Schenck v. Hart

The opinion of the court was delivered by Magie, J. The bill in this cause was filed by Noah S. Hart against his sister Sarah R. Schenck, John G. Schenck, her husband, and Abraham B. Randolph, trustee. It sets out a judgment, entered in the supreme court of this state, on June 6th, 1876, in favor of Noah S. Hart against John G. Schenck, for $2,488.21, damages and costs, founded on a promissory note for $1,600, given by said Schenck to said Hart, on a settlement between them alleged to have been made January 80th, 1869. The note was dated on that date, and was payable, with interest, on March 1st, 1871. The bill further alleges that, about March 6th, 1872, John G. Schenck purchased certain real estate, situatéd at Belvidere, and particularly described in the bill, and paid all the consideration that was paid therefor, and.that he took the conveyance thereof in the name of his wife, Sarah R. Schenck. It asserts that John G. Schenck has no other property out of which complainant’s judgment could be made. It charges that the deed of the property was made to Mrs. Schenck, in order to prevent the collection of complainant’s claim against her husband, and it prays that complainant’s judgment may be declared to be a lien on the Belvidere property, and that that property may be decreed — 776 — to be liable to the payment of his judgment debt and be sold therefor. Abraham B. Randolph was made a defendant, because it was alleged that John G. Schenck had made a conveyance of the Belvidere property to him, as trustee for Garret ScheDck, an infant son of John G. and Sarah R. Schenck. The last-mentioned conveyance was charged to be voluntary and without consideration, and made with intent to defraud the creditors of John G. Schenck. The bill also prayed chat this conveyance should be set aside. To this bill, the defendant, Sarah R. Schenck, filed a separate answer, in which she denied that her husband had any interest in the Belvidere property, other than the possibility of curtesy in case he survived her. She averred that the property was bought, not with his money, but with her own means, which belonged to her as her separate estate. She specifically stated the manner in which the purchase was made, and declared that the separate estate, which she bad used in the purchase, was originally acquired by her by gift from her uncle, George H. Hart. That gift consisted, as she declared, of the bond of Samuel K. Wilson, dated March 1st, 1866, made to George H. Hart, and conditioned for the payment of $7,000, with interest, and the mortgage securing the same upon the State Street House, in Trenton. This bond and mortgage, she averred, were assigned to her by her uncle, as a gift, with the knowledge and assent of her brother, the complainant, and with the intent to vest the absolute property thereto in her as her separate property, free from the control of her husband. She further averred that no trust in favor of her husband was intended to be, or was created by said gift. The answer of John G. Schenck denied that the Belvidere property was purchased by him, or with his money, and declared that it. was purchased by his wife and with her separate estate. He admitted that the conveyance to Randolph was purely voluntary, but insisted that nothing passed, or could pass, by the deed, because he had no title to or — 777 — interest in the property, except a possibility of curtesy in case of his surviving his wife. The answers were called for and put in under oath. Upon the issue thus framed, testimony was taken, and the proofs disclosed the following facts: The Belvidere property, which the bill seeks to charge with the lien of complainant’s judgment, was conveyed to Sarah E. Schenck, by John H. King and wife, by deed dated March 16th, 1872. The consideration of the conveyance was $7,700. Of this amount $2,000 was'paid by a purchase-money mortgage upon the premises conveyed. The remainder, $5,700, was paid by the assignment to King of two mortgages, one for-$2,000, made by Caroline Yan Zandt and husband to Sarah E. Schenck, and the other for $3,700, made by Mary A. Taylor to Sarah E. Schenck. The Yan Zandt mortgage had been acquired by Mrs. Schenck in a sale made by her to Mrs. Yan Zandt of a farm in Ewing township, Mercer county. The Taylor mortgage had been acquired by Mrs. Schenck in a sale made by her to Mary A. Taylor, of a dwelling-house in Trenton. The dwelling-house had been acquired by Mrs. Schenck in the sale of the farm in Ewing township above referred to. The farm had been acquired by Mrs. Schenck by purchase from Eeuben Davison, who, with his wife, conveyed it to Mrs. Schenck, by deed dated March 23d, 1869. The consideration of this purchase was paid by the assignment from her to Davison of a bond and mortgage for $7,000. The mortgage was made by Samuel K. "Wilson and wife to George H. Hart, upon a hotel in Trénton called the State Street House. It bore date March 1st, 1866, and secured upon that property Wilson’s bond to Hart, conditioned for the payment of $7,000 on March 1st, 1871, with interest. The last-mentioned bond and mortgage were given for part of the purchase-money of the State Street House, which had been sold to Wilson by George IT. Hart, and were assigned by him to Mrs. Schenck, by an assignment dated January 7th, 1869. — 778 — It will be perceived, from this statement, that the Belvidere property was .paid for by mortgages of Sarah R. Schenck, which are traced back to the 'Wilson bond and mortgage of $7,000, which she acquired by assignment from George TI. Iiart. The State Street House had been once owned by John G. Schenck. He was a member, of the firm of Titus, Burroughs & Co., which, about 1860, failed, with considerable outstanding liabilities. About the same time, Schenck conveyed the State Street House to Noah S. Hart, the complainant. The title was held by him until 1863, when he conveyed it to George H. Hart, who held it until 1866, when he sold it to Samuel K. Wilson. Out of this sale, George H. Hart acquired the $7,000 mortgage, which he assigned to Mrs. Schenck. The conveyances of the State Street House, above mentioned, were attacked by the creditors of Titus, Burroughs & Co. as having been made to defraud them, A bill was filed in the court of chancery, the object of which was to set aside the conveyance thereof, made by Schenck to the complainant in this cause, and that made by him to George H. Hart. While those proceedings were pending and, as appears from complainant’s admissions, being vigorously pushed, a compromise was effected, by which certain of the debts of the firm of Titus, Burroughs & Co. were assumed by Schenck, and complainant became security for the performance by Schenck of that assumption. The evidence leaves no room for doubt that the conveyances of the State Street House, above mentioned, were made and accepted in pursuance of a design to prevent the property from being reached by the claims of the creditors of John G. Schenck. While it is true that complainant, both in his answer to the creditor’s bill filed in respect to that property and in his testimony in this cause, declares that he paid $16,000 for the property, and paid it in full, and that there was no agreement that Schenck should retain any interest therein; yet his cross-examination clearly evinces. — 779 — the untruthfulness of his statement. He admits that he conveyed the property to George H. Hart for the consideration of $14,000, the largest part of which was paid by a sham transfer of property from him to complainant, which was done, as complainant says, “to look more like business.” Complainant afterward reconveyed the property he thus received, to George H. Hart, whenever requested, and without any consideration. He further admits that the State Street House was conveyed to. George H. Hart, to be held by him under an agreement between complainant and Schenck; that the creditor’s suit, then pending, was to be contested by complainant, but that he (complainant) was not to be the loser thereby; that it was to be carried on at Schenck’s expense, and Schenck was to take the property back. He also admits that, after the conveyance to George H. Hart, he (complainant) had just as much interest in it as he had before, viz., “ to do as well with the property as we possibly could, for the benefit of John Schenck and wife.” He finally declares that, at the time of the settlement, it was understood between the parties that “ all that was left of the property was to go to John G. Schenck, over and above the indebtedness and expenses.” The whole evidence, taken together, is convincing that the State Street House was conveyed by both deeds with intent to defraud Schenck’s creditors. The sale of the State Street House to "Wilson was bona fide. The $7,000 mortgage which arose therefrom, manifestly represented, at least in part, the proceeds over and above the indebtedness and expenses which complainant and George H. Hart had paid out. In January, 1869, complainant and Schenck had a settlement of their affairs, and the result was a note for $1,600, made by Schenck to complainant. At the same time, the $7,000 mortgage was assigned by George H. Hart to Mrs. Schenck. Complainant testifies that ihe assignment was made with the consent and at the request of Schenck. Schenck and his wife both deny .this, and declare that Schenck demanded that the mortgage — 780 — should be assigned to him, and that complainant refused to do so, but assigned it to Mrs. Schenck. It is clear that the bond and mortgage were under the control of complainant, and were assigned according to his directions, because he admits that.“ the papers could not be placed in her hands without my consent; that was the understanding; I gave my consent to my uncle; I told him I had settled with John Schenck; I told him I believed everything was all fixed now, and the papers could be handed over, so far as I was concerned.” The mortgage was then assigned to Mrs. Schenck, and she signed the $1,600 note with her husband. Complainant says she signed it in consideration of the assignment, and upon a promise to pay the note out of the mortgage, and that the note was, consequently, made payable at the same date the mortgage became due. This is denied by Mrs. Schenck, who insists she only signed the note as surety for her husband. • It also appears that, at the time of this assignment, some of the indebtedness of John G. Schenck was still outstanding and unpaid. In the view I take of this case, it is unnecessary to determine the precise terms on which the assignment was made, or what liability was incurred by Mrs. Schenck by the execution of the note. It sufficiently appears that the mortgage was proceeds of property which had been conveyed to and received by complainant in fraud of the creditors of John G. Schenck; that complainant transmitted that property' to George II. Hart with like fraudulent intent, and that the mortgage thus arising was assigned, with complainant’s consent and under his direction, to Mrs. Schenck, with the intent to make it her property. Upon these facts, the decree imposing the lien of complainant’s judgment upon the Belvidere property cannot be sustained. It will be at once noticed that the case made by the proofs is quite variant from the allegations of the bill. The gravamen of the charges of the bill is the purchase of the Belvidere' property with the money of Schenck, the judg — 781 — me-nt debtor, and the conveyance thereof to Mrs. Schenck with intent to hinder the collection of the judgment. The proofs disclose a fraudulent transfer of the property of the judgment debtor, about twenty years ago, out‘of which transfer, by various transmutations, the consideration paid for the Belvidere property was acquired. Since the complainant was fully informed in respect to the whole transaction, his bill was, to say the least, disingenuous. But, passing over this objection, aid admitting that complainant, to sustain the allegations of his bill, is entitled to show that the mortgages which were used to purchase the Belvidere property originated in property which had belonged to the judgment debtor and been transferred by him with intent to defraud creditors, the decree is not sustainable. The conveyances by which Schenck transferred the State Street House to complainant, and complainant to George II. Hart, being made to delay, hinder and defraud creditors, were, by virtue of the second section of our statute of frauds then in force, absolutely void as to creditors whose actions were thereby in any way hindered, disturbed or defeated. But, by the express language of that act, such result followed only in respect to such creditors. As to all others, and especially as to the parties to the transaction, a conveyance made to defraud creditors was absolute and indefeasible. Such has been the invariable course of decision when he who made a grant to, or bought property in the name of, another, with intent to defraud creditors, has invoked the aid of the courts. Baldwin v. Campfield, 4 Hal. Ch. 891; Eyre v. Eyre, 4 C. E. Gr. 42; Sayre v. Fredericks, 1 C. E. Gr. 209; Den v. Monjoy, 2 Hal. 173. And, if the view taken by the learned chancellor, in Ownes v. Ownes, 8 C. E. Gr. 62, viz., that, an executed contract or naked trust, duly acknowledged, respecting property conveyed in fraud of creditors, may be enforced in a court of equity, be correct (in respect to which I express no opinion), yet that case fully admits that courts will utterly refuse aid to establish a resulting — 782 — trust, or enforce an executory contract growing out of such a fraudulent transaction. Nor can the other partj' to such a transaction be entitled to be dealt with on any different principle. The language of the act, and reasons originating in sound, public policy, equally forbid him from being permitted to avail himself of a transaction in which he was a guilty party, or to invoke the aid of the courts in any case in which he has to rely upon the fraud in which he took part. I find no case in which relief has been sought by the grantee in such a transaction, and for obvious reasons few such are likely to occur. But, the case is clearly within principles recognized in all our courts. In Cutler v. Tuttle, 4 C. E. Gr. 562, Chancellor Zabriskie declares that no principle is better settled than that a conveyance designed in fraud of creditors is good inter partes. In Servis v. Nelson, 1 McCart. 100, Chancellor Green declares that, as between the parties thereto, such a conveyance will not be set aside or relieved against at the instance of either party, each of whom is particeps criminis. And, in Lokerson v. Stillwell, 2 Beas. 357, the same chancellor declares that no party to an agreement in fraud of legal rights is entitled to the aid of a court of equity. See, also, Jackson v. Garvey, 16 Johns. Ch. 192. In all such cases the maxim in pari delicto, potior est conditio possidentis ought to be applied. After John G. Schenck had made the conveyance of the State Street House to complainant, the title thereto became, so far as tbe parties thereto were concerned, a vested, absolute and indefeasible title. Neither could, in any court, impeach it, or claim that it was not what it purported to be. A similar result followed the conveyance to George H. Hart. Thereafter, the title became equally vested in George H. Hart, and neither he, nor complainant, nor Schenck, could impeach it. George H. Hart could do what he chose with the property, or its proceeds, so far as Schenck or complainant was concerned, and no court would give them relief against his acts. If he had chosen to give the pro — 783 — eeeds of the property back to Schenck, it is possible that the right of complainant to enforce against them his claim as a creditor might have revived. But no such transfer took place. On the contrary, the assignment was made to Mrs. Schenck, it is admitted, with the intent to make it her absolute property, not to be reached by the creditors of the husband, and there was no arrangement or express trust in favor of the husband. The complainant, in order to defeat the title thus made in the wife, must go back to and set aside the title made to himself by Schenck with intent to defraud creditors. That he cannot be permitted to do. The title he took, and consequently that acquired under it, by his consent and direction, is, as to him who was particeps criminis in respect thereto, absolute, and cannot be disturbed. This objection to the complainant’s claim, the learned chancellor declined to consider, when this case was before him, upon the ground that it was not disclosed in the defendants’ answers. The well-known rule thus appealed to, is not, however, applicable. It is not a question of defence to complainant’s claim. The question is, whether complainant has sustained his claim by proof. His claim is, that the Belvidere property was purchased by the money of Schenck. The proof is, that the purchase was made by means derived from the $7,000 mortgage assigned to Mrs. Schenck. In pursuing his proof, and tracing back that mortgage to Schenck, it convincingly appears, upon complainant’s own case, that it originated in a fraudulent conveyance made by Schenck to complainant. By his own proofs, therefore, he shows a case upon which the court ought not to grant him relief. Nor do I consider it necessary that Mrs. Schenck should have set up this fraud in her answer. There is no proof that she was aware of it. But, if she knew of it, her claim was that the mortgage was given to her by her uncle, and it was sufficient to set out that claim in her answer. Whether or not she has sustained that claim by her proofs, it is unneces — 784 — sary to consider, since the complainant, by his proofs, has disclosed a case on which he cannot succeed. Complainant further urges, that the decree which he has obtained ought to be permitted to stand, because he insists that the $7,000 mortgage was assigned to Mrs. Schenck upon her promise to pay the note which is the foundation of his judgment, out of the money to be derived by her from the mortgage when paid. There are two reasons why this contention cannot be successful. In the first place, if there was such a promise made by her, it was enforceable at law under the married woman’s act, then in force. In the next place, if it be admitted that there is a concurrent jurisdiction in a court of equity to give relief to complainant, on the ground of a trust resulting from the undertaking to pay out of the moneys received from the mortgage assigned, or other similar ground, such relief could not be .given under this bill. The case made by the bill is one of actual fraud. The facts upon which this relief is claimed are not disclosed, or even hinted at, in the bill. To those facts, the defendants have had no opportunity to put in their answer, and to obtain the benefit which the rules of equity pleading accord to a responsive answer. Although there is evidence taken on both sides upon this subject, there is nothing to show that defendants have produced all the evidence within their power to obtain. There was no reason, upon the issue made by the pleadings, why they should do so. To hold the decree under those circumstances, would give complainant relief upon facts which were well known to him at the time he filed his bill, but which he carefully refrained from stating therein, and in respect to which he may have thus deprived defendants of an opportunity to make a defence. For these reasons, the decree below ought to be reversed, and the complainant’s bill dismissed, with costs.