de Grauw v. Mechan

Full title: DE GRAUW et al. v. MECHAN et al.

Court: COURT OF CHANCERY OF NEW JERSEY

Date published: Feb 7, 1891

48 N.J. Eq. 219 (Ch. Div. 1891)

48 N.J. Eq. 219

Opinion

02-07-1891

DE GRAUW et al. v. MECHAN et al.

William B. Gilmore, for complainants. James F. Minturn, for defendants.

GREEN, V. C.

(Syllabus by the Court.)

On bill, answer, and proofs taken in open court.

William B. Gilmore, for complainants.

James F. Minturn, for defendants.

GREEN, V. C. On the 7th day of March, 1868, the assignor of the complainants, to secure the payment of $1,500 and interest, took a mortgage from John Meighan on certain real estate in the town of Union, Hudson county. On the 14th day of May, 1868, John Meighan and wife conveyed the same premises to John Median, subject to the said mortgage; the deed reciting that the principal of the said mortgage was included in and formed part of the consideration money thereof. On the 3d day of March, 1873, John Mechan and wife conveyed the premises to Catharina Elizabeth Scholerman, subject to the mortgage first above mentioned, the payment of which was assumed by the grantee as part of the consideration money, and took also a consideration mortgage of $800. The complainant filed a bill to foreclose the mortgage for $1,500, making John Meighan, John Mechan, and Catharina Elizabeth Schoierman defendants, in which action final decree was entered on the 20th day of April, 1877, for the amount of the complainant's mortgage, interest and costs, and certain amounts to other incumbrancers, and for any deficiency in complainant's claim, after sale of the mortgaged premises, against John Meighan, John Mechan, and Catharina Elizabeth Schoierman. Execution on this decree was issued June 20, A. D. 1877, and the property sold by the sheriff of Hudson county, September 6, 1877, to Aaron A. De Grauw, as general guardian of Maud Kissam, the complainant, for $100. On November 16, 1889, 12 years and 2 months thereafter, an order was entered in the cause that the deficiency due complainant on the sale of the premises is ascertained to be $1,895.84, with interest from September 6, 1877. On the same day execution was issued out of this court against John Meighan, John Median, and Catharina Elizabeth Schoierman, to make the amount of the said deficiency so ascertained; and on the 25th day of November, A. D. 1889, the sheriff of Hudson county, in default of sufficient goods and chattels of the defendants, levied on all the right, title, and interest of Mechan in lands in Hoboken involved in the controversy in the present suit.

The bill in this cause is in the nature of a creditors' bill, was filed November 25, 1889, and is based upon the following facts: John Mechan, being seised in fee of two lots, one being an irregularly shaped lot with frontage on Clinton street, and also on First street, in Hoboken, the other being a lot in West Hoboken, on the westerly side of the Paterson and New York plank-road, a distance of about 100 feet from Paterson avenue, by deeds dated on or about January 4, 1875, together with Mary, his wife, conveyed the same to one Thomas W. Sweeney, who by deed immediately thereafter reconveyed the same to Mary Mechan, the wife of the said John Mechan. These conveyances are alleged to have been voluntary and made for the purpose of and with the intent to hinder, delay, and defraud the complainants in the enforcement of the liability of John Mechan for the mortgage debt above referred to. The buildings that were on the property in 1875 were destroyed by fire some four years ago, and others were erected in the place thereof, of a better class, and more valuable than those destroyed. Mary Mechan, wife of John Mechan, died in 1878, in the city of Brooklyn, New York state, having made her last will and testament, alleged to be in proper form to pass real estate in New Jersey, leaving her surviving her husband, John Mechan, and Eugenie, wife of William H. Leach, Mary F. Mechan, and Geraldine Mechan, heirs at law, all of them being of full age. The will of Mrs. Mechan was not produced on the trial, nor does it appear that the same has ever been proved or recorded in this state. A sale of the right, title, and interest of John Median in the Hoboken property was made by the sheriff of Hudson county on the 27th day of February, 1890, under the fi. fa., issued on the order ascertaining the deficiency entered on the 16th day of November, 1889, in the original foreclosure suit. Said sale was after the filing of this bill, but before any of the defendants were served with process, or brought into court, and the fact of the sale was incorporated in the bill by way of amendment. The whole property was sold by the sheriff to the complainant Aaron De Grauw, as general guardian of the other complainant, for $1,650. The bill alleges that the first-described property in Hoboken was worth $5,000 in 1875; and it appears by the testimony of Mr. William H. Harper, a real-estate dealer, that the lots are now worth $4,000, and the improvements

$1,500. The bill alleges that the second tract in Hoboken was worth $2,000, but no evidence was given on the trial as to its value. The answers admit that the conveyance of the smaller tract from John Mechan to Thomas W. Sweeney, and from him to Mrs. Mechan, was without consideration, but are silent as to the other. The conveyances of this tract were put in evidence, from which it appears that the consideration of each was one dollar, and no evidence was produced of any other. No testimony was given which even tended to show any actual fraud in the transfer of the property from John Mechan, through Mr. Sweeney, to his wife, the complainants resting their case on the position that these conveyances were voluntary, and claiming that they were presumed to be fraudulent as against the complainant De Grauw, on the rule that the law conclusively presumes a voluntary conveyance to be fraudulent as to prior and existing creditors of the grantor. Cook v. Johnson, 12 N. J. Eq. 51; Haston v. Castner, 31 N. J. Eq. 697; Hagerman v. Buchanan, 45 N. J. Eq. 292, 17 Atl. Rep. 946; Gardner v. Kleinke, 46 N. J. Eq. 90, 18 Atl. Rep. 457.

At the time these conveyances of the Hoboken property were made, in 1875, De Grauw held the mortgage on the other property in the town of Union, which John Mechan had taken the title to in 1868, subject to the mortgage, the amount of which was taken as part of the Consideration, and which property he had in 1873 conveyed to Mrs. Scholerman, subject to the mortgage, and who in turn had assumed the payment thereof. The proceedings to foreclose the mortgage were not commenced until 1877, two years after the conveyances which are now attacked, so that in 1875, when Mechan conveyed the Hoboken property, he stood in the position of having in 1868 covenanted with the grantor of another property to pay a mortgage thereon, which property he sold and conveyed in 1873, his grantee assuming on her part the payment of the said mortgage. Mr. Justice Depue in the case of Crowell v. Hospital, 27 N. J. Eq. 650, 653, says, with reference to stipulations similar to the one in question: "In equity, a stipulation of this kind is regarded as aeon tract simply to indemnify the grantor against the mortgage debt. As such it is operative between the parties to the deed, but does not make the mortgage debt a personal debt of the grantee." On page 655: "The right of a mortgagee to enforce payment of the mortgage debt, either in whole or in part, against the grantee of the mortgagor, does not rest upon any contract of the grantee with him, or with the mortgagor for his benefit." On page 656: "Recovery of the deficiency after sale of the mortgaged premises against a subsequent purchaser is adjudged in the court of equity to the mortgagee not in virtue of any original equity residing in him. He is allowed by a mere rule of procedure to go directly as a creditor against the person ultimately liable, in order to avoid circuity of action, and save the mortgagor, as the intermediate party, from being harassed for the payment of the debt, and then driven to seek relief over against the person who has indemnified him, and upon whom the liability will ultimately fall. The equity on which his relief depends is the right of the mortgagor against his vendee, to which he is permitted to succeed by substituting himself in the place of the mortgagor. In this respect the mortgagee occupies an entirely different position from that of a surety. The latter, in virtue of his position as surety, acquires in himself a legal right of subrogation to all securities for the debt which come to the possession of the creditor." The rights of a mortgagee as against the assumer of the mortgage, therefore, in this state do not rest in any sense upon contract, but on a rule analogous to that of subrogation, by which he is allowed to proceed in equity directly against such grantee. It is, however, a right which may be destroyed by the extinguishment of the liability by the original parties to the contract of indemnity before its attempted enforcement, (Crowell v. Hospital, supra;) or by a bona fide release between them before bill filed, (Youngs v. Trustees, 31 N. J. Eq. 290.) It is not, therefore, in a legal sense, his personal debt to the mortgagee. Mount v. Van Ness, 33 N. J. Eq. 262; Terhune v. White, 34 N. J. Eq. 98; Mellen v. Whipple, 1 Gray, 317; Pettee v. Peppard, 120 Mass. 522; Keiler v. Ashford, 133 U. S. 610, 10 Sup. Ct. Rep. 494; Willard v. Wood, 135 U. S. 309. 10 Sup. Ct. Rep. 831. These considerations give much force to the contention that the complainants, in 1875, two years before foreclosure, did not occupy the position of creditors of Mechan, in the sense that the law will conclusively presume a voluntary conveyance by him, at that time, fraudulent as against them. The view, however, which I take of this case, and the grounds on which I think it is to be disposed of, render it unnecessary, if not ill-timed, that this question should be disposed of in this suit. This court cannot look with favor upon the case of a complainant who has remained inactive for years, during which time innocent parties, whose interests are jeopardized by his dormant rights, have gone on, in fancied security, to expend money in improvements, to make provision for the future support of their families, and to forego the enforcement of indemnity until it has been imperiled, if not lost, who at last awakens to enforce his rights, when conditions cannot be reinstated, when witnesses are dead and parties bankrupt, when the truth has been necessarily obscured by the lapse of time, and especially when he so conducts his cause as to make it inequitable to grant the relief he demands. Lord Camden in Smith v. Clay, 3 Brown, Ch., note, pp. 639, 640, says: "A court of equity, which is never active in relief against conscience or public convenience, has always refused its aid to stale demands when the party slept upon his right, and acquiesced for a great length of time. Nothing can call forth this court into activity but conscience, good faith, and reasonable diligence. When these are wanting, the court is passive, and does nothing. Laches and neglect are always discountenanced, and, therefore, from thebeginning of this jurisdiction, there was always a limitation to suits in this court." Doughty v. Doughty, 10 N. J. Eq. 349; Shipman v. Cook, 16 N. J. Eq. 251; Cooper v. Carlisle, 17 N. J. Eq. 525; Brown v. Insurance Co., 32 N. J. Eq. 809; Wood v. Chetwood, 33 N. J. Eq. 9, 21; McCartin v. Traphagen. 43 N. J. Eq. 323, 338, 11 Atl. Rep. 156; Collins v. Collins, 45 N. J. Eq. 813, 820, 18 Atl. Rep. 860; Van Houten v. Van Winkle, 46 N. J. Eq. 380, 382, 20 Atl. Rep. 34; Lynch's Adm'r v. Vanneman, (N. J.) 18 Atl. Rep. 468; Sullivan v. Railroad Co., 94 U. S. 806, 811; Stearns v. Page, 7 How. 819, 829; Godden v. Kimmell, 99 U. S. 201: Aldridge v. Muirhead, 101 U. S. 402; Randolph v. Quidnick Co., 135 U. S. 457,

462, 10 Sup. Ct. Rep. 655; Story, Eq. Jur. § 1520. Nor is the rule different where the delay is in the prosecution of a cause commenced. Shipman v. Cook, supra; Sebring v. Sebring, 43 N. J. Eq. 59, 61, 10 Atl. Rep. 193. But conscience and good faith are as requisite as diligence to secure the aid of a court of equity. It has no sympathy with underhanded efforts to gain a speculative advantage, and will not enforce a technical legal right to the unconscionable injury of a defendant. In Railroad Co. v. Cromwell, 91 U. S. 643, the complainant had filed a bill in the court below to compel the transfer of certain shares of stock which he had purchased at an execution sale made by the United States marshal. The company was practically extinct, and the sale was for a sum almost nominal, but there was a contingent fund of a considerable amount, which might possibly be reached. Mr. Justice Bradley, at page 645, says: "He [the complainant] paid no adequate consideration to entitle him to claim it [a portion of the fund] as a matter of equity. If the law gives it to him, he should seek his remedy at law. Equity will not lend its aid to any such games of hazard." And again: "The court is not bound to shut its eyes to the evident character of the transaction. It will never lend its aid to carry out an unconscionable bargain, but will leave the party to his remedy at law." Randolph v. Quidnick Co., 135 U. S. 457, 10 Sup. Ct. Rep. 655, was a case in which the complainant, having at a sale under execution bought the right of the defendant in attachment in certain stock for a grossly inadequate sum, filed his bill to establish his title to the shares of stock thus purchased, the same having been transferred 10 years before for the benefit of creditors, which transfer was attacked as illegal. Mr. Justice Brewer says. at page 463, 135 U. S., and page 656, 10 Sup. Ct. Rep.: "Equity, administering its remedies in accordance with its own rules, affirms that the best of rights may be lost by unreasonable delay in their assertion, and, when coupled with long delay is a scheme for great personal gain at the expense of equally deserving creditors, it refuses to lend its aid to the accomplishment thereof." The principle of these cases is founded on the cardinal maxim that "he who seeks equity must do equity." Chancellor Williamson, in Doughty v. Doughty, 10 N. J. Eq. 347, 349, says: "One acknowledged principle on which courts of equity give relief is to prevent an advantage gained at law from being used against conscience." It would be a mockery, in the face of such a principle, for the court to lend its aid to a technical legal right surreptitiously obtained, the enforcement of which would be inequitable and unjust.

In the light of these principles of equity, how do the complainants stand in this cause? In the first place, the large deficiency they seek to collect is the result of the purchase by De Grauw for $100 of the property they formerly took as security for $1,500. That deficiency was created in 1877, and could have then been enforced. There is Dot an incident or a right which they invoke in November, 1889, as a baste for relief which was not available in 1877. The transfers now attacked had been made two years before, and notice of the conveyances had been given by their record. Nothing was done in secret; the entire transaction was published to every one. By proper diligence the complainants could then have possessed themselves of any fact which they now urge to invalidate these conveyances. The cases cited by counsel that fraud is never cured by delay apply to actual fraud which has been concealed; they have no reference to a case founded on that which the law presumes fraudulent as against creditors, nor where the facts are known or ought to be known by the parties. With full notice of every fact now invoked these complainants slept upon their rights without reasonable excuse for over 12 years. Then, without any apparent reason, they awaken to a vigorous and relentless prosecution of their claims. Nothing appears on the surface to explain the activity which succeeds this long period of repose, but some secret prompting recalls them from the forgetfulness and neglect which for 12 years have characterized their connection with the case. In that time the buildings upon the property were destroyed and replaced by more valuable ones, and other important occurrences have happened. These proceedings are revived without notice. The deficiency is established by the record. Whether any sum has been paid since the first sale does not appear, but there is no proof that the whole is unpaid. Mrs. Mechan, the person most interested in the transfer now attacked, has died. What has become of the other parties to the transaction is not proved. What evidence has been buried in the past is not and cannot be known. Indemnity has been at least endangered. Catharina E. Scholerman, who, by the assumption of the mortgage on John Median's conveyance to her, as between themselves, became the principal debtor, (Klapworth v. Dressier, 13 N. J. Eq. 62; Hoy v. Bramhall, 19 N. J. Eq. 563; Crowell v. Hospital, 27 N. J. Eq. 650,) and against whom he had a right of action at law on his payment of the deficiency, (Finley v. Simpson, 22 N. J. Law, 311; Bolles v. Beach, Id. 680; Thayer v. Torrey, 37 N. J. Law, 343,) appears by the sheriff's return to the execution to be without property in the county where she resided when such residence is shown by the records herein. The deed to her whereby she assumed the payment of the mortgage was dated March 3, 1873. Themortgage was then due, and Mechan had an immediate right of action in equity against her to compel payment of the debt. Irick v Black, 17 N. J. Eq. 189, 195; Delaware, L.& W. R. Co. v. Oxford Iron Co., 38 N.J. Eq. 151, 153; Cubberly v. Yager, 42 N. J. Eq. 289, 11 Atl. Rep. 113; Wooldridge v. Norris, L. R. 6 Eq. 410. The inactivity of complainants justified Mechan in not resorting to his remedy. The mortgaged premises stood as security not only for the amount of complainants' mortgage, but for a second and third mortgage, of $800 and $263, respectively. Foreclosure was not commenced for four years after the Scholerman deed; and, after the sale, complainants had the property, and were apparently satis-tied. They did not enforce their claims until more than 16 years after the deed to Mrs. Scholerman was given. After that time he could not have that remedy, for equity would apply the statutory limitation to an action brought after its expiration against her upon her assumption of the mortgage in the deed. Hovenden v. Lord Annesley, 2 Schoales & L. 607, 630, 632; Kane v. Bloodgood, 7 Johns. Ch. 90, 117; Knox v. Gye, L. R. 5 H. L. 656, 674; Conover v. Conover, 1 N. J. Eq. 403. The fact that the defendant has during complainants' inaction lost a remedy over against others for indemnity, is a ground for a court of equity to withhold relief. Collins v. Collins, 45 N. J. Eq. 813, 820, 18 Atl. Rep. 860.

But to grant relief under this bill to the complainants now would be inequitable. The complainant issued a fi. fa. in tin original suit November 16, 1889. This bill was filed November 25, 1889. It is in aid of such execution. The prayer is: "And that the said defendants, or some or one of them, may be decreed to pay unto your orators the full amount of the deficiency decree hereinbefore set forth, with interest and costs and execution fees accrued thereon, and that it may be adjudged and decreed that the said conveyances are fraudulent and void as against the said execution of your orators, and that the said lands included in said conveyances may be sold under said execution free, clear, and discharged of the said conveyances, and the proceeds of the sale thereof may be applied to the payment of your orators' said deficiency decree, interest and costs, and such further and other relief, "etc. It appears that on the 26th day of November, 1889, the under-sheriff of Hudson county made an affidavit as to the non-residence of the defendants. Instead of pushing this cause, and bringing defendants into court, so that they might have notice, and, if the court on the presentation of the case should come to the conclusion that these conveyances were voluntary, and that the complainant De Grauw was an existing creditor at the time they were made, have protected their interests when the property came to be sold, the complainants kept the proof of the non-residence of the defendants until March 12, 1890, when they filed it, having in the mean while, on the 27th of February, 1890, proceeded to a sale under the fi. fa. in the hands of the sheriff, and bought in the property, which appears to be worth $7,500, for the sum of $1,650, and, having thus secured the right, title, and interest of the defendant John Mechan in these premises, then proceeded with this suit, and now ask the court for its decree, the only effect of which can be to confirm the title which they have thus obtained. Not only have the complainants purchased at a grossly inadequate price, but the sale of the right, title, and interest of John Mechan in property the title to which was in the name of Mary Mechan, gave complainants an undue advantage, if the conveyances now attacked are liable to be set aside as against them. No regular examination of the chain of title would give any intimation of the infirmity now set up. The defect was not of any link therein; it exists, if at all, from Median's assumption, years before, of a mortgage upon entirely distinct property. The complainants were enabled to bid with the secret assurance, if the transfer to the wife could be set aside as to them, that they were to have an unincumbered title, while others would bid for the right of one who apparently had no interest. Such a procedure undermines the very foundation of judicial sales,—that there shall be full, fair, and free competition. Their object is not only to secure to the plaintiff the amount due on the judgment, but that the property shall bring all that such competition will produce, for the benefit of others in interest. To secure this, all should have an opportunity at least to have equal knowledge of the state of the title. They are charged, of course, with such information as a search of its regular chain could disclose, but not of a point of attack which could only be discovered by one engaged in the questionable practice of wide-range examination for purposes of speculation. In the case of Smith v. Vreeland, 16 N. J. Eq. 198, the complainant was an execution creditor of one Scott, and filed a bill to set aside a fraudulent conveyance, by which the legal title to the real estate of the debtor was transferred to the defendants the suit in chancery. The complainant, acting on the assumption that the conveyances which he sought to avoid were null and void, had proceeded to a sale under an execution at law, although the title had been conveyed by the defendant in the execution, and became the purchaser for a very inadequate price. The chancellor, in stating this as the position, says, (page 204 ) "He now asks this court by its decree to declare the previous conveyances fraudulent, and thus confirm his title. The balance due on his judgments at the time of the sale amounted to about three hundred dollars. The value of the property, according to the testimony of his witnesses, was three thousand dollars, exceeding by about thirteen hundred dollars the amount of the incumbraces upon it. * * * All that the complainant can ask in equity is that his debt shall be paid. If his legal rights are more extensive they must be enforced at law, without the aid of this court. Though he has acquired a legal advantage over the prior judgment of the defendant, there is no reason why he should be permitted to speculate upon that advantage at the expense of the defendant."There were equities in that case which the chancellor adjusted by the decree. All these complainants had a right to ask this court to do was to secure the payment of the deficiency due. If they had proceeded regularly, and waited the determination of this case, the rights of all could have been protected. But they have gone on with the execution, and bought the interest of one of the defendants in property worth $7,500 for $1,650. If the insistment that the conveyances attacked are fraudulent and void as against them is correct, they have secured the legal title, and can enforce it at law. Mulford v. Peterson, 35 N. J. Law, 127, 133; Mulford v. Tunis, Id. 256; Phelps v. Morrison, 25 N. J. Eq. 538, 540. For this court by its decree to confirm the title which they have thus acquired, after so long a delay, and for such an inadequate consideration, and under such circumstances, would be unjust and inequitable. They must be left to their remedy at law. This court does not extend its aid to the enforcement of stale or inequitable demands, and should not willingly give encouragement to members of the profession who dig and delve in the records of the past in search of sources of possible practice and profit in the remains of buried and forgotten litigation. It is but just to the counsel representing complainants to say that the evidence does not directly implicate him in the practice herein criticised and condemned, and that he repudiates any responsibility for or connection therewith. The bill must be dismissed, with costs.