Opinion
07-30-1901
LAWSON v. DUNN et al.
I. O. Acton, for petitioner. Charles Mecum, for respondents.
Petition of John J. Thompson, administrator of Joseph B. Thompson, for leave to present a claim to the receiver appointed for the firm of Thomas Dunn and Charles Lawson, partners, and to participate in the distribution of funds in the receiver's hands. Granted.
I. O. Acton, for petitioner.
Charles Mecum, for respondents.
REED, V. C. The judgment entered against the firm by the petitioners has no force against the receiver, he not having been made a party to the suit. The assets in his hands can be reached only by permission of the court. The receiver is in a position to contest the right of, and the amount of the debt of, the judgment creditor. Buckingham v. Ludlum, 37 N. J. Eq. 137-147. When this bill was filed and the receiver appointed, Joseph B. Thompson was an indorser upon four notes drawn by Dunn & Co. and discounted for their benefit at the Salem National Banking Company. These notes were: One dated October 5, 1896, for $2,000; one dated October 15, 1890, for $300; one dated November 2, 1896, for $350; and another dated November 30, 1896, for $2,000. All were payable 90 days from date. Three of these notes were taken out of bank on March 1, 1897, by a draft on the Corn Exchange National Bank of Philadelphia, drawn by the City National Bank of Salem in favor of the Salem National Bank for the sum of $4,432.44. This sum was made up of the two notes for $2,000 each and the $350 note, with interest. The credit for which the City National Bank drew its draft was created by the discounting by that bank of a note made by Charles S. Lawson to the order of Joseph B. Thompson and indorsed by Thompson. The loan from the City National Bank was negotiated by Thompson. He discovered that the makers of the notes in the Salem National Bank were insolvent, and that he would have to take care of that paper. He called upon Mr. Hilliard, the president of the City National Bank, for the purpose of negotiating a loan from that bank, to be used in taking up the dishonored paper. It was finally arranged that the loan of $4,432.44 should be made upon a note as already set forth, accompanied by collaterals. Mr. Thompson put up as security 25 shares of the stock of the Salem National Banking Company, worth $2,700. He also put up an assignment of one mortgage, and made a mortgage upon his own farm, and also gave a deed which Charles S. Lawson had made to him, as collateral security for the payments of the notes. All the collateral security was put up by Thompson. The cashier of the bank says that the note was discounted entirely upon the faith of the collaterals. It was understood that Lawson would not, and Thompson would, liquidate the debt, for Lawson had deeded to Thompson all his available property, which property was a part of the collateral which Thompson assigned to the bank by an instrument drawn by the president of the bank. The arrangement testified to—that Lawson should prove the notes as claims against the estate of the firm—was manifestly an arrangement that Lawson should make such proof for the benefit of Thompson. The old gentleman did not apprehend the technical question which has been since raised. In my Judgment, it is manifest, whatever the form of the note presented to the City Bank for discount, that the principal debtor was Thompson, and that the loan was made upon the credit of his name and his collateral, and made for the purpose of paying the dishonored paper. The application of the credit so created was a payment by Thompson. Therefore, he, as an indorser, who has paid his principal's debt, is entitled to recover from his principals that part of the debt so paid for which he has not already been paid by the sale of the Lawson property. To this extent the petitioner is entitled to participate.
BORDEN et a!, r. HUTCHINSON et a!.
(Court of Chaucery of New Jersey. Aug. 2, 1901.)
JUDGMENTS—LIEN — ESTOPPEL — INJUNCTION —PROOF—RECORD—CONSTRUCTIVE NOTICE—PRINCIPAL AND AGENT.
1. When the plaintiff in a judgment conducts an auction sale of a farm, and assures bidders that the liens on the property about to be sold consist of a mortgage for a certain sum and interest, and makes no mention of the judgment he holds, which is a lien upon an undivided interest in the property, the plaintiff's executors are estopped, and will be enjoined, from enforcing the judgment against the devisees of a purchaser, who bought at the auction sale under the belief, thus induced, that there were no other liens on the farm than the mortgage.
2. The complainant, in order to have the benefit of the estoppel, is not called upon to prove that the property bought is not worth the purchase price and the amount due on the judgment added to it. He is entitled to the benefit of his purchase clear of the lien of the judgment, which was, in substance, the assurance given him by the plaintiff at the sale. The party making the representation which induced thesale may not thereafter, by his acts, make that representation false.
3. The prior record of the judgment is constructive notice to subsequent purchasers, but it will not avail against the actual notice given by the announcements of the plaintiff to bidders, inviting them to purchase upon a statement of the lien on the property about to be sold, which excluded the idea that there was any judgment lien.
4. The estoppel will not be prevented by the fact that the plaintiff in the judgment acted in making the sale as agent for owners who did not know there was any judgment. He was not their agent to conceal his judgment. In that element of the case he acted for himself.
(Syllabus by the Court.)
Bill by Walter E. Borden and others, as executors, etc., of Anthony Bullock, deceased, against John P. Hutchinson and others, as executors, etc., of Mahlon Hutchinson, deceased, for an injunction restraining defendants from enforcing a judgment against plaintiffs' property. Injunction granted.
On May 25, 1879, Charles Holloway and others were the owners of an equal undivided sixth part of a farm consisting of 153.21 acres of land in Chesterfield township, Burlington county. Charles had given a bond with warrant of attorney to confess judgment in the sum of $1,387, which had been assigned to Mahlon Hutchinson, the testator, who is represented in this cause by John P. Hutchinson, executor, etc., defendant. On the day named Hutchinson entered judgment on the bond and warrant of attorney in the supreme court of this state against Charles Holloway who knew nothing of the judgment, but who paid various sums of money to Hutchinson on account of the debt on the bond; the last payment being made to his executors in 1897. at which time Charles had reduced the amount of the principal of the debt to $500. The receipts of these payments were indorsed on the bond, and indicate that the payments were received as paid on it, and not on the judgment. In September, 1883, Hutchinson was employed by Holloway to file a bill in this court in partition for the division or sale of the farm. Hutchinson filed the bill as solicitor for Charles, but in drawing it made no reference to the judgment which he himself held against Charles' one-sixth interest in the farm. Under these proceedings the farm was sold in 1884, and bought in by three of the Holloway heirs,— Charles, Abner, and James; each of the purchasers thus becoming the owner of an undivided one-third part. Abner Holloway is a witness in this cause, and testifies that the purchase under the partition sale by himself and two brothers was made under the advice of Mahlon Hutchinson, the plaintiff in the judgment, and his assurance that he would obtain a loan to be made on the farm for a sufficient sum to pay off the interests of the other heirs. Mr. Hutchinson secured this loan from Charlotte Newbold, one of his clients, to the amount of $4,700, and the money was used to satisfy the interests of the heirs other than the purchasers. Mrs. Newbold died, and Mr. Hutchinson was administrator of her estate. In the distribution of it he assigned the mortgage in question to Elizabeth Longstreet, one of Mrs. Newbold's next of kin. In 1892 the three Holloways who had purchased the farm determined to sell it at public sale. They employed Mr. Hutchinson to conduct the sale. At his suggestion a memorandum agreement for the sale was signed by the three owners, and given to him. He advertised the property for sale, fixing the date, etc. The advertisement was signed, "Mahlon Hutchinson, Agent for the Owners." The sale was by public auction, and was personally conducted by Mr. Hutchinson. Just before it was opened, Abner Holloway, one of the parties for whom Mr. Hutchinson acted, had a conversation with him, and told him that he hoped the property would bring a sufficient price to pay its indebtedness. Mr. Hutchinson said, "It will do that," and then figured on a piece of paper to show that $31 per acre would cover the indebtedness. That amount was sufficient to cover what was owing on the mortgage debt, interest, and expenses of the sale, but was not enough to cover the indebtedness against the farm if Mr. Hutchinson's judgment was computed as part of that indebtedness. Abner Holloway, who had himself calculated the amount, and knew that $31 per acre would about pay the mortgage debt, interest, and expenses, but who knew nothing of Hutchinson's judgment, then told Hutchinson that ho had figures that $31 per acre would about pay the indebtedness. The latter then said to Abner. "I feel under some obligation to you to see that the property brings enough to do that, and I will be a bidder at $31 per acre if some one else does not promptly bid after the sale is started." Immediately prior to the sale, Mr. Hutchinson made a statement to the people there assembled. He read the conditions of the sale that was about to take place, and stated that the claims against the property consisted of a mortgage of $4,700, which might remain upon the property either in whole or in part, as the purchaser might wish. He made no other reference to any other indebtedness, and in no way disclosed the fact that at that time his judgment entered in 1879 was an existing charge upon the one-sixth part of the premises he was then offering for sale. Mr. Anthony Bullock was present as a bidder at the sale at the time these announcements were made by Mr. Hutchinson. The property was then offered for sale by the auctioneer. Mr. Hutchinson himself was the first bidder, and was also the last bidder but one. The last bidder was Mr. Anthony Bullock, who bought the property at the price of $31 per acre, and signed his undertaking at the foot of the conditions of sale. On the 25th day of March 1893, a deed for the premises was delivered to Mr. Bullock in Mr. Hutchinson's office in Bordentown, in the latter'spresence, and in the presence of the defendant in this suit Mr. John P. Hutchinson. After the deed was delivered to Mr. Bullock, and he had paid the purchase money to Mr. Hutchinson, a settlement took place between Mr. Hutchinson and the Holloways, who had signed the deed. Mr. Hutchinson retained for his client, Mrs. Longstreet, the amount due her on her mortgage, and paid the balance of the purchase money due to the Holloways to Abner Holloway, to be by him divided with his brothers. The bond with which the Holloways accompanied Mrs. Longstreet's mortgage Mr. Hutchinson took from his desk immediately after the settlement, and, tearing off the seal, handed it to one of the Holloway brothers, saying, "That belongs to you." The mortgage Mr. Hutchinson handed to Mr. Bullock, the purchaser. Bullock, casually glancing at it, handed it back to him, saying, "The first time you go to Mt. Holly, have that canceled, and return to me," to which Mr. Hutchinson answered, "Yes, Anthony, I will attend to it," In fact, the mortgage was not canceled of record, but was found among Mr. Bullock's papers after his death. The principal of the debt owing by Charles Holloway to Mr. Hutchinson was reduced by various payments made to the latter to the sum of §500. The interest was also paid to March 25, 1897. These payments to Mr. Hutchinson were made by Holloway, as he supposed, upon the bond, as he had no knowledge that any judgment had been entered. Mr. Hutchinson died in 1896, testate, leaving the defendants John P. Hutchinson and Amy N. Hutchinson executors of his will. They proved it, and undertook its execution. In January, 1898, Anthony Bullock died testate. By his will he devised the farm in question, inter alia, to his executors, the complainants, upon certain trusts named in his will. The complainants proved his will, and undertook the performance of the trusts. In May, 1899, the defendants, Mr. Hutchinson's executors, revived the judgment against Charles Holloway, and by execution issued thereon and advertisement for sale attempted to sell the Interest in the farm which Charles Holloway held at any time after entry of the judgment, to realize the unpaid balance on that judgment, which was $500, with interest from March 25, 1897. The complainants then filed their bill in this cause, alleging that Mr. Hutchinson's participation in the transactions above narrated without disclosing to the parties interested the existence of his Judgment against Charles Holloway's interest should operate as an estoppel against the enforcement of the judgment by sale of any undivided interest in the farm purchased by Mr. Bullock, and praying an injunction accordingly. A preliminary injunction was allowed restraining the sale under the judgment. Answer has been filed by the defendants John P. Hutchinson and others, executors of Mahlon Hutchinson, deceased, denying the acts and statements of Mr. Hutchinson set forth in the bill. The cause came on for hearing, and testimony was taken, disclosing the above narrated facts by witnesses called by the complainants. The defendants called no witnesses, but in argument insist that the facts narrated should not operate as an estoppel to prevent the enforcement of their judgment against the one-sixth interest of the farm purchased by Mr. Bullock.
Howard W. Hayes, for complainants. 3. P. Hutchinson and H. A. Drake, for defendants.
GREY, V. C.(after stating the facts). Of the several incidents of Mr. Hutchinson's conduct alleged in the bill, charging that he knowingly induced others to change their position to the Chesterfield farm in ignorance of the existence of his judgment against an undivided interest in that property, I deem it necessary to notice only the transactions attending upon the sale of the farm to Mr. Bullock. When, in September, 1892, Mr. Hutchinson was acting as agent for the Holloways in selling their property at public auction, he offered the Chesterfield farm for sale, and acted as the inviter of bids. He stated to the persons there assembled, of whom Mr. Anthony Bullock was one, the nature and amount of the charges upon the farm from the point of view of intending purchasers. He declared that the claims against the property consisted of a mortgage of $4,700, and made no reference to his own judgment, which at that time was, and for 13 years before had been, a charge against the undivided sixth part of the farm. Mr. Bullock bought the farm under this assurance of Mr. Hutchinson, and paid his purchasing price, which was used to satisfy the announced mortgage debt. Mr. Bullock was, by Mr. Hutchinson's statement, reasonably led to believe that the stated mortgage was the only charge upon the property. Mr. Hutchinson thus induced Mr. Bullock to change his position, and irrecoverably to spend his money in the purchase of the farm. Mr. Hutchinson's representatives now seek to enforce against the property thus purchased the lien of Mr. Hutchinson's judgment, which was a charge at the time Mr. Hutchinson gave the above assurance. Mr. Hutchinson has, of course, always known of the existence of his judgment. His action in conducting the sale at which Mr. Bullock bought was more than a "standing by" in silence when he should have spoken. He invited Mr. Bullock to buy upon his statement that the charges on the land about to be sold were the mortgage and interest, when in fact his own judgment, which he did not disclose, was also a lien on the property. He conducted the business of the settlement of Mr. Bullock's purchase. He took the Holloways' acknowledgment of their deed to Bullock, and was the subscribing witness to that deed. It contained a covenant of general warranty, which was, of course, an assurance against the very judgment which Mr. Hutchinson then held. He received the purchase money, and applied part of it to pay off the mortgage, and the balance, after paying expenses, was paid to the Holloways. These various incidents show, not only that Mr. Hutchinson, knowing of his judgment, without disclosing the fact that he held such a lien, invited Mr. Bullock to buy, but they also show that Mr. Hutchinson knew that Mr. Bullock, in purchasing and paying for the farm and directing the canceling of the mortgage, was acting upon the belief that there was no other charge or lien on the premises. The defendants, the executors of Mr. Hutchinson, since his death are proceeding to enforce the judgment lien which Mr. Hutchinson's conduct of the business had led Mr. Bullock to believe did not exist. If they are allowed to sell the undivided interest in the farm, on which Mr. Hutchinson's judgment is a lien, the complainants, trustees for Mr. Bullock's estate, will obviously be obliged to pay the judgment, or suffer an undivided interest in the farm to be purchased, to be followed by a partition or sale, which will deprive his estate of a large part of the benefits of his purchase.
The circumstances narrated show a clear case for the application of the maxim, "If one has been silent when in conscience he ought to have spoken, he shall not speak when conscience requires him to be silent." The defendants offer no evidence to contradict the statements proven to have been made by Mr. Hutchinson at the public auction, at which Mr. Bullock bought the farm. If the declarations and conduct ascribed to Mr. Hutchinson at that sale and the subsequent settlement were false, there would be little difficulty in refuting the complainants' proofs. The defendants are content to leave the proofs uncontradicted and unexplained, and to rely upon several contentions submitted by way of argument against the relief sought by the complainants. The defendants insist that there can be no estoppel unless there be proof that the farm is not worth as much as the aggregate of Mr. Bullock's bid and the amount due on the judgment, claiming that if the value of the farm was as much more than the amount paid for it as the amount due on the judgment then Mr. Bullock's estate will suffer no loss by the enforcement of the judgment, for that will only take the value over what Mr. Bullock paid. But the thing Mr. Bullock's estate is entitled to, and which it will lose if the judgment is enforced, is the benefit of his purchase, which Mr. Hutchinson induced him to make. The enforcement of the judgment will compel Mr. Bullock's estate to pay over $500 more than at Mr. Hutchinson's invitation and on his assurance he bid for the property. It surely is no answer to say the property was worth that much more.
When Mr. Bullock became the purchaser. It was for him, and not for Mr. Hutchinson, to decide what property was worth. If the latter thought it was worth the $500 more, he should have bid that much more at the sale. His estate cannot now be given the benefit of Mr. Bullock's purchase to satisfy the undisclosed judgment.
Another objection is that Mr. Bullock was notified by the record of Mr. Hutchinson's judgment, and bought at his peril. But this also is no answer, for, while the record is constructive notice to subsequent purchasers, Mr. Hutchinson's conduct and statements were superior and actual notice to Mr. Hutchinson that there was no other charge on the farm than the Newbold-Longstreet mortgage. Mr. Hutchinson obviously understood that Mr. Bullock paid for the farm in this belief. This question of the effect of the record as notice is quite instructively discussed adversely to the defendants' view by Vice Chancellor Pitney in Sumner v. Seaton, 47 N. J. Eq. 113, 19 Atl. 884. Mr. Hutchinson's status as the holder of a judgment duly recovered and entered was, as to the notice thereby given to a purchaser of the lands affected by the record of the judgment no higher or better than the status of an owner of lands. In Bank v. McKelway, 8 N. J. Eq. 96, the defendant actually held the title to lands, but stood by without objection while the complainant built its aqueduct over them. He afterwards brought ejectment to recover them, but was perpetually enjoined by this court from prosecuting his ejectment. Mr. Hutchinson was not an uninterested bystander, who was merely silent as to a charging record held by him. His management and announcements at the sale were actual invitations to intending purchasers to buy upon terms stated, which excluded his judgment from consideration as a charge on the farm.
A third objection advanced against the relief sought is that Mr. Hutchinson, in giving his invitations to bid upon the property, stating the mortgage to be the charge on the farm, was acting as agent for the Holloways. That Mr. Hutchinson's declaration was in law their statement, and that they, and not he, must be responsible for inducing the purchase. But Mr. Hutchinson, in suppressing the fact that he held his judgment which was a lien on the farm, was not acting for the Holloways. They did not know that he had any such judgment. He kept silence as to them as well as to Mr. Bullock. He, and not the Holloways, induced Bullock to buy and to pay for the land under the belief that he was getting the property clear of lien except the mortgage, which was at once paid from the purchase money. I have heretofore dealt with Mr. Hutchinson's relation to these transactions solely from the point of view of the equitable obligations which were charged upon him by his conduct towards the purchaser at the sale conducted by him. MrHutchinson having induced Mr. Bullock to buy upon an assurance as to the liens against the farm, which did not include his judgment, his executors may not now enforce that judgment against the farm. The principle of estoppel applies as well to cases of unintentional deception as to those of actual frauds. Campbell v. Nichols, 33 N. J. Law, 88. In the transaction here discussed it is not necessary, as a legal proposition, successfully to maintain that Mr. Hutchinson was actuated in his conduct by an intent to defraud the parties interested. Nor does the evidence indicate that he had such a fraudulent purpose. He never, from 1879, when he entered his judgment, until 1896, when he died, in any way enforced the judgment against the defendant Charles Holloway, or even called it to his attention. The latter, in ignorance of the judgment, paid considerable sums of both principal and interest on his debt to Hutchinson, supposing it to be still evidenced by the bond. Mr. Hutchinson himself so dealt with the matter by entering the payments and receipts on the bond. He was evidently upon kindly terms with the Holloways, and appears to have been not only their counsel, but their friend. When he entered the judgment, the whole amount of the debt was owing. The subsequent payments of the interest and partial payments of the principal by Charles Holloway made the disclosure by Mr. Hutchinson of the fact that he had entered judgment against his client less necessary, and more disagreeable. By 1892 (the time the sale came to be made to Mr. Bullock), Mr. Hutchinson had probably concluded not to make any disclosure of the judgment, nor to enforce it, but to look to Charles Holloway personally for payment of the debt, in the same manner as he had then done for some 13 years. He never did take any steps to enforce the judgments, though he lived for some 40 years after the auction sale at which Mr. Bullock bought. Upon the whole case the complainants are entitled to a perpetual injunction restraining the sale of any interest in the Chesterfield farm to satisfy any moneys remaining due on the judgment set forth in the bill of complaint.