Opinion
11-04-1897
HARRIS v. DE RAISMES et al.
Austin Van Gieson and James M. Trimble, for complainant. Skinner & Teneyck. for defendants.
Bill by Elwood C. Harris, receiver, against Emma St. C. De Raismes and another to determine whether certain property be an asset of the estate. Bill dismissed.
The complainant was appointed by this court receiver of a partnership existing between Emma St. C. De Raismes, wife of Hippolyte A. De Raismes, of the one part, and Arthur E. Lebkuecher of the other part. The firm was organized on September 20, 1892, for the purpose of manufacturing jewelry. The capital to be paid in by each partner was $2,700. By the terms of the partnership agreement, Lebkuecher was to loan to the firm the sum of $16,000 in addition to his portion of the capital, for the half of which the other party was to secure him. In the conduct of the business the wife acted entirely through her husband as her agent. The business turned out to be unprofitable, and disagreements arose between Mr. Lebkuecher and Mr. De Raismes, the agent, and a billwas filed by the former on April 29, 1895, for an administration in this court of the firm affairs, which resulted in the appointment of Mr. Harris, the present complainant, as receiver of the partnership assets. The disagreements between the partners was mainly in respect to the ownership of a piece of real estate which Mr. Lebkuecher insisted was partnership assets, but which Mr. De Raismes insisted was not. The present bill by the receiver is filed for the purpose of testing the question whether the property mentioned is firm assets, and should be administered by him in the payment of firm debts. This real estate was purchased on October 13, 1894, the consideration being $5,200. The title was taken in the name of Arthur E. Lebkuecher and Emma St. Clare De Raismes, no reference being made in the deed to their relations as partners. Of the $5,200, the consideration mentioned, $4,200 was raised by mortgage given upon the entire property by the grantees. The remaining $1,000 was paid by Mr. Lebkuecher. On October 16th—three days after the date of the deed—Mrs. De Raismes and her husband gave a mortgage upon their one-half interest in the property to Mr. Lebkuecher, to secure the payment of $500, the one-half part of the $1,000, which he had advanced as a part of the consideration. On March 2, 1896, Emma and her husband made another mortgage upon her alleged undivided one-half interest in the property to her mother-in-law to secure the sum of $3,318, which sum her mother-in-law had loaned to her to pay in as Emma's share of the capital of $2,700 at the time of the formation of the partnership. On March 14, 1896, she and her husband made another mortgage upon this other moiety to F. Dorsey Graflin, to secure $3,000 loaned by him at that time to Mrs. De Raismes personally. The bill attacks these mortgages on the ground that they were made to defraud the firm's creditors.
The primary question is whether this property is firm property, for, if it should be concluded that it is not, then the question in respect to the validity of the mortgages becomes unimportant. The receiver insists that this property was bought with the money of the firm, and was improved with the money of the firm; that Mr. De Raismes admitted it to be firm property, as the acting agent of Emma, in making the purchase, and in improving the land afterwards. The testimony is grouped around the circumstances under which, and the purposes for which, the property was purchased; secondly, the manner in which the property was paid for; third, the manner in which the property was improved, and the improvements were paid for; and, fourth, the admissions of Mr. De Raismes as to the title of the property. Mr. De Raismes' account of the circumstances surrounding the purchase is, in substance, as follows: He says that he was acquainted with this property, and that it occurred to him that at the price for which it could be purchased it would be valuable to hold for speculative purposes. He at first desired to purchase it himself, and had solicited others to furnish money, and that it was finally at Mr. Lebkuecher's request that the latter was permitted to come into the transaction as a party. He says that Mr. Lebkuecher expressed a desire to take the title in his own name, inasmuch as he was to furnish the money to pay for it, and so should reap the benefit of a rise in value. Mr. De Raismes refused to accede to his request, and finally the title was taken in the joint names of Mrs. De Raismes and Mr. Lebkuecher. Mr. Lebkuecher's account is that losses had occurred in the business, which, by reason of his advancements of money in excess of the capital, had fallen largely upon him, and that this property was bought for the purpose of recouping these losses, and that the property was to be regarded as firm property. In respect to this Mr. De Raismes does not deny that some conversation was had about the purchase of this property being of use to Mr. Lebkuecher to recompense him for the losses which had occurred in the firm, but he does deny that it was ever understood that the title was other than that which appeared on the face of the deed, and insists that whatever benefit Mr. Lebkuecher was to derive was as a tenant in common of the property. In regard to the payment of the property, as already remarked, $4,200 was raised by a mortgage, $1,000 was paid by Mr. Lebkuecher, and for one-half of this a mortgage was given on the De Raismes interest, which mortgage was delivered to Mr. Lebkuecher, but never recorded. The reason for the failure to record it, as given by Mr. De Raismes, was that it was concluded to include not only the $500, but one-half of the sums expended in improving the property; and, according to Mr. Lebkuecher, because it was understood that there should be included in it not only the $500, but one-half of all the loans he had made to the firm in excess of his portion of the capital. The testimony in regard to the improvement of the property is that in 1895 a street was graded, and some wood cut, by direction of Mr. De Raismes, and with the consent of Mr. Lebkuecher. The expense of such improvement seems to have been $517. Two checks are in evidence, drawn by Mr. Lebkuecher,—one dated July 20, 1895, for the payment of $100, and made to bearer; and the other dated July 25, 1895. for $417, payable to De Raismes & Co. These checks were admittedly drawn for the payment of the amount of the cost of these improvements. Both checks were indorsed by De Raismes & Co. These checks are relied upon as proof that the improvements upon this property were paid out of firm moneys. The explanation of the giving of these checks, made by Mr. De Raismes, is as follows: He was to have the improvements executed. He had no money himself. He paid for the current expenses by taking moneyfrom the cash deposit of the firm from time to time, as he needed it for that purpose. In place of the cash, he says, he deposited slips showing the amount which he had taken, and thus the amount which was due from him to cash deposit. He produced a memorandum of the sum so taken, from which it appears that the moneys were removed for grading on March 25th, June 1st, June 5th, and June 21st, and for wood chopping on June 8th, 15th, 22d, 29th, and July 6th and 20th. He says that the total of these amounts was afterwards paid Into the firm as money borrowed from the firm by these two checks of Mr. Lebkuecher of July 20th and 25th. Mr. Lebkuecher, on the contrary, says that these checks were made to the firm for loans, just as previous checks had been made to the firm for different parts of the $10,000 which he had agreed to advance, and must therefore be regarded as any other assets of the firm. Then, again, it is insisted by the complainant that the expenses of Mr. De Raismes in making two trips to Boston to secure the purchase of this property were paid out of the money of the firm. Mr. De Raismes says that the expenses of two trips were paid out of the money of the firm, but that the trips were made in the course of the firm's business, for business purposes, and that in one of them he incidentally used a portion of his time in inquiring about obtaining a paper pertaining to the title of the property. It is again insisted that Mr. De Raismes has made admissions that the deed of this property was made to the grantees for firm purposes. The important witness to these admissions is Mr. Van Gieson, who says that some time after January or February, 1896, he, as a representative of Mr. Lebkuecher, called on Mr. De Raismes, and in the course of the conversation Mr. De Raismes said to him "that Mr. Arthur Lebkuecher had no occasion or reason for being alarmed; that the firm owned property at Elmora, which had been purchased by the firm for the purpose of covering those losses, and repaying to Arthur Lebkuecher all of the moneys that he had ever advanced." And further he says: "I asked him how the property had been purchased, and he said by the partnership some time before that, when they were in straitened circumstances, and when they had met with losses, that they had purchased this property for the purpose of covering those losses, and that Arthur Lebkuecher had advanced a considerable sum of money to the concern up to that time." At another interview, later, after Mr. Van Gieson had ascertained that the title was not held in the firm, he says: "I said to Mr. De Raismes one day when he came in, that the property was not in the firm's name, and he said it was; and I said it was not; it was held by Arthur Lebkuecher and Mrs. De Raismes as tenants in common; that there was no mention of the partnership. 'Well,' he said, 'these two people were partners, and it is all the same thing;' and I said, 'It is not,' and Mr. De Raismes said to me, 'I will bet you it is.'" Mr. Frank A. Lebkuecher, a nephew of Arthur E. Lebkuecher, thought of entering the firm in the forepart of 1896, and in relation to such purpose had a conversation with Mr. De Raismes, in which he says Mr. De Raismes told him that: "Arthur has nothing to fear about losses. We have property in Elizabeth, which will more than pay the losses of the concern up to date; and, another thing, when we go on, why, you will not figure in the proceeds of this land at Elizabeth. And I recollect that I said that didn't concern me. My business was from then on with De Raismes & Company." And being asked the question, "Did he give you any reason why you should not figure in the proceeds of this land at Elizabeth?" the witness replied, "Only that I was not in the firm when they made the losses, and that the property was thought to be good property, and would finally bring enough to pay the losses."
Austin Van Gieson and James M. Trimble, for complainant.
Skinner & Teneyck. for defendants.
REED. V. C. (after stating the facts). The legal title to the property in question is in the name of Mr. Lebkuecher and Mrs. D; Raismes. The effort of the complainant is to fix upon them the character of trustees, and to establish a trust in favor of the firm and its creditors. To make the effort successful, it is essential that the trust be clearly proved. The intention of the purchasers at the time the sale was effected and title taken must be unmistakably shown to have been to acquire the land as firm property. The rights of creditors of the individual partners in whom the legal title is exhibited by the records demand that the title shall not be declared to be equitable elsewhere without convincing proof of the existence of a trust. The most persuasive of the circumstances usually relied on for decreeing the existence of such a trust is the fact that the property was paid for with the money of the firm. From this fact springs a presumption of a resulting trust in favor of the prayer of the consideration. While the effect of this circumstance can be rebutted by explanatory facts, it is in itself a strong, often a controlling, factor in establishing a trust. Harney v. Bank, 52 N. J. Eq. 697, 29 Atl. 221; Baldwin v. Johnson, 1 N. J. Eq. 441; Deveney v. Mahoney, 23 N. J. Eq. 247; Ubler v. Semple, 20 N. J. Eq. 289.
Another circumstance usually relied upon to show the existence of such a trust is that the property was used in connection with and as ancillary to the firm business. Steward v. Blakeway, L. R. 6 Eq. 479; Waterer v. Waterer, L. R. 15 Eq. 402; Richards v. Manson, 101 Mass. 482, 485; 1 Am. Lead. Cas. (4th Ed.) 431. When these two circumstances concur, namely, when the real estate is purchasedwith the assets of the firm to be used for the firm business, it is scarcely possible to imagine a condition of affairs which would rebut the presumption of a trust in favor of the firm. Bank of England Case, 3 De Gex, F. & J. 644-659; Ballantine v. Frelinghuysen, 38 N. J. Eq. 266. The property purchased by Lebkuecher and Mrs. De Raismes was not used in connection with the business of the firm. It was in no way useful for the business in which the firm was engaged. It was bought admittedly as a distinctively speculative enterprise. Now, a firm may buy property for purposes other than the firm business, and yet the property be charged as assets of the partnership. But it may be confidently said that a case can scarcely be imagined where property bought under such circumstances, unless paid for with the assets of the firm, would be declared to be firm property. The important question in this case is whether this property was paid for with the money of the firm. The consideration, as already stated, was $5,200. Of this, $4,200 was raised by a mortgage given by the two partners. The remaining $1,000 was paid in cash by Lebkuecher. De Raismes, to secure Lebkuecher for one-half of this $1,000, had a mortgage executed to Lebkuecher upon the De Raismes one-half interest in the property. This mortgage was never recorded. The reason given for its nonrecording by Mr. De Raismes is that after the purchase they improved the property, and it was concluded to include in this mortgage not only one-half of the purchase money, but also one-half of the cost of the improvements. The reason given by Mr. Lebkuecher is that it was understood that there should be included in this mortgage not merely one-half of the cost of the improvement, but one-half of the amount which he had loaned to the firm according to the terms of the articles of co-partnership. The transaction seems to show that De Raismes thought at the time of the purchase that it was made by his wife and Lebkuecher as individuals. Even if the mortgage was, as Lebkuecher testifies, to be executed to cover one-half of all the loan made to the firm, I do not see how that fact tends to prove that this property was by him regarded as a part of the firm assets. De Raismes was to secure Lebkuecher for one-half of the advances made by the latter on account of the $16,000, which he had agreed to loan. He had attempted to do so for a part of this loan by a conveyance of private property. Now, a mortgage upon the undivided interest in the Elmora property to secure one-half of this sum would not prove that it was firm property, any more than it is proved that the property previously conveyed was firm property.
Now, what has been said of the consideration seems to be true of the money spent for improvements. It is true that in the first Instance the money with which De Raismes paid the workmen in making those improvements was taken from cash which belonged to the firm; but it seems clearly to have been taken as a loan from cash deposited. His deposit of slips showing the several amounts of which the cash deposit had been depleted, and the fact that these slips were replaced by checks drawn for the exact aggregate amount of such slips, seem to indicate that the account with this property was an individual, and not a firm, account. The crucial point, however, in my judgment, is whether the amounts paid for the consideration or for improvements figure in the books of the firm as payments made on account of the firm; for, if the money paid by Lebkuecher for the property and for its subsequent improvement had been entered as firm transactions, the matter would present an aspect from which the conclusion would be almost unavoidable that the property was firm assets. Baldwin v. Johnson, 1 N. J. Eq. 441; Harney v. Bank, 52 N. J. Eq. 697, 29 Atl. 221. But neither of these accounts figure in the books of the firm. Mr. Lebkuecher himself explains that it was not put in the books by saying that they had that as a private investment to recoup themselves for the losses of the business. And it is to be remarked that no part of the consideration paid for the property was included by Lebkuecher in his claim of about $15,000, filed with the receiver. But there are the admissions made by De Raismes to Mr. Van Gieson. De Raismes is quite confident that he never told Mr. Van Gieson that the property was firm property. Although he may have forgotten it, nevertheless I think De Raismes is mistaken. When Mr. Van Gieson testified that, after he saw that the title to the property was in the two partners as tenants in common, and he had called Mr. De Raismes' attention to that fact, the latter offered to bet that this made no difference, and that, notwithstanding this, the property was firm property, I do not see how he can be mistaken. The character of the circumstances is such as to be remembered with reasonable accuracy. But, assuming that this conversation occurred, I do not attribute to it very much force in proving the fact that when the property was bought, in October, 1894, it was purchased as firm, and not as individual, property. This conversation occurred in 1896, when the affairs of the firm had reached a state of embarrassment,—such a stage of embarrassment as rendered it essential that more money should be brought into the business. It was at this stage that Mr. Van Gieson, acting in the interest of Mr. Lebkuecher, approached Mr. De Raismes. The object of Mr. Van Gieson, as I understand his testimony, was to form a new partnership, in which, in addition to the two old members, there should be introduced a third, Mr. Frank Lebkuecher, who would bring in some money. Mr. Lebkuecher was obviously dissatisfied with the condition of affairs. Mr. De Raismes wished to allay this feeling of dissatisfaction, and so probably made the statement to the attorney of Mr. Lebkuecher substantially as Mr. Van Gieson has sworn. This probability is increased bythe fact that at the time it made no difference to Mr. De Raismes in which way the property should be regarded, for, if it was held by the partners as tenants in common, it was Mr. De Raismes' purpose then, as I have no doubt it was when the land was bought, to apply the money made by the De Raismes in the speculation to the payment of their debt to Mr. Lebkuecher. Mrs. De Raismes owed Mr. Lebkuecher one-half of his advances, and Mr. De Raismes intended that their own one-half of the property should be applied to this debt. This would practically reach the same result as if the whole of the profits was appropriated to the whole of the firm debt. It is manifest, however, that, if the property was originally taken in the name of the two grantees as tenants in common, the admission of Mr. De Raismes, made in 1896, cannot charge the property of his wife with a trust in favor of the firm. In so far as he had sworn of his intention at the time of the purchase, this testimony in regard to his subsequent admissions is important to impeaching his testimony. But in arriving at the intention of the parties at the crucial point of time, the intention of the parties must be gathered, not so much by what they now say it was, but what the circumstances surrounding the transaction show it to have been. Those circumstances have led me to the conclusion that the venture was not a firm, but an individual, affair. Mr. De Raismes admits that he said at the time that they would be able to recoup the losses incurred by them in the firm business by the rise in value of this property. So he could have said of any distinct enterprise in which they might, together or singly, engage. He did hope that by the rise in value of this property Mr. Lebkuecher would, out of his moiety, realize the one-half of what he had loaned the firm, and that Mr. De Raismes, out of his moiety, could repay the other one-half which he had assumed. At that time he obviously had no intention of incumbering his wife's interest with the mortgages subsequently made. This intention sprang out of the final collapse of the business. It may be further remarked that in the testimony of Mr. Prank L. Lebkuecher, a witness sworn by the complainant, it appears that he was the person who desired to enter the firm as a new member. He had a conversation with Mr. De Raismes, in which the latter spoke of this real estate as property bought for himself and Mr. Lebkuecher, and not for the firm. This seems to have been the impression made upon the witness at the time when the conversation occurred, for he says that when Mr. De Raismes told him that if he (Mr. Lebkuecher) entered the firm he would not figure in the proceeds of this land, the latter replied: "That don't concern me. My business from now on is with De Raismes & Co." My conclusion is that the character of the transaction was simply this. De Raismes saw the property; thought it a great bargain; determined to buy himself if he could borrow the money; if he could not borrow it for himself, then to take the title together with some one who would advance the cash part of the consideration. He had approached others to engage them in the enterprise, and finally Mr. Lebkuecher, learning of the matter, asked to come in. When the deeds were taken, there was nothing said and nothing thought about a trust in favor of the firm. They did think that the money realized by an advance of the property would probably balance their losses in the jewelry business, but the venture was purposely kept entirely distinct from the jewelry business. Under these circumstances, I am of the opinion that the bill of the receiver must be dismissed.
It may be remarked that, had I arrived at the conclusion that this property was firm assets, that result would in no way affect the mortgage of Mr. Graflin. It is demonstrated that he paid the $3,000 secured by the mortgage at the time when the mortgage was made, and that he had no notice whatever of any circumstance to put him upon inquiry whether the legal title which appeared in the mortgagors was affected by a trust.