text:
    Greenville Building and Loan Association v. Ellen Wholey and husband.
    [Decided December 1st, 1904.]
    1. A mortgage was given to a loan association, to run ten years, to secure the amount of a loan, increased by adding thereto premiums on shares of stock subscribed for by the borrower and weekly dues on the stock for ten years, all to be paid in equal monthly installments, the mortgage providing that on failure to pay any of the installments when due all should at once become due and payable. — Held, that to foreclose such mortgage for the full amount for non-payment of an installment, without any rebate, as for unearned interest, premiums or dues, would be to enforce a penalty which cannot be done in equity.
    2. On the foreclosure of such a mortgage for failure to pay an installment, there must be a rebate of the interest on such payments not bearing interest as are not yet due, calculated at the same rate used by the parties in fixing the amount of the mortgage.
    On petition by defendant, after decree, execution and advertisement, to stay sale and open decree. Heard on ex parte affidavits.

      Mr. James R. Bowen, for the petitioner.

      Mr. Robert S. Hudspeth, for the complainant.
   Pitney, V. C.

The case of the petitioner, briefly stated, is this: In August or September, 1892, she borrowed and received from complainant, in actual cash, $2,350; complainant has since paid for her, in actual cash, for taxes, &c., $156.67; total received, $2,506.67. Petitioner has paid complainant, in monthly installments, $2,497.58, leaving unpaid $6.09.

On September 12th, 1903, the master reported that there was due the complainant a balance of $1,909.50 — that is, petitioner has nearly repaid the whole amount actually received and still owes $1,909.50, nearly three-fourths of the original debt. Of these payments $1,747.79 were made between 1892 and 1898 (six years), in fifty-seven or fifty-eight monthly installments of $30.412/8 each; and $750.79 was paid between 1898 and 1901, in about forty-one monthly payments of $18.42 each, so that the amount due on the loan, according to- ordinary methods of calculation, should have been much reduced.

But at that time (1898) a sort of readjustment was made, by which the amount due was fixed at $1,700, minus $27.89, equaling $1,672.11, and a new mortgage, now under foreclosure, was given to secure this sum, payable in one hundred and forty-four monthly installments of $18.42 each.

Between 1898 and 1903, when the bill was filed, petitioner, as we have seen, paid $750.79 in about forty-one monthly installments, so that on any ordinary basis of calculating interest the debt of $1,700 should have been materially reduced. But instead of that we find a decree against her1 for $1,909.50, more than $200 greater than the debt at the date of the mortgage.

The result is such as to startle the mind of an ordinary business man, and to excite the attention of a chancellor.

This result, however, is attained by the use of the machinery adopted by the complainant in transacting its business of loaning money, and is sought to be justified by the act entitled “An act to encourage the establishment of mutual loan, homestead and building associations,” approved April 9th, 1875 (Gen. Stat. p. 331), and the various supplements thereto and acts amendatory thereof.

The complainant was organized under that act as far back as 1875.

The object of the act is stated in the first paragraph, as follows:

“1. Be it enacted by the Senate and General Assembly of the State of Neio Jersey, That any number of persons, not less than five, may associate and form an incorporated company for the purpose of assisting each other, and all who may afterwards become associated with them, in acquiring real estate, making improvements thereon and removing incumbrances therefrom, by the payment of periodical installments; and for the further purpose of accumulating a fund to be returned to its members who do not obtain advances, for purposes above mentioned, when the funds of such association shall amount to a certain sum per share, to be specified in the articles of association.”

Article 2 of the constitution of the complainant is as follows:

“The object of this association is, by co-operation, to enable its members to become their own landlords, by providing funds for each member to purchase real estate within twenty-five miles of the city of Jersey City, and in the State of New Jersey, and to make improvements thereon.”

Acting under this legislative authority and in pursuance of that clause in its constitution, and to secure the debt of $1,700 above referred to, the complainant took from Mrs. Wholey, who is an ignorant and entirely illiterate woman and quite unfamiliar with any arithmetical processes, the bond and mortgage here in question, dated July 1st, 1898, and due July 1st, 1910, to be paid in monthly installments of $18.42 on the first of every succeeding month, one hundred and forty-four in number, with a clause providing that if default should be made in such payments for the space of thirty days, or if any taxes, assessments, water rents or other liens should remain unpaid for ninety days, then the whole amount of $2,652, or such part as shall remain unpaid, shall be at once due and payable.

The language of the mortgage corresponds.

There is no provision in either for the payment of fines, and the master has included in his report $9.29 for fines. There is no provision for the payment of interest.

The amount found due by him is computed in this wise:

Amount secured by mortgage...................$2,652 00
Amount paid on account of monthly payments... • 751 79
Balance due on principal......................$1,900 21
Fines due.................................... 9 29
Total amount due.........................$1,909 50

As has been before observed, this is more than $200 in excess of the original debt.

The sum of $2,652, mentioned in the bond, is shown by complainant’s affidavits to be made up as follows:

Original debt (being amount advanced on three and two-fifths shares in the corporation) .... $1,700 00
Premium, at $150 per share of $500............ 510 00
Dues, ten years, twenty-five cents per week, or $13 per year per share.................... 442 00
$2,652 00

The ascertainment of the precise rate of interest which the petitioner is compelled by her contract to pay, is rendered a little difficult by the method adopted of paying the aggregate of principal and interest in installments. I have attempted it, roughly, in this wise: Two thousand six hundred and fifty-two dollars, the amount secured by the mortgage, less $1,700, the debt at the date of the mortgage, leaves $952 as the amount paid for interest for twelve years, but as the payments are made in monthly installments and the principal is being constantly reduced until it is wholly paid, the transaction consists, in substance, of a loan of $1,700 for six years, so that the petitioner will pay $952 for the use of $1,700 for six years, which is $158.662/3 per year, a rate of nine and one-third per cent, per annum. But I shall take it at nine per cent.

Before proceeding to deal with and dispose of the case on that basis, I shall make two remarks — first, I am ready to hear any suggestions that counsel may make as to the correct mode of ascertaining the true rate of interest and to correct my mode if found to be inaccurate; second, I have hitherto gone and shall proceed on the basis that if the mortgage had been paid in full in due course, or shall be paid in full by the sale of the mortgaged premises, petitioner will have no valuable interest in any shares of stock in the complainant corporation. I can find nothing in the terms of the bond and mortgage, or anything contained in any of the evidence submitted or in tire argument of counsel, to suggest tire contrary.

The complainant justifies the report of the master by that clause, or those clauses, of the statute above referred to, which, in effect, gives a special dispensation to companies organized under the above-mentioned act to charge more than the legal rate of interest.

But this dispensation must be so construed, in a court of equity at least, as not to result in manifest injustice, in the shape of oppression or extortion, or in the enforcement of a penalty.

I cannot believe that the legislature intended that a result, such as this ease presents, should be justified by the act in question, for the reasoning of counsel for complainant goes to this extent: That if in one year or less, instead of five, after the giving of this mortgage, the petitioner had failed to pay an installment, it would have been entirely lawful and equitable for the complainant to have declared the mortgage forfeited and to have obtained from this court a decree for the whole $2,652, less one or two monthly pajnnents of $18.42 each, or even none, if none had been paid.

Looking now at the master’s report, we find that he has treated every one of the monthly pa3'ments maturing between the date of his report and the year 1910 as presently due, and has included them in his report without allowing any rebate thereon.

Now, I have always supposed that it was thoroughly settled, as well by the rules of equity as by the time-honored statute section 11 of Chan. Pr. (Rev. of 1820 p. 706); section 67 of Chan. Pr. (Rev. of 1846 p. 919); section 74 of Chan. Pr. (Rev. of 1876), and section 56 of the Bevision of 1902, that where a mortgage is foreclosed for failure to pay an installment the master, in computing the amount due, must make a rebate of the interest on such payments, not bearing interest, as are not yet due. The language of the proviso is as follows:

“When the residue of the debt or demand intended to be secured by the said mortgage is payable at a future day without interest, and the mortgagee is willing to receive the same, the court shall deduct a rebate of legal interest for what the mortgagee shall receive on the said debt or demand, to be computed from the time of the actual payment thereof to the time such residue of the debt or demand would have become due and payable.”

The words therein found “if the mortgagee shall be willing to accept the same,” have never been construed to give him the option to claim the whole without rebate. The force of this language is that he need not 'have the principal sum not yet due included in his decree if he does not choose so to do.

To hold the contrary would be not only to nullify the statute’s proviso, but would lead to oppression and injustice.

In this case only five years had elapsed at the date of the master’s report, leaving seven years yet to come before maturity of the last payment, or an average of about three and one-half years on so much of the whole balance of $1,900 as became due after that date.

The result of the forfeiture, as we have seen, would have been the same if one year or less had elapsed, but much more oppressive and unjust in its results.

In answer to this complainant says that the contract provides in express terms that on failure to pay any one of the annual installments all shall at once become due, and hence the master’s report is strictly correct.

To this petitioner replies, not only the considerations above mentioned, but that the enforcement of that part of the contract results in this court lending its aid to the enforcement of a penalty, which, it is hardly necessary to say, it will not do.

I think the position of the petitioner is sound, and I am glad to find that it is supported by authority. I refer to the case of Tilley v. American Building and Loan Association, 52 Fed. Rep. 618, in the United States circuit court for Arkansas, in particular at pp. 625-627.

In that case the mortgage was given to secure — first, the amount loaned, with interest; and second, a certain sum somewhat larger than the amount loaned, and which represented the aggregate of the annual payments to be made by the borrower on account of the stock already subscribed for by him. The system of the building and loan association in that case was substantially the same as that in vogue here at the time our statute was passed. That plan was, as I think all the older members of the bar will recollect and as the reported cases show, to issue shares of stock for the amount of the loan; to make the loan for the amount of the stock, less the 'premium or “shave” which the borrower agreed to give, and to provide in the mortgage for the payment of the interest monthly on the whole sum borrowed,-and also to secure like monthly payments on account of the stock subscribed for until the aggregate of such payments, with the profits, should make the stock worth the amount borrowed.

The scrip for the stock was actually issued to the borrower and assigned by him to the association as collateral. The result of this process was that payments on account of the shares, added to the profits due to the premium or “shave,” were usually paid up in full some time before; in the ordinary course of things, the annual dues on the shares would equal their face value, and when that time arrived the value of the borrower’s stock was equal to the principal of his loan; the 'debt was paid and the mortgage satisfied.

The true character of this transaction was clearly discerned and pointed out by Lord Cranworth, in Fleming v. Self, 3 DeG. Macn. & G. 997 (July, 1854), and Chief-Justice Whelpley, in the case of Franklin Building and Loan Association v. Marsh, 29 N. J. Law (5 Dutcher) 225, an action of ejectment (at p. 281), after quoting the language of Lord Cranworth, adds: “It might have been further said that these associations are but organized societies of legalized usurers, and that by their operation the investments of the needy members are absorbed by the usury paid to those more able. The onty advantage secured is enabling borrowers to repay a loan by monthly payments somewhat within their means. In all ordinary cases it is a most expensive way of obtaining a loan, and when obtained the borrower is utterly unable to tell what rate of interest he is to pay or how soon his debt will be extinguished.”

Turning, now, to the Arkansas case just cited.

The borrower, shortly after the loan was made, desired to pay it off, and filed a bill to satisfy the mortgage upon equitable terms, and the mortgagee answered and claimed the whole amount covered by the mortgage, which was more than double the amount loaned. The court granted relief to the mortgagor upon paying the principal sum advanced, with interest, merely treating that part of the contract which provided for the payment of the aggregate of the annual dues for nine years as a penalty, or at least, under the circumstances, as so oppressive, if enforced, as to be obnoxious to the principles of equity.

I am unable to see how that conclusion is to be avoided when we consider that the payment of the amount of the dues for subscriptions to stock, by the fundamental idea of all these institutions, was expected, as we have seen, in the absence of anticipated losses, to result, in effect, in the payment 'of the principal.

It was on this basis, in the terminology adopted by the managers of thesp institutions, that the loan to a member was treated as an “advance” to him on account.of his stock, and not a “loan,” and the stock, in good time, on a division of the profits, was expected to repay that “advance.”

For myself, I am unable to perceive how the present case (though different in form) differs in principle from that of an ordinary money bond, in which the obligor admits in the most solemn manner an indebtedness of, say, $2,000, and binds himself to its pa3rment, and is to be relieved therefrom only on the pa3rment of a smaller sum, say, $1,000, on a certain da3r.

This contract, with all its severity, was at first upheld at law and enforced in its precise terms, and the unfortunate obligors were obliged to come into equity for relief against it. Later, courts of law were compelled by statute to give equitable relief by confining the amount levied by execution to the amount actually due.

I conclude, then, that the master' erred in not making this rebate on the deferred payments, and for this reason alone and to this extent the relief pi^ed for by the petitioner should be granted.

Petitioner, however, is not satisfied with relief to this extent. She avers that the mortgage was given for much more than she actually owed; that the amount for which she supposed she was giving it was made up by complainant’s secretary in writing and given to her on a slip of paper, which she produces, as follows:

“To Liquidation ..............................$1,510 14
“ Subscription & Book...................... 5 30
“ Old Tax & Assessment..................... 106 43
“ Tax of /96 & /97......................... 40 24
“ Water rent /98........................... 10 00
“ Deposit Book ...............^............ 27 89
$1,700 00”

That she supposed that she was giving a mortgage for that amount.

The complainant’s statement of the mode in which the $2,652 was made up has already been given.

Petitioner swears that she never understood .that she was giving a mortgage for any such amount or any such items.

Complainant’s secretary, on the contrary, swears that it was all fully explained to her and that she thoroughly understood it.

Petitioner, as we have seen, can neither read, unite nor cipher, and in this transaction had no counsel or friend to assist her except her husband, who apparently is little, if any, more educated. She relied entirely upon complainant’s secretary. Under these circumstances the burden is on the complainant to show that she did . fully understand, in all its bearings, the contract into which she entered and the rationale of it, and the question is, did she understand why she was giving a mortgage for $2,652 to secure a debt of $1,700 ? Did she understand by what arithmetical processes monthly payments of $18.42 for twelve years were necessary to pay a debt of $1,700? Did she understand what rate of interest she would be paying for the money ? The affidavit of complainant’s secretary fails to satisfy me that she did.

But both parties went back to the original transaction of 1892. On that occasion petitioner borrowed of complainant $2,350 and gave to secure it a mortgage to pay $3,650 in one hundred and twenty monthly installments of $30.412/s each. This sum of $3,650 was made up as follows:

Sum advanced..................'............ $2,350 00
Premium on same..................'.......... 650 00
Subscriptions to stock at twenty-five cents each per week................................. 650 00
In all................................. $3,650 00

It would seem that the element of subscribing to shares of stock, as a part of the transaction, was here reduced to a minimum, for the shares were rated at $500 each, in order to enable her to obtain the loan of $2,350. In fact, she expected and thought that she had obtained a loan for $2,500, but the fact is that she received but $2,350.

Now, it will be observed, that the weekly payments for ten years on account of stock, which seems to be the period for which the different series of stock ran, only amounted to $650 on five shares, or $130 per share. At that rate she would, of course, at the end of ten years, have paid only about one-third of the face of the stock, and, as before remarked, there was nothing in the affidavits submitted to indicate that any stock was ever issued to her, or that she, after the payment of all the installments, would ever become the actual owner of any stock, nor anything to indicate that if she had carried through that scheme and made all her payments to the end (ten years) she would have received any advantage or benefit whatever from her stock subscription.

I can perceive no office whatever which the apparent subscription to stock has in this transaction other thaD to make it conform in appearance merely, but not in substance, to the transactions, which, when the Building and Loan Association act was passed, were in vogue in New Jersey, as previously stated.

In the usual examination of petitioner’s title, made before the giving of the first mortgage, complainant’s searcher overlooked some arrears of taxes and an assessment which were liens on the mortgaged premises before petitioner purchased it, and which were wholly -unknown to her. These amounted to a little over $70. They accumulated, were dealt with under the Martin act and the premises were liable to a sale to- pay more than double the amount of tire original liens.

Petitioner was unable to meet this burden and censured the complainant for overlooking it when the search for the original loan was made. She subsequently found it difficult to make her monthly payments. In this condition of affairs, in 1898, when six of the ten years for the payment of the original loan provided for in the mortgage had expired, and the petitioner had paid $1,747.79 of the loan, a new arrangement was suggested by complainant’s secretary and carried out, and the debt was liquidated thus:

Amount secured .............................$3,650 00
Fines....................................... 25 00
Total ..................................$3,675 00
Petitioner was credited with payments, $1,747 79 Rebate on premium ($650, of which
nearly one-half had been paid)..... 140 82
Allowance on subscription to stock ($650, of which nearly one-half had
been paid)........................ 276 25
- 2,164 80
$1,510 14
Taxes, &c.................................... 161 97
$1,672 31
Added to make up even sum.................. 27 89
Amount of mortgage......................$1,700 00

For this amount- the new mortgage was given, as above.

It will be observed that in ascertaining the amount due on the first mortgage, for the purposes of the new mortgage, allowance was made for the payments both on account of the premium and on account of the stock subscriptions, but no such allowances were made by the master in the computation of the amount due on the present mortgage.

The petitioner complains of this omission by the master. The complainant justifies it and relies on the act under which it was incorporated, and says, and the secretary so swears, that the allowance so made in 1898 was a pure gratuity on the part of the complainant, which it was under no legal or equitable obligation to make. But I cannot adopt that view. The original debt was $2,350. On this petitioner had paid in actual cash $1,747.79, leaving due a balance, not counting interest, of $602.21.

Now, if the two items of allowance, $140.82 and $276.25, making, in all, $417.07, had not been made, the amount due on the mortgage, after running six years, according to complainant’s interpretation, would have been $3,650, less payment of $1,747.79, leaving a balance of $1,902.21 — that is, starting with a debt of $2,350, and paying thereon in monthly installments for nearly six years $1,747.79, we have remaining dice, on complainant’s theory, $1,902.21, a result entirely out of consonance with any notion of equity. It would have resulted, as already stated, to the enforcement of a penalty.

For reasons already stated, the petitioner would have been entitled to a rebate of interest, so that in equity, on a proper adjustment of the amount due, on the mortgage of 1892, the petitioner would have been entitled to a liberal abatement, and the only question is whether the amount actually allowed was in justice and equity sufficient.

For present purposes I shall consider it as sufficient, and shall take the amount ($1,672.11) agreed upon as due at the date of the mortgage here in question as the proper basis for the adjustment of the amount due on it at the date of the master’s report.

In arriving at that amount I am of the opinion that a simple rebate of interest is not sufficient. I think the rebate should be at or near the rate which the loan has been carrying, viz., nine and one-third per cent. For safety, I shall consider it nine per cent.

I work out the problem thus: The $750.79 paid covered a fraction more than forty months and liquidated all dues up to November 1st, 1901; the balance due of $1,900 covered a fraction over one hundred and three months. Of those, twenty-two months elapsed before September 1st, 1903, eleven days before the date of the master’s report, so that on the day last named $405 was past due and $1,495 was yet to accrue. Now, the average time that those twenty-two monthly payments had been due was eleven months. I shall therefore add to the $405 interest thereon, at nine per cent, per annum, for the average time it had been running, to wit, for eleven months — that is, the principal sum is $405, interest $33.40. Now, I shall add thereto $1,495, less rebate thereon, at nine per cent, per annum, for half the time that the one hundred and three months, less twenty-two months — that is, eighty-one monthly payments, which compose it, accrued, to wit, forty-one and one-half months. To accomplish this I ascertain what sum of money, put at interest at nine per cent, per annum for forty and one-half months, will amount, with the interest, to $1,495. That sum is $1,146.67.

Now, to this sum of $1,146.67 add the $405,and the interest thereon, $33.40; the result is $1,584.07 as the amount due September 1st, 1903. Add to this'interest to September 12th, eleven days, at nine per centum ($4.35), we have $1,588.42.

This result is subject to a possible error of a few dollars in small fractions of time and sums which I have not taken into account. It takes no account of fines, which, I think, should not be included.

I find another source of possible error in the master’s report, which I shall mention here. An examination of the petitioner’s pass-book, in which the entries of the payments aggregating $750.79 are made, shows that tire sum of $27.S9, added to the debt of $1,672.11 of July 1st, 1898, to make up the $1,700, was not included in the $750.79; and it further shows that those actual payments amounted to $780.30, and that' $36.51 was deducted therefrom for three items, the purport of which I cannot malee out. No mention is made of these items by counsel.

The result is that instead of finding her debt increased $200 in five years, notwithstanding a payment of $750.79, the debt is reduced $111.56, which certainly is more in consonance with equitable ideas than the other.

Another way to look at it is this: The legal interest on $1,700 for five years and two months is $527; the petitioner has paid $750.79, or $223.79 more than the legal interest, and out of this $223.79 she has paid on account of principal of her debt $111.56, and the balance is for excess of legal interest.

I am aware that the statute requiring a rebate of interest in such cases provides for a rebate of “legal” interest, which ordinarily would be six per cent., but I have already remarked that the rebate of interest is strictly an equitable right, independent of the statute. Further, I think that the statute in this court should have an equitable construction; thus, if the rate of interest used by the parties in fixing the amount due on a mortgage payable in installments without interest was originally four per centum, it would be inequitable in case the. mortgagee were compelled to foreclose the mortgage to be compelled to accept — and he is, in substance, SO' compelled — the principal, with a rebate of six per cent. So here, where tire deferred payments were made up on a basis of nine per cent., it is unjust to the mortgagor to be given a rebate of only six per cent. In other words, it is within the equity of the statute to give a rebate at the rate which the mortgagee has declared has been rendered legal by the statute under which it is organized. For present purposes nine per cent, must be held to be legal interest, according to the language of the statute.

This result renders it unnecessary to deal with another argument advanced by counsel for petitioner, based on the admitted fact that in the case here in hand the-new loan of $1,700 was not in fact put up at auction, and the amount of premium charged petitioner was arrived at by striking an average of the prices at which loans were being struck off.

His argument is that by the language and spirit of the act, and by the constitution of complainant, all loans must be put up at auction.

I shall only add that I have carefully gone through all the authorities cited by counsel of complainant in support of the master’s report and find nothing in any of them inconsistent with the conclusions at which I have arrived. Counsel referred ine to dicta of judges of this court declaring that where a mortgage, given, under the old plan, already mentioned, which covered not only the principal sum loaned, with interest thereon, but also the annual dues on stock subscriptions, in case of foreclosure in default of payment, the proper mode of computing the amount due was to include all such dues up to the date of the winding up of the then present series of the association. The difficulty with this doctrine is, and in practice was found to be, that there was usually no specific time fixed, or capable of being fixed, when all the dues would become payable. I think an examination of the adjudged cases will show this. The language above quoted from the opinion of Chief-Justice Whelpley, in the case in 29 N. J. Law (5 Dutch.) 231, is significant.

But if we can imagine a decree in one of the old-fashioned cases, of which the Arkansas case was a sample, for the whole amount of the original debt, with interest to date, and for the aggregate of the monthly dues for stock subscriptions, and the amount of the decree should be collected by a sale of the mortgaged premises, we should have this strange result, viz., the borrower would be compelled to pay to the association, not only the original amount loaned, but also, in advance, the whole of the fund which by the scheme of the association was intended to pay that debt; and when the stock subscribed should have arrived at par value the holder of the stock would be entitled to an immediate division of assets, on the score of the whole affair amounting to a partnership, and would get back the value of his stock in money.

In other words, tire court would decree the borrower’s land to be sold to raise money, which the moment it was received by the complainant would in equity become the borrower’s money. I think the Arkansas case, above cited, might have been put upon that ground.

The leading case in New Jersey, where this matter has been dealt with in practice, is Mechanics’ Building and Loan Association v. Conover et al., 14 N. J. Eq. (1 McCart.) 219, decided by Chancellor Green. The decree in that case was appealed, and the decree made by him was modified in a matter but faintly mooted before him, but his disposition of the question arising out of the building loan laws was expressly affirmed.

The bill was filed by the association to foreclose a mortgage, given to it under the old plan, which had run for four years, and a considerable sum of money had been paid on the stock subscriptions.

The dispute was between a subsequent mortgagee and judgment creditors who had levied on the shares of stock. It was claimed by the second mortgagee that the- payments for four years on account of the stock subscriptions slio-uld be applied to the reduction of the first mortgage. This was contested by the judgment creditors, who wished to have the privilege of selling that stock. The chancellor, after stating very clearly the plan on which the association was acting, and the practical workings thereof, declared that the second mortgagee was not entitled to have the amount so applied, or any other amount, until the association had been long enough in operation to make the value of the stock equal to the debt, which time was uncertain. This part of the decree and the reasoning thereon was affirmed by the court of errors and appeals. But the chancellor further held that the judgment creditors had a right to sell the stock, which seemed to have a marketable value, and lake the proceeds and apply them on their judgments.

This part of the decree was reversed by the court of errors and appeals and it was held that the second mortgagee had the superior equity to have the value of the shares, as contradistinguished from the actual amount paid in on account of them, applied in reduction of the first mortgage.

This principle was applied by Chancellor Runyon, in the ease of Red Bank Mutual Building and Loan Association v. Paterson, 27 N. J. Eq. (12 C. E. Gr.) 223, a case much like Chancellor Green’s case, and the association was compelled to sell at auction the stock which they held as collateral security, and apply the proceeds in reduction of the amount due on their mortgage before having recourse to the mortgaged premises.

This case was followed by Vice-Chancellor Grey in the very recent case of Hoagland v. Saul, 53 Atl. Rep. 704.

This mode seems to me much more equitable than the one suggested of including in the decree the whole amount of monthly dues not yet due.

But all this learning seems to me to liave little application to the present ease, where, as before observed, the existence of the stock is apparently a mere shell, and the subscriptions to it, and the bonus for the loan, and the interest thereon, are all mingled together and the amount divided up into installments without interest, on the payment of the last one of which the mortgage debt is paid without regard to the value of the shares and the borrower’s interest in the association ceases. Such is the construction which I put upon tire elaborate and complicated system contained in complainant’s constitution.

I shall advise an order that the amount due at the date of the master’s decree be reduced to the sum of $1,588.44 and that the sheriff be directed to levy that amount, with costs and interest, and that he shall give petitioner credit for the costs of her petition herein. The figures above mentioned are subject to be corrected by any suggestion which counsel on either side have to make.

Petitioner claims that the mortgage of 1892 remains unsatisfied of record. This must be corrected and the mortgage either be satisfied or tendered to the purchaser for satisfaction at the sale.


source: Caselaw Access Project

author: Pitney, V. C.

license: Public Domain

text:
    Eleanor B. Dixon v. Emma P. Bentley et al.
    [Decided February 2d, 1905.]
    1. Testator’s will gave half the proceeds of a mortgage, in which he was mortgagee, to his son, and his son’s will gave his wife a life estate in such proceeds, with remainder to his several children. During the life of the widow one of the children assigned his interest in the estate of his “grandfather,” in so far as such mortgage was concerned. — Reid, that in equity such assignment carried the child’s interest in the remainder of the fund.

      2. Where the assignment of the assignor’s interest as remainderman in a certain fund expressed a consideration of $550, when his interest was over $2,700 and the business of the assignee was that of lending money, and the attorneys who negotiated an assignment from the assignee to another had their attention called to the question of the probability that the assignment was merely a mortgage, the. latter assignee was chargeable with notice that the assignment was merely a mortgage.
    3. A remote assignee of an assignment of the assignor’s interest as remainderman in a certain fund who was chargeable with notice that the assignment was originally a mere mortgage, was not entitled to recover as against the assignor the amount which he gave for the assignment, but merely the amount which it was given to secure.
    4. One having an interest as remainderman in a fund held by the receiver of his father’s estate, while in financial difficulties, sold his interest for $600, though its actual value was $2,700, but thereafter he encouraged the assignee to purchase another interest in the fund, relying on the belief that he had secured the remainderman’s interest, and the remainderman made no objection or assertion that he had any equity against the holder of his assignment. — Held, that the assignee was entitled to a decree establishing his ownership to the remainderman’s interest in the fund, subject to the right of' the receiver to his commissions and expenses and to the right of others having an interest in the fund to be protected against any depletion of the remainder of the fund by the demand of further debts of the estate.
    On petition, answers and proofs,- taken in open court.
    The object of the petition is to procure the payment of certain moneys in the hands of the receiver of an estate.

      Mr. William H. Speer, for the petitioner.

      Mr. Robert S. Hudspeth, for the respondents.
   Pitney, V. C.

The object of this suit, which was commenced in January, 1894, was to conserve the assets of the estate of Peter Bentley, second of that name, late of Jersey City, who died in 1888, and incidentally to appropriate those assets to the purposes of his will. See Bentley v. Bentley, 38 Atl. Rep. 286 (1897), and Dixon v. Bentley, 60 N. J. Eq. (15 Dick.) 853.

In accordance with the decisions therein mentioned, and referred to the estate was, in March, 1894, taken from the management and control of the executrix and widow and placed in the hands of a receiver, and has been, and still is, held and managed by him under the direction of this court.

The principal assets of the estate then immediately available were, mainly, several parcels of real estate, and some of those parcels were from time to time sold by the receiver to pay the debts of the testator. All has not been sold.

At the date of the transfer here brought in question, all the debts had not been paid.

Among the assets then not immediately available was a half interest in a bond and mortgage, originally for $147,000, but reduced by payments to $100,000, given by the New Jersey Railroad and Transportation Company to Peter Bentley, the first, who, by his will, subject to the interest of his widow, directed that it should be divided between his two- children, Peter Bentley, the second, the testator herein, and Mrs. Tower. By arrangement between Peter, the second, and his sister, Mrs. Tower, the income from this mortgage, which by its terms had long been due, was vested in their mother, the widow of Peter, the first, during her lifetime.

Payment of this mortgage had been extended, at a reduced rate of interest, but was -liable to be called in, after notice, I believe, of six months.

It follows that the receiver of the estate of Peter, the second, was entitled to demand and receive $50,000 out of this mortgage at the date of the death of the widow of Peter, the first, which occurred in February, 1899. The receiver duly collected this sum and devoted a portion of it to the payment of the remaining debts of Peter, the second, and, at and before the hearing herein, had in his hands a trifle over $38,000 as the net remainder of its proceeds.

For present purposes that sum may be treated as representing _ the mortgage in question, although it is still liable to be depleted by the successful enforcement of claims against his estate, if any remain, of which, however, there is little probability.

By the will of Peter, the second, his widow, Emma P. Bentley, now living, is entitled to the interest on that sum during her lifetime, and at her death it goes to her seven children, to be equally divided between them.

The petitioner, Robert C. Banes, of Philadelphia, claims to be the owner of two-sevenths, of this fund and entitled to an immediate payment of the same by the receiver, and prays accordingly. Pie claims to have purchased both the life estate of Mrs. Bentley in said two-sevenths' — and this is undisputed — and also the remainder therein of her two sons, namely, Peter, the third of that name, and Richard P. Bentley.

His claim to Peter’s one-seventh is as follows:

First. An assignment by Peter to one Prank P. Martin, dated September 2d, 1898, in consideration of $550.

Second. An assignment by Prank P. Martin to Prank W. Pierson, of Philadelphia, dated December 19th, 1898, in consideration of one dollar.

Third. An assignment from Frank W. Pierson to Robert C. Banes, trustee, dated February 27th, 1899.

Fourth. An assignment by Frank W. Pierson to Robert C. Banes, dated January 6th, 1900, in consideration of one dollar.

Fifth. An assignment by Robert C. Banes, trustee, to Charles H. Burr, Jr., dated January 22d, 1900; consideration, one dollar.

Sixth. An assignment, on the same day, from Charles II. Burr, Jr., to Robert C. Banes; consideration, one dollar.

Petitioner claims Richard’s share by an assignment by Richard to Frank W. Pierson, dated December 15th, 1898, in consideration of one dollar and other good and valuable considerations.

This share was included in and passed by the third and following assignments just set forth.

Petitioner claims the interest of Mrs. Bentley, the life tenant, by deed of assignment dated January 30th, 1900, from her to Frank W. Pierson, acknowledged January 23d, 1900, in consideration of $5,500.

In each of these documents the subject-matter is expressed to be the mortgage of $147,000, above mentioned, and they each recite that instrument by its date, the names of the mortgagor and of the mortgagee, and the amount, and generally its terms.

Those instruments also- recite the several wills of Peter Bentley, the first, and Peter Bentley, the second.

The operative part of the instrument is as follows:

“Know ye, that I, the said Peter Bentley, 3d, for and in consideration of the sum of five hundred and fifty dollars, to me in hand well and truly paid by ‘Prank P. Martin, of the city of Philadelphia, conveyancer, the receipt whereof is hereby acknowledged, have granted, bargained, sold, assigned, transferred and set over, and by these presents do grant, bargain, sell, assign, transfer and set over unto the said Prank P. Martin, his heirs, executors, administrators and assigns, all my right, title and interest, of whatsoever kind or nature, of, in and to the estate of my grandfather, Peter Bentley, 1st, in so far as said mortgage for one hundred and forty-seven thousand dollars and the accompanying bond is concerned, given, devised and bequeathed to me in and by his last will and testatment, as above set forth, or in any other way derived from him whatsoever.”

It will be observed that this language extends- only to the interest in the mortgage in question derived by the assignor from the will of Peter Bentley, the first, which is fully recited, as well as that of Peter Bentley, the second, and that the will of Peter, the first, gave his whole estate to Peter, the second, and only a small legacy to Peter, the third.

The several counsel of Messrs. Martin, Pierson and. Banes resorted to a title company to examine into the validity of the mortgage and guarantee the same, but all of them, including the title company, seem to have overlooked the fact that the mortgage was a part of the personal estate of Peter Bentley, the second, and therefore subject to its administration and the payment of the debts of tire testator, Peter, the second, and that in law the several assignors derived nothing from the will of Peter, the first, and had, probably, no legal interest in the mortgage as such to transfer it, and that it could only be collected by his executor or his representative — in this case, by the receiver.

This apparent oversight is the more remarkable in view of the fact that all the Bentleys lived in Jersey City; the real estate of which Peter, the second, died seized was located there, some of it in the business part of the city; the principal suit herein, in all its stages in this court, was heard in that city; tbe receiver lived there, and was openly in control of the estate, both real and personal, and the title company employed by the parties was located there.

The deeds of assignment above mentioned, though plainly insufficient to pass any legal interest in the mortgage in question, are, in my opinion, sufficient to .transfer in equity, and upon equitable terms, the shares specified in what shall remain of the proceeds of. this mortgage in the hands of the receiver, after it has by him been subjected to its proper burthen.

All this, as we have seen, has been done, and a balance remains, as reported by the receiver. He does not, however, waive his right to be heard further before any of this fund is ordered to be paid out to any person.

Mrs. Emma P. Bentlej7, the widow of the testator, admits the validity of her assignment, but wishes to be protected against any diminution of the remaining fund by reason of any outstanding claim against the estate.

All the other beneficiaries under the will are equally interested in that behalf.

The only immediate result of the present contest to which the petitioner is entitled is a determination and declaration of the court that he is entitled to stand in the place of the several assignors.

Peter, the third, and Eichard P. Bentley, each make separate defences to their several assignments.

I shall first consider that of Peter.'

His defence is that Ms assignment, though absolute on its face, was given as a mere security for a loan of $550, for which he -gave a promissory note, payable in one month, and received a written defeasance from Martin, the assignee, which be produces, as well as one or two letters from Martin recognizing his equity of redemption, and that he afterwards, but not within the month, tendered to Martin the amount of Ms note, with interest, and demanded the return of his note and assignment, which was refused.

This defence is well proven in all its parts, and his statement, and that of his witness, as to the facts, was not denied, although at the• hearing Martin, his assignee, was present in court and might have been called to disprove'it.

The answer made by petitioner to this defence is twofold— first, that Peter gave Martin a written power to make absolute sale of his share, and that under that power he sold it to Pierson, who, in turn, sold it to Banes.

Peter’s answer i» this contention is — first, Lhat his written authority to Martin did not authorize him to sell at the price he received, and was accompanied by conditions which were not observed; and secondly, that both Pierson and Banes had notice of his equity of redemption, and that neither was a purchaser without notice.

The second answer of petitioner to Peter’s defence is that before Pierson took the assignment from Martin and paid him therefor, his counsel, Mr. Arthur W. Depue, of Philadelphia, and Martin, called on Peter and inquired as to the character and validity of his assignment to Martin, and that Peter admitted its validity and made no mention of his equity of redemption, and that Pierson’s money was paid to Martin on the strength of that admission, and hence that Peter is estopped.

Peter denies this admission and avers, and is therein sustained by convincing evidence, that the particular interview to which Depue testified occurred a year after the payment of the money by Pierson to Martin, and shortly before or abo at the time that Mrs. Bentley made her assignment to Pierson, and he swears, in the most positive manner, that whenever the interview did occur he distinctly stated to Depue that he had an equity of redemption in the share and intended to enforce it.

The issues thus raised render necessary a consideration of a mass of evidence given at the hearing.

An examination of the voluminous files in the main cause which were put in evidence in this proceeding, and the opinion of this court, in 38 Atl. Rep. 286, shows Brat after the estate had been taken from the possession of the executrix she and her family were reduced to decidedly straitened circumstances. The widow was hard pressed to support herself and her younger children.

Peter, the oldest son, managed to obtain his license as a lawyer and earn a living. After making a start as a licensed lawyer, in the early part of the year 1898, he was disabled by illness, which continued for several months, and as a result! became in straitened circumstances and greatly in need of a present sum of money. Early in the summer of 189S he met a Mr. Carty, a New York lawyer, who had as correspondents in Philadelphia Messrs. Prank P. and Thomas J. Martin, the former being a conveyancer and the latter a lawyer, and who were in business together in Philadelphia, and engaged in the business of loaning money upon and dealing in expectancies and remainders, such as Peter had in his mother’s estate. Carty brought Peter in contact with the Martins. In his dealing with them he stated his interest fully, fairty, furnished them with a copy of the wills of his father and grandfather and some sort of a search or statement made by some title guarantee company of Baltimore, and stated the value of his interest at something over $2,000 and proposed to borrow money on it.

He was told by the Martins that they had a client, who at that time was out of the city, and who, they thought, would loan money on it.

Peter’s uncontradieted evidence of that interview is as follows:

“A. I saw, at this time, Mr. Martin and his brother — both of them— and told them I desired a loan of $2,500 or $3,000, and things went on, backwards and forwards and forwards and backwards, for a period of at least a month or six weeks.
“Q. Loan upon what?
“A. Loan upon this interest, this seventh interest in this mortgage; and finally Mr. Frank Martin, as well as Mr. Thomas Martin, informed me that Mr. Bickle, who was then in Maine, would return the latter part of September, and he had agreed to make a1 loan, upon their recommendation, of $2,500, and perhaps $3,000; I told them at that time that I had some very pressing debts, which must be paid, * * * and they said,
‘Well, I will tell you what we will do; we will make a loan to you.’
“Q. When you say ‘they,’ who do you mean?’
“A. Mr. Frank Martin, in the presence of Mr. Thomas Martin — both together, in their private office — ‘will make a loan to you for, say, thirty days, at the end of which time Mr. Bickle will return and make you this second loan; you can then pay us off and take that up.’ ”

And a loan of $550, at thirty days, was agreed upon.

Peter prepared an assignment, expressed on its face to be by way of mortgage. This they declined to accept, but required that it should be absolute, and prepared one in their office, as above set forth, which Peter executed, and also a note at thirty days for $550. They declined to advance the money outright at once, but retained the assignment and promissory note, gave him a check for $25 on account and referred him for the balance of his money to the New Jersey Title and Guarantee Company of Jersey City.

After that company had examined the mortgage to its content it paid him the sum of $380, which, with the $25 previously received, netted him the sum of $405, which was all that he ever received.

When his note became due payment of it was immediately pressed, and on failure to meet it his interest in the mortgage was put up at auction, in Philadelphia, November 9th, 1898. No purchaser was found and no sale made at that time. On that day Peter wrote to Mr. Thomas J. Martin a letter, which is relied upon as authority to- sell at private sale. That letter is as follows :

“Peter Bentley, Attorney-at-Daw,
“Davidson Building, 259 Washington Street, Jersey City, N. J. “Telephone 156 J. O. “9th Nov., 1898.
“Thos. J. Martin, Jr., Bsq., Pliila., Pa.:
“Dear Sir — As per your suggestion over the telephone this a. m. and your letter of last week, I request you to sell my interest at private sale, in case it does riot bring at least fifteen hundred dollars at public auction, with the understanding that you give me ten days’ notice of the highest figure you can obtain for the same, and that I have the right to redeem it, if the highest price you can obtain for it is not satisfactory to me, within said ten days.
“Yours very truly,
“Peter Bentley.”

On November 29th the Martins wrote to Peter, notifying him that one Regn had purchased his interest from Frank P. Martin, and had refused an offer of $750 for the same, and proposed to sell it at that price unless Peter chose to buy at that price. He, believing the letter to be a mere ruse to get $200 more than he owed out of him, paid no attention to it.

In the following April, 1899, he called on .the Martins, -at Philadelphia, with over $600 in his pocket, and offered, to pay them the $550, with interest and all charges.. This offer they declined to accept, because, as they said, they had already sold the same. They did not'return to him the promissory note.

. In the- meantime Richard P. Bentley- was quite as sorely pressed for money as his brother. Peter, as he was still a law student, and had little opportunity to earn it. . In his distress he also came into contact with Carty, who, in turn, introduced him to the Martins. , ...

Omitting, for the present, the details of his negotiations, so' far as they affect the merits of his defence, it is enough to say that Richard, on December 15th, 1898, in consideration of one dollar and other good and valuable considerations, made an assignment of his one-seventh interest to Prank W. Pierson, of Philadelphia, clerk.

On December 19th, 1898, Frank P. Martin, in consideration of one dollar and other valuable considerations, assigned the one-seventh interest of Peter to Frank W. Pierson. . • -

That gentleman was a clerk in the office of Mr. Arthur W. Depue, a lawyer, of Philadelphia. The price actually paid seems to have been $850 for each of the shares. Mr. Depue drew his checks for those two. sums — one to the'order of Richard.,P. Bentley and the other to the order of Frank P. Martin.

Mr. Frank W. Pierson got his position as a clerk in the office of Mr. Depue at the request of another lawyer, Charles II. Burr, of Philadelphia, who was the counsel of petitioner herein, both in his individual capacity and as trustee of his father’s estate. The money to pay Richard P. Bentley and the Martins was borrowed from Mr. Bane, as trustee of his father’s estate, and an assignment was made, as we have seen, from Pierson to Banes, as trustee, to secure that loan.

It is quite apparent, from the whole case, that Pierson was a mere figurehead for Banes and the actual transfer was looked after by Mr. Arthur W. Depue, as Counsel for Charles II. Burr, who was the counsel for Banes.

Subsequently negotiations were entered into between Depue and Richard Bentlej'- and Mr. Cortlandt Parker, counsel for Mrs. Bentley, for the sale by Mrs. Bentley of her life estate in the two-sevenths of the mortgage, the- remainder in which had already been vested in Pierson.

These negotiations ended in an assignment, made on January 23d, 1900, by Mrs. Bentley to- Frank W. Pierson, of that interest, in consideration of $5,000. paid to her, $500 paid to take up a previous loan and $500 to Richard Bentley, making $6,000 in all.

Some confusion has arisen from the circumstance that this instrument bears date the 30th of January, 1899, but it could not have been prepared as early as that because it recites the death of the widow of Peter, the- first, on the 26th of July, 1899, and the previous assignment, made May 1st, 1899, to secure a loan of $500, to one- Catharine L. Ashton.

It was not seriously contended that Peter’s right of redemption was lost by failure to pay his note at tire date it fell due, or that the maxim, “once a mortgage, always a mortgage/’ did not apply.

I shall no-w go into the evidence upon which the petitioner relies to show an estoppel against Peter Bentley setting up that his assignment to Martin was by way of mortgage.

That evidence is the testimony of Mr. Arthur W. Depue, who swears that in December, 1898, while the negotiations were going on for the purchase of the- two shares of Richard and Peter by Mr. Pierson, who, as already stated, was a mere figurehead for Depue and Barres, that he stated to the- Martins, that while Mr. Martin handed him his deed from Peter, which was an absolute deed, still that he (Depue) wanted some confirmation in regard to that, and that he would have to see Mr. Peter Bentley. His language is this:

“I also stated to Mr. Carty, and to Mr. Martin and to Mr. Richard P. Bentley, before this settlement took place, that while Mr. Martin had handed me a deed — this deed which is in evidence — of the interest of Peter Bentley, an absolute deed, that I wanted some confirmation in regard to that, and that I would have to see Mr. Peter Bentley.”

This statement is relied upon by Peter as a clear indication, that Depue had reason to believe, or had .learned in some way, that Martin’s title was that of mortgagee only, and this is the more significant because he does not state that Martin assured him to the contrary. Besides, the amount of the consideration named in the deed, taken in connection with what seems to be a common practice in such cases, was, I am inclined to think, enough to put him upon inquiry as to whether Martin was anything more than a mere mortgagee. Moreover, if Martin exhibited to Depue Peter’s letter of November 9 th, 1898, as his authority to convey, that letter was of itself notice that Peter claimed the right to redeem.

Depue then proceeds to testify that he went to Jersey City with Martin and met Richard, and at that time Peter Bentley was ill and confined to his bed, and that they, Richard and his brother-in-law, Mr. Dixon, took him and Martin to a physician’s house, where Peter was, and he found Peter in a third-story back room, and that he had with him a deed of confirmation which he wished Peter to execute, and asked him to sign it, and that he (Peter) answered: “I don’t want to sign that deed; I have already signed away my interest; I haven’t anything left; I won’t sign that deed.”

Pie further swore that he (Depue) was anxious to have the deed of confirmation signed, but that Peter persistently refused, and always gave the same reason — that he had already signed away his interest and hadn’t anything left. Pie swore that all this took place in the presence of Martin and Richard Bentley. He said that he returned to- Philadelphia and explained the situation to Mr. Pierson and Mr.- Burr, who was to loan the money, and that they said that they were satisfied, and that after that the money was paid.

Now, Mr. Burr swears, on this subject, as follows:

“Q. Your client, Mr. Banes, furnished the money to carry out these transactions?
“A. He loaned $1,700 to Mr. Pierson.
“Q. He put up all the money, didn’t he?
“.I. Except expenses.
“Q. Didn’t he put up all the money?
“A. All'the money that was paid to the boys, yes, sir.
“Q. Didn’t you have any talk with Mr. Depue about the confirmatory title of sale?
“A. From Mr. Peter Bentley?
“Q. Prom any of them?
“A. Well, you mean the one he asked Mr. Peter Bentley .to sign?
“Q. X will change the question; did you have any talk with Mr. Depue about a confirmatory assignment or sale on the part of the Bentleys— Peter, Richard or the widow f
“A.. Yes, sir; about both.
[This indicates that two confirmatory deeds were prepared.]
“Q. About both — when?
' “A. The first one when he came bach from Jersey City, and told me that Mr. Peter Bentley had not signed it.
“Q. When was that, please?
“A. Just prior to the 19th of December, 189S.
“Q. Sure of that?
“A. Yes, sir — positive.”

It tlxus appears plain that Mr. Burr, who was acting as counsel for Mr. Banes in the matter of the so-called loan of $1,700 to Mr. Pierson for the purchase of these two shares in remainder of Peter and Richard, had notice that Peter declined to sign a confirmatory deed.

Now, the evidence, on Peter’s side, on that subject, is this: That in the month of December, 1898, the date in question, he was in perfect health, attending to his business in his office, which is proven, not only by the almost daily entries, made in Ms own handwriting, in his docket, but by tire undisputed fact that on December 15th, 1898 — the very day which Mr. Depue fixes as the day on which he went to Jersey City and interviewed Peter on a sick bed in a dwelling-house — he (Peter) actually signed as a witness the assignment from Richard to Pierson for his share, which instrument was also witnessed by Mr. Carty. Upon that assignment tire money- was paid, on December 19th, 1898, to Mr. Carty, by Mr. Depue’s check, by money furnished by Burr for his client Banes.

. Richard Bentley swears that he did not, at or about that time, take Mr. Depue to see his brother, as testified by Depue; that he knew his brother (Peter) claimed the right to redeem his share, and he made every practical effort to prevent him from being brought in contact with Depue for fear that he- would disclose his (Peter’s) claim to Depue.

Peter Bentley denies that he had any such meeting as that to which Depne testifies on or about December, 1898, but testifies that early in January, 1900, a little more than a year later, after his grandmother’s death, anci while negotiations for the sale of his mother’s interest to Banes were pending, he underwent a surgical operation, which was his second, and while recovering from it remained at the house of his brother-in-law, Dr. Rector, in Jersey City, and was there waited upon by Depue and asked to sign a deed of confirmation, which was produced by Peter and which is dated in December, 1899, and prepared to be executed by the two boys and their mother and Mr. Pierson.

Under a great deal of verbosity, the effect of it was to cut off any equity of redemption which Richard or Peter might have. It was not executed, but the sale of the mother went through.

Mr. Depue, when confronted, on cross-examination, with the unexecuted deed of confirmation, produced by Mr. Peter Bentley, testified that the one so shown was not the one to which he referred as having asked Mr. Peter Bentley to sign. He said that the one which he presented to Mr. Peter Bentley to sign had been destroyed, and had been destroyed before the two assignments of December, 1898.

I believe that there is no positive evidence to show that either Mr. Depue or Mr. Burr saw the large advertisement or poster which the Messrs. Martin appear to have circulated advertising Peter’s share to be sold at auction — the advertisement was by James A. Freeman’s Sons, auctioneers, for a sale at twelve o’clock, November 9th, 1898, at Philadelphia Exchange — or that either of those gentlemen had direct information from the Martins that the share was held by the Martins as a mere security for the payment of money.

It does, however, appear, if Depue. and Burr are to be believed, that Depue represented to. Burr a day or two before the pajnnent was made, on November 19th, 1898, to tire Martins, that he (Depue) had asked Peter to confirm the Martins’ title, and that Peter had refused. Of this Burr is entirely certain. Depue may have made this statement to Burr without having, in point of fact, said a word to Peter about it. Again, though Depue swears, as I recollect, that he never had but one interview with Peter in order to get him to sign a deed of confirmation, yet it may be that he did have an interview with Peter in his office on or about December 15th, 1898, and. did ask Peter to sign a confirmatory deed, and that a year later he asked him to sign another confirmatory deed, and on that occasion saw him at Dr. Rector’s house. ■ Perhaps that is the view most charitable to Mr. Depue. But then his statement of what Peter said to him is without any corroboration, and the language he uses in relating Peter’s answer is, at the best, not entirely conclusive. On the other hand, Peter swears, in the most positive manner, that he not only refused to sign the deed of confirmation, but stated in the clearest manner that his share was only held by the Martins as collateral security; that he had an equity of redemption and intended to enforce it against the Martins, and he followed up this declaration, the next April, b}r raising the money, going to Philadelphia and tendering it to the Martins.

I am inclined to think that there were two deeds of confirmation prepared for execution by Peter — one in December, 1898, and the other in December, 1899 — and that both were presented to him, and the recollections of the two parties concerned have become confused as to the two occasions. This tends to reconcile their evidence.

The principal. question, after all, is, what reply did Peter make to Depue’s application ?

Now, extending to'Peter the same charitable view of his evidence that I have to Depue, I am led to the conclusion that his account of the ground on which he refused to sign the deed of confirmation is the more reliable of the two, and that he did state to Depue, when he refused to accede to his request, the true ground of his refusal.

Mr. Martin, who, according to Mr. Depue, was present when Peter made this admission to Depue, was present in the courtroom during the hearing, but was iiot called by Depue to corroborate his account of it.

Upon a careful, review of the evidence bearing upon this part of the case, and considering the comparatively small sum named as the consideration of the deed, considering that the evidence of both Burr and Depue shows that their attention was called to the question of the probability that the deed was no more than a mortgage, together with the character of the business apparently carried on by the Martins, which was mainly loaning money upon such rights, I am led to the conclusion that the petitioner is chargeable with notice that the title of Martin to Peter’s share was by way of mortgage only, and therefore subject to redemption.

This renders it unnecessary to inquire, in Peter’s ca.se, whether the circumstance that petitioner is coming into' a. court of equity to recover on a title which is purely equitable, and is under the necessity to ask what amounts to a reformation of his title deed, is sufficient of itself to reduce his claim to a sum which the court shall deem equitable and just.

After all, the only question is whether Banes shall be permitted to recover on the basis of the amount nominally advanced by the Martins ($850) or that advanced by himself ($850); for, upon well-settled principles, granting him the position of a bona fide purchaser for value without notice, he can recover no more than he actually advanced, with interest. Campbell v. Nichols, 33 N. J. Law (4 Vr.) 81 (at p. 86); Holcomb v. Wyckoff, 35 N. J. Law (6 Vr.) 35; De Kay v. Water Company, 38 N. J. Eq. (11 Stew.) 158, 162; Mellick v. Mellick, 47 N. J. Eq. (2 Dick.) 86; affirmed on appeal, 48 N. J. Eq. (3 Dick.) 613; Ruckelschaus v. Oehme, 48 N. J. Eq. (3 Dick.) 436; Robeson v. Robeson, 50 N. J. Eq. (5 Dick.) 465, 466 (Court of Errors and Appeals); Haughwout v. Murphy, 22 N. J. Eq. (7 C. E. Gr.) 531, 547, and cases cited (at p. 536 et seq.); Big. Estop. (5th ed.) 644.

In fact, but for the doctrine silently acted upon in Putnam v. Clark, 29 N. J. Eq. (2 Stew.) 412; 33 N. J. Eq. (6 Stew.) 338, and other cases scattered through our reports. I should have thought that in dealing with a right like the one here in question it was clearly the duty of the assignee from an assignee to make inquiry of all his predecessors in title for latent equities, if any, existing between the different prior owners. Such is the. rule laid down by Professor Pomeroy (2 Pom. Eq. Jur. § 708 et seq.), and it is sustained by strong reasoning" and weighty authority. It has been relaxed in favor of quasi-negotiable instruments, including, in this state, mortgages. Bat .the reasoning which includes such instruments within its scope surely does not reach the case of a remainder in an estate subject to a life estate. This interest is in marked contrast, in respect to its' negotiability, to bonds and mortgages, shares of. stock in incorporated companies and other interests of a mercantile nature.

I shall advise that Peter’s share shall be subject -to redemption upon the basis of the payment of $550, with interest, at six per cent., from tire 1st of October, 1898, to the day in April, 1899, when tender was made, and from that time on at the rate of five per cent. I shall fix the time for redemption upon settling a decree.

If he (Peter) shall see fit to redeem the same, there can, of course, be no relief granted to the petitioner as to Peter’s share, except the payment out to him of tire interest on that share during the lifetime of the present Mrs. Bentley. It is Peter’s absolute right to have the principal fund retained in the hands of the receiver during her lifetime, and this court has no power to interfere therewith.

Any arrangement for the paying out of that share of the principal must be by agreement between petitioner and Peter. If Peter shall fail to redeem, measures will be taken to enforce the lien of the petitioner.

We come, how, to "the case of Richard P. Bentley.

His defence is that being in very straitened circumstances, and having attained the age of only twenty-ihree years, and being engaged in the study of the law, with no means of support except odd jobs picked up in k lawyer’s office, he heard that his brother, Peter, had effected a loan on his share in the mortgage so often mentioned, and so he attempted to find some person to make a loan to'him'on his share.

■ In this condition of affairs he was waited upon by Mr. Carty, who had effected Peter’s' loan. • Carty undertook to effect the loan, 'but reported to Richard that) after trial, he was unable to effect a loan, but could effect a sale at $600, and, as Richaxd understood, through the Martins, in Philadelphia. Richard, in his distress, agreed to sell for $600.' Carty, in order to carry that out, induced him to execute the assignment to Prank W. Pierson, above mentioned, with a stated consideration of one dollar and other good and valuable considerations, and dated December 15th, 1898. The verbiage of the effective part of the assignment is, I believe, precisely like that of Peter's to the Martins, above recited. That assignment was executed on the day on which it bears date, in the city of Jersey- City, in the presence of Carty and Peter Bentley as witnesses, and acknowledged on tire same day before Master McDermott, and recorded on the 17th of December, in Hudson county. On the 17th Richard executed a short power of attorney to- Carty to- receive the money on it. This was witnessed by his friend, Mr. Appleton, of New York City.

The assignment and power of attorney were taken by Carty to Philadelphia, and on the 19th the assignment was delivered to Mr. Arthur W. Depue, on the same day and at the same time that the assignment from Martin to Pierson was delivered; Depue handed to Carty his check on a'Philadelphia bank for $850, to the order of Richard P. Bentley;* Carty managed, by the aid of the short power of attorney, just mentioned, and the assistance and -endorsement of the two Martins, by their firm name, to obtain the cash on the check without Richard P. Bentley's personal endorsement. He returned to Richard and stated —according to- Richard's account of it — that he had received the $600 mentioned as the price, charged him $100 for his services, and in that way accounted for the sale of the share. He then, out of the $500 which he admitted was coming to Richard, borrowed $40, which he has never returned, so that Richard received just $460 for property which, by the life tables, and supposing the fund was to- be divided -at once between him and his mother, and supposing that the whole $50,000 was involved, was worth about $3,500.

In point of fact, as afterwards turned out, the fund was reduced by the payment of debts to $38,000, so that his interest was worth about $2,700.

Carty’s account is that he negotiated the sale to the Martins for $550 and reported it to Richard, and that the Martins renegotiated it to Pierson for $850, retaining for themselves $300 as a profit, and that he reported to Richard — which Richard admits— that he knew that more than $550 was actually paid for the share, and he saj^s that he deducted, out of the $550, $110 which Richard owed him for previous services, and paid him $440 only, $10 less than Richard recollected that he received.

The result in either case is sufficiently startling, and it is not surprising to find that the English courts, by a long series of decisions, many of which are collected in Chesterfield v. Janssen, 1 White & T. Lead. Cas. Eq. *541, and also in 2 Pom. Eq. Jur. § 963, and notes, finally adopted, almost as a principle, the practice to set aside all such transactions, and to compel the purchaser to accept what the courts held to be a reasonable compensation.

Indeed, the English courts went so far, of late, that it became impossible to raise money on reversions and remainders, and parliament intervened, in 1868, with an act, referred to by Professor Pomeroy in a note to section 963, correcting this evil. Nevertheless, the courts held that this statute did not prevent them from administering, as of old, the general principles of equity in. such cases. I may add here that apparently our own courts have never' gone so far as the English courts did for the years preceding the passage of the act just mentioned.

The theory of Richard’s defence was that Carty merely acted as the figurehead for Depue and Burr, acting as counsel for Banes, the petitioner. But I think his defence in that respect fails. I think that the evidence does not support the idea that Burr and Depue were colluding with Carty and the Martins, or that they were at all cognizant of or chargeable with the harsh terms put upon Bentley by those gentlemen. I think that Depue, acting for Burr and Banes, drew the check in favor of Richard in full expectation that he was to receive the money on it, and that it was, in effect, a direct transaction between Banes— Pierson being a mere figurehead — and Richard. So that Banes is not chargeable with any notice of the depletion by the intermediaries.

Further, there is no room in the case for the feature of a loan; no equity of redemption was saved.

Now, Richard’s case must stand, if .at all, purely on the ground that petitioner took advantage of Richard in his distress to pro-' cure from him an absolute conveyance of his interest for $850. As matters have since developed, that was about one-third of its actual value upon a division of the fund between him and his mother.

In favor of Richard are two circumstances — first, that he is not in court as the plaintiff seeking equity. In many, if not most, of the adjudged cases to which I referred the party seeking equity was tire heir or remainderman, and was always put upon equitable terms; but here, as before remarked, Richard is content to let the money lie in court until his mother dies, and it is Banes who is suing in equity.

In the next place, by no construction of the petitioner’s assignment, can it 'be held that any interest in this fund passed at law. The petitioner is, in effect, asking a reformation of his deed, and I may add that Richard is in no way responsible for this technical defect. It arose in the office of the Messrs. Martin, when Peter’s assignment. was prepared. They were furnished with all the material from which to draw a proper deed.

Now, let us see what equity there is against Richard in the case.

I am satisfied that one inducement on the part of petitioner, or, rather, his ¡advisers, Burr and Depue, to buy these two' shares, in December, 1898, was the hope they entertained that they might be able to extinguish the life estate by a purchase from Mrs. Bentley. Their information was that the elder Mrs. Bentley was well past eighty years of age and in feeble health, and, I think, they also had information that the younger Mrs. Bentley was in straitened circumstances. The distress of her two sons was enough to1 suggest that idea. In point of fact, she was very soon in Philadelphia borrowing money on her life estate of one or the other of the parties, Martin or Depue.

Negotiations were soon opened with the view of purchasing her interest, and Eichard took an active part in it in behalf of his mother. He made frequent visits to Philadelphia and called on Burr and Depue; sometimes one ’ and sometimes the other. Quite a voluminous correspondence also took place. He also negotiated a'loan for his brother, John Bentle3r, on his share. In all these he on no occasion uttered a word or did an act by way of repudiation of the sale of his share.

His grandmother died in July, 1899, and the fund was relieved from the very slight burden of her life estate. The mother was then ready and anxious to malm a sale -which would net for herself a lump sum of money and satisfy certain personal creditors. She had borrowed $500 on her share. Finally, in December, 1899, a bargain was struck, with tire approval of Mr. Cortlandt Parker, the counsel of Mrs. Bentley. It was as follows: That Mrs. Bentley should receive $5,500 for two-sevenths, out of which $500 was to be paid to a Mrs. Ashton, of Philadelphia, of whom she had borrowed $500, leaving her $5,000 net, and Eichard Bentley should receive, in addition, $500 for his services, making $6,000 in all.

The petitioner secured and paid $300 for a policy of insurance, called “Guaranty of Title,” of the New Jersey Title Guarantee and Trust Company, of Jersey Cityr, New Jersey, marked as guaranteed as “$14,000,” and on the 23d of January, 1900, by deed, dated, by mistake, January 30th, 1899, Mrs. Bentley assigned to Pierson two undivided one-seventh parts of her estate for life in one-half of the mortgage, which one-half would be $50,000, and two-sevenths would be $14,000, and she added a power of attorney to collect the same.

Now, strange to. say, as before observed, up to- this time nobody, unless it be Mr. Parker, seems to have thought that inasmuch as that mortgage belonged to- the estate of Peter Bentley, the second, it could only be paid to- the receiver of that estate, and would be subject to the payment of any debts that remained.

I am unable to find any evidence that Eichard Bentley was in any degree responsible for this remarkable oversight on the part of both the Messrs. Burr, Depue and the searcher of the title guarantee company.

It would seem that Burr and Depue expected to obtain $14,000 directly from the railroad company. In this they were naturally disappointed, the money being claimed by and paid to the receiver. But, owing to these misunderstandings, the principal money did not reach him until March 2d, 1901, nearly two years after the death of the elder widow, and more than a year af.ter the assignment to Pierson by the present Mrs. Bentley. The railroad company also paid him interest on this sum, which he kept in a different fund. No formal notice was ever given to the receiver by the petitioner of his claim on this fund. The receiver heard of it incidentally, probably through Mr. Parker.

After paying all ascertained debts up. to* date, the receiver reported that there remained out of the fund a trifle over $38,000, so that the petitioner, in the end, will receive about $11,000, instead of $14,000.

The debts which so depleted the fund were mainly odds and ends of claims which the receiver had been able to hold off in order to avoid selling any more real estate, and I am by no means satisfied that Richard Bentley, or, indeed, Peter, expected the fund to be reduced as it was, so that neither of them are to blame for the delusion under which petitioner and his counsel were acting.

I am inclined to think that Mr. Parker, who was counsel for the. estate, as well as for Mrs. Bentley, and quite familiar with the great difficulty which the receiver had encountered in carrying the estate along so far, was aware of the true state of affairs. I so judge from Mr. Burr’s interesting account of an interview he'had with him. But Mr. Parker was under no obligation to give any information to Messrs. Burr and Depue. They were dealing at strictly arms’-length, and the price which he fixed and obtained was no more than a fair one. Mrs. Bentley’s share of the fund, by the life tables, was about one-half, which would be about $2,700 for each one-seventh, and'aboiit $5,500 for the two-sevenths, and the $500 which Mr. Parker insisted on Richard receiving was little enough, considering the trouble he had had,. as well as the insignificant price he had received for his interest.

In all this I find no equity against Richard, except in one respect, and that is that the petitioner purchased, and Richard knew that he purchased, his mother’s interest on the supposition that he was the absolute owner of the interest of Richard in the remainder, and Richard stood ‘by and encouraged the transaction without any objection or assertion that he had any equity against Mr. Banes arising out of the transfer of his own share. Throughout the whole transaction this position was prominent. This consideration seems to me to be of great weight and to overcome all that may he found on the other side.

I therefore feel constrained, with regret, to come to the conclusion that petitioner is entitled to the decree of this court establishing his ownership to one-seventh of the fund by reason of the assignment of Richard and that of Mrs. Bentley.

But that right must be subject to the right of the receiver for his commissions and expenses, and to the right of the other legatees to be protected against any further depletion of the remainder of the fund by the demand of further debts.

Perhaps this can be arranged by the furnishing of a substantial refunding bond.

■ I will hear counsel on the terms of the decree.