots were afterwards improved by means of money secured on mortgages. The deeds were placed on record at once, and Gardner continued business until his assignment, in April, 1895, with this condition of the record open to the inspection of creditors. No part of the complainant's debt was incurred before January, 1894, and the credit given by him was therefore not upon the faith of the ownership of this property by Gardner; and the only way in which he can subject it to the payment of his debt, incurred seven years subsequently, is by showing that these previous conveyances were made with the actual intent on the part of Gardner and his wife to defraud his future creditors. Hagerman v. Buchanan, 45 N. J. Eq. 292, 299, 17 Atl. 946. The evidence fails to satisfy me that this was the intent of the conveyances, or that, so far as the future creditors were concerned, the withdrawal to this extent of the purchase money from the business, for the purpose of this voluntary settlementon the wife by the purchase of this property, was made in anticipation of defeating the collection of future debts. About the time of these conveyances Pierson took a partner in the business, named Watson, who put into the business $6,000 in cash. The business of the partnership continued for five years, until December, 1892, when Watson withdrew, receiving from Gardner $7,000 for his interest, an advance of $1,000. Watson had in the meantime drawn $14,000 from the firm as, or on account of, his share of the profits, or supposed profits; and, admitting that the present complainant can treat the business as one entire business carried on by Gardner from 1884, and not as a business which he has carried on only from 1892, it seems to me that this purchase by Gardner of Watson's interest for this advance in price shows that even as late as that time the idea of defrauding his creditors was not present in Gardner's mind.
Third. I reach the same conclusion in reference to the Elizabeth avenue property and the property on Fourteenth street and Ninth avenue. The Elizabeth avenue property—a vacant lot—was purchased in November, 1883, and the purchase money, to the extent of about $2,000 at most, paid from the business indirectly; the money being raised by sale of building and loan shares standing in Mrs. Gardner's name, but paid for out of the business. The property was afterwards improved by means of money obtained from loans on mortgages. The Fourteenth street property was conveyed to Mrs. Gardner in exchange for property on Lake Hopatcong, which had been purchased in November, 1886, by Gardner, and upon which he had erected a building at the cost of about $300 from money taken from the business. As to both these conveyances, the evidence applicable is substantially the same as that relating to the Clinton avenue property, and I reach the same conclusion,—that no actual intent to defraud future creditors has been sufficiently shown.
Fourth. In relation to the Summer avenue property, the situation of Gardner and his wife is different, and the facts relating to this transfer are as follows: On October 5, 1894, while complainant's debt was existing, and only a few months before his failure, Edward D. Gardner was the owner of land on Elliott street, Newark, upon which some houses were erected. The title to the Elliott street property stood in his name, and on that day Gardner made a written agreement with one Cadmus, by which Cadmus, for the consideration of $7,150, agreed to convey to Gardner a lot on Summer avenue, Newark, subject to a mortgage of $4,000. The $7,150 was to be paid as follows: $1,600 in cash, $150 in hardware, $4,000 by assuming the mortgage, and the balance, $1,400, by a conveyance to Cadmus of the Elliott street property, as to which the agreement states: "Said premises being valued at three thousand dollars, and to be conveyed by deed of warranty, subject to a mortgage of $1,600, which said mortgage is to be assumed by said Cadmus." This agreement of exchange was carried out October 12, 1894, but the deed for the property on Summer avenue was made to Mrs. Gardner, instead of her husband, and the $1,600 in cash was raised upon notes given by Mrs. Gardner. At the time of this transaction the complainant's debt, or some portion of it, was an existing debt, and, besides, Gardner's own evidence shows that at that time the business of Gardner was in such a declining condition that he was not justified in withdrawing any of his assets from the reach of his then existing or any future creditors of his business. From September, 1893, he says the business had been falling off from $60,000 to $90,000 down to $30,000 in April, 1895; that the bad debts from 1890 to 1891 had increased to nearly $7,000 or $8,000. Some of his paper had gone to protest during the year, and within a few months he made his assignment. Under these circumstances it seems clear that the condition of Gardner's business did not justify the withdrawal of any of his assets from the reach of his creditors, and that the transfer to his wife of the benefit of his bargain with Cadmus in the exchange cannot be sustained as against any of his creditors, whether existing or future. His contention now is that the Elliott street property, although valued in the agreement at $1,400, was in fact worth nothing over the incumbrances. Evidence to prove and disprove this assertion as to valuation has been taken by the parties, but, inasmuch as from his equity in the Elliott street property, whatever it was, Gardner was entitled, on paying $1,600, to the Summer avenue property, it seems clear that, if Gardner's creditors were entitled to the Elliott street equity, they are also entitled to its proceeds, and to follow its proceeds in the hands of Mrs. Gardner, subject to the payments she has made, or is obliged to make, as assuming Gardner's place under the agreement. As to any value in the Summer avenue property over and above the amount she paid under the agreement ($1,600), she cannot be considered as entitled to it, for it was derived from the equity in the Elliott street property, which belonged to her husband's creditors. The rights of the creditors of Gardner to this Elliott street equity cannot be made to depend upon evidence whether this equity was or was not of value. It was in fact converted into an equity in the Summer avenue property, and therefore the creditors who were entitled to the Elliott street equity are entitled to follow it, subject, of course, to the payments which have been made or must be made to procure it The title of the Summer avenue property will therefore be declared to be held by Mrs. Gardner as trustee for the creditors, subject to such payments as she has made or must hereafter make under the agreement of exchange. The form of decree will be settled.
Complainant's counsel contended strenuously that the fact that the rents of the propertywhich stood in Mrs. Gardner's name from 1886 after the properties were improved, or a large part of them, were used by her husband in his business, at his option, and without any accounting to her, was strong evidence of the fraudulent intent of the conveyances. But, while this course of business may be such evidence of a gift of a portion of the rents by the wife to the husband that she could not afterwards, as against the creditors, reclaim them as a debt, yet it does not seem to me that, as against the wife claiming under a voluntary settlement, the inference from this fact can, under the circumstances of this case, be extended to reach the original conveyances or consideration to her. Under the facts shown in this case as to the manner in which the husband received and applied the rents, I doubt very much whether the chattel mortgage of $6,500, which Gardner gave on the eve of his assignment to secure these alleged advances, could, as to a considerable portion of the claim, be sustained as against his creditors. But this chattel mortgage was subject to the bank's chattel mortgage, and nothing was realized thereon, so that the validity of this mortgage has not come directly in question. Incidentally it has arisen because the complainant charges that the sale of the mortgage chattels was by collusion between the bank, the Gardners, and Condit, managed in the interest of the Gardners, and for the purpose of defrauding the other creditors. I fail to find evidence to justify me in holding that the proceedings of the bank in foreclosing their chattel mortgage and purchasing at the sale were made with such intention. As to the bank, therefore, the bill will be dismissed, with costs; and as to the other defendants, complainant will be allowed costs. As between the defendants Gardner and Condit, the amount chargeable to each will be settled, if necessary, on settlement of decree.