text:
    Louisa H. Turner v. Louis Kuehnle.
    [Submitted July 15th, 1906.
    Decided August 10th, 1906.]
    1. Complainant having refused to sign a deed with her husband for the purpose of conveying certain of his real estate which he had acquired during the marriage, the husband, acting in collusion with the vendee and the mortgagee, employed an attorney to foreclose the mortgage which the husband had assumed on purchasing the property. The attorney purchased on foreclosure, in his own name, for the amount of the mortgage and interest, he 'having misled complainant to believe that her interest in the property would not be affected, after which he transferred his bid to the husband’s vendee, who completed his contract with the husband for the purchase of the property..—Held, that the land was chargeable in behalf of the wife with an annuity equal to the interest on one-third of (he proceeds of the sale after the payment of the mortgage
    2. A purchaser of land under proceedings for the foreclosure of a mortgage is not entitled to the rights of a dona fide purchaser-for value, when he is claiming the fruits of the fraud of his agent in the foreclosure proceedings, though the fraud was practiced by the agent without the purchaser’s knowledge or authority.
    3. Complainant discovered that certain of her husband’s property was advertised for sale under foreclosure, and asked both him and his counsel whether the property was to be sold. The husband denied that there was to be any sale, and his counsel informed her that no property of hers would be sold. The sale was made to bar her dower rights, and was completed February 17th, 1890. Complainant first became aware of the real transaction after her husband’s death in March, 1904, when she placed the papers in the hands of counsel for action. They were, however, returned without any action being taken thereon, when she immediately employed another solicitor, who filed a bill to enforce her dower rights in the property on March 10th, 1905. This bill was dismissed on demurrer, and on May 17th, following, the present bill was filed.—Held, that complainant was not barred from relief by laches.
    4. Where a husband conveyed his land in his lifetime without the joinder of the wife, her dower should be measured as of the date of the husband’s contract to convey, less the amount of a purchase-money mortgage thereon, not including any increase on the balance by reason of interest.

      On final hearing on bill, answer and proofs.
    For the opinion of this court on demurrer to the bill herein, see '68 Atl. Rep. 827.

      Mr. Ulysses Q. Styron, for the complainant.

      Mr. John C. Reed and Mr. Clarence L. Cole, for the defendant.
   Pitney, Y. C.

As the facts developed on the final hearing herein vary somewhat from those set out in the bill and dealt with on the demurrer," it seems advisable to restate them.

On the 31st 'day of August, 1893, and- before that day, the complainant, Mrs. Turner, was living in a dwelling-house in the city of Atlantic City which constituted the home of herself, her husband and their children. In point of fact, however, the husband and wife at that time or shortly afterwards were not on good terms with each other and did not cohabit as man and wife, the husband having apparently a home elsewhere, but coming to the house occasionally.

The husband was a man possessed of considerable property in and about Atlantic City, both real and personal, and entirely able to pay his debts, and so continued to a period subsequent to the transactions involved in this cause.

On the 31st day of August, 1893, he acquired title in fee-simple from one Samuel T. Hoffman to a tract of land in Atlantic City (in two parcels, comprising one lot fifty feet front and two hundred and sixty feet deep) by a conveyance of that date which expresses on its face the consideration of $16,000 with general covenants of warranty, excepting a mortgage for $4,000 of the same date, given by the grantor, Hoffman, to Messrs. William and George Allen to secure $4,000, “which said mortgage is hereby assumed by said Turner as a part of the consideration herein mentioned.”

Turner took possession under that conveyance, and on the 12th of February, 1895, he executed to one John Wheeler a lease of the premises for ten years, from March 25th, 1895, at a rent of $1,200 per year, containing a clause by which Wheeler, the lessee, had the right, at any time within one year from March 25th, 1895, to purchase the premises, free and clear of encumbrances, for the sum of $18,000, of which $6,000 was to be paid in cash and the balance by a first mortgage, payable at the expiration of ten years from its date.

Wheeler took possession under that lease, and on the 29th day of March, 1895, assigned the same to the “Otto Huber brewery,” in consideration of $8,000. He also, on the 13th of June, executed a chattel mortgage to that brewing company covering a variety of chattels, being bar-room furniture and scenery.

This corroborates what the evidence tends to show, that either Wheeler or the brewing company expended moneys in converting the property into a music hall and drinking saloon. It was afterwards known as the Music Hall, and it abundantly appears that neither of them were able to pay for the improvements, so that some ten or twelve judgments on lien claims were recovered against the property, and it was advertised thereunder by the sheriff and sold to the defendant, Kuehnle, for $3,000.

In addition to that, Kuehnle swears that he had already advanced to Wheeler $4,000 in cash.

The sheriff’s deed was dated the 26th of January, 1896, and on the lJth of February, 1896, the brewing company assigned to Kuehnle their chattel mortgage and the leasehold interest under Turner’s lease to Wheeler.

The year in which Wheeler, by the terms of that lease, had the right to purchase at $18,000 expired on the 25th of March, 1896.

On the 25th of February, one month before the expiration of the time, and after Mr. Kuehnle hafjl perfected his rights as assignee of Wheeler, he demanded the title from Turner.

This Turner was quite willing but unable to give without the consent of his wife, the complainant.

A deed was thereupon prepared in the ordinary form from Turner and his wife to Kuehnle for the premises.

Previous to that, Turner, when making conveyances of real estate from-his wife and himself, had been obliged to pay his wife something substantial for her inchoate right of dower, and in the negotiations leading up to a bargain a young lawyer, Mr. John S. Westcott, practicing in Atlantic City, had acted as go-between, and resort was had to him in this instance by Mr. Joseph Thompson, of the Atlantic bar, commonly called Judge Thompson, who was employed by Mr. Kuehnle to secure the title of the premises from Turner.

Judge Thompson had also been counsel for Turner in many matters before that time, but it is proper to say that there is nothing to show that he had any standing retainer from either Mr. Turner or Mr. Kuehnle, but was at perfect liberty to appear ■ in any litigation for or against either of them.

He was, however, distinctly employed by Kuehnle in the then present matter.

Being informed that young Mr. Westcott had procured from Mrs. Turner her execution to other conveyances of real estate made by her husband, he, Thompson, at Turner’s suggestion, handed to him the proposed conveyance, unexecuted by her husband, as I recollect, and requested him to procure her execution of it.

Mr. Westcott had an interview with Mrs. Turner and asked her to join in the deed, which she declined to do unless she was paid. This he reported to Judge Thompson, who, according to his, Westcott’s, evidence, replied that they, or Mr. Turner, would not give more than $200 or $300 to Mrs. Turner to join in the deed, because there was a mortgage outstanding against the property which could be foreclosed, and her inchoate right of dower be cut off for that amount of money. This sum Mrs. Turner refused to accept.

There the matter ended, for, as I recollect the evidence, it does not expressly appear that Mr. Westcott reported that statement of Judge Thompson’s to Mrs. Turner, although the probability is that he did do so, as they had some two or three interviews on the subject.

Mr. Westcott was not the stated solicitor of Mrs. Turner, but had acted for her in loaning on bond and mortgage a portion of the money which she had received in a previous transaction of a sale of lands by her husband.

With regard to the statement by Mr. Westcott of what Judge Thompson said to him as to the foreclosure of the mortgage for the purpose of cutting off Mrs. Turner’s dower, it is proper to say that Judge Thompson, on the witness-stand, stated that he had no recollection of having used any such language.

On the 10th of March, 1896, a few days after the failure of negotiations to procure Mrs. Turner’s signature to the conveyance, Mr. Thompson filed a bill by Kuehnle in this court against Turner to compel the specific performance of the contract of sale contained in the lease.

At the proper time he filed a lis pendens in the county clerk’s office in aid of that bill. He issued a subpoena against Turner at the filing of the bill, returnable the 28th day of March, which was duly served upon Turner. No further proceedings were taken under that bill' and no answer was filed by Turner.

To go back to the mortgage given by Hoffman to the Allens. That was, shortly after it was made, assigned to Mr. William Eitton, of Atlantic City, and the interest seems to have been promptly paid upon it up to the 28th of February, 1896, which, it is to be observed, was at about the time that the effort was being made to procure the signature of Mrs. Turner to the conveyance. The principal of the mortgage had been due since 1894, but six months’ interest, up to the 28th of February, 1896, seems to have been received by Mr. Fitton from Mr. Turner.

I will now give Mr. Thompson’s language as to how the mortgage came into his hands. After stating that he had filed a bill against Turner for specific performance, and had let the matter stand, he continues:

“About seven months after I filed this bill [which would be October lOthl, Mr. William Fitton, whom X had been attorney for from the time he came to Atlantic Oity, I presume, up and till the time of his death, brought the bond and mortgage which has been referred to in this matter that was foreclosed, and told me that he wanted it collected. He said that he wanted his money; that Mr. Turner could not pay him, and he wanted me to collect it, and he said that Mr. Turner said he would pay the expenses of the eolleetion.
“Q. (By the court.) That he, Turner, would pay them?
“A. That he, Turner, would.”

I-Ie then proceeded to state that he foreclosed the mortgage, making Mr. and Mrs. Turner and Kuehnle defendants, and that at the day of sale he attended with Mr. Fitton. He ascertained the amount required to pay the principal and interest of the mortgage and the sheriff’s execution fees, and bid that amount (which turned out to be a few dollars less than the amount due), and that the property was struck off to him.

The sheriff does, indeed, say that he thinks there were other bidders, but Judge Thompson does not mention any others, and the fact that he swears that he made a single bid, which turned out to be a few dollars short of the amount necessary to pay the whole amount due and the sheriff’s execution fees, is a strong indication that there was but one bid.

This sale was confirmed, although the property was well worth $25,000 to $30,000.

I will continue Judge Thompson’s account of what occurred afterwards:

“A few days after the sheriff’s sale, Mr. Fitton and Mr. Turner came to my office and they told me that they wanted to carry out—that Mr. Turner wanted to carry out the contract which Mr. Kuehnle had purchased through a sale made under the mechanics’ lien, if Mr. Kuehnle would perform the contract. I saw Mr. Kuehnle and told him that the way was open for him to acquire the title to the property if he still wanted to. He said that he would carry it out under the original terms, that Mr. Turner would have to pay any expense that he had incurred or had been incurred by me in the matter of the filing of the bill against him. It resulted in the end in the bid being assigned to Mr. Kuehnle, Mr. Kuehnle taking title from the sheriff, and then the moneys passed through my hands, representing Mr. Kuehnle in the matter, and a settlement was finally made with Mr. Turner.”

That settlement with Mr. Turner is manifested by certain documents in the handwriting of Mr. Cole, then in the employ of Mr. Thompson, rendered to Mr. Turner, and found by Mrs. Turner’s son in her husband’s trunk after his death, which occurred March 17th, 1904.

The sheriff’s sale took place on the 6th of February, 1897. The deed was dated March 1st, 1897, and a statement made up by Mr. Cole, under the direction of Judge Thompson, is dated March 1st, 1897, and it credits Turner with $18,000, the consideration money mentioned in the contract; interest on $12,000 for eleven months, $660, making a totál of $18,660. It credits Kuehnle with the mortgage to Turner for $10,000, being $2,000 less than the sum that was provided for in the original contract. It credits him with the further sum, cash and note, $2,500, making $12,500, which, deducted from $18,660, left due Turner $6,160. From this is deducted as follows:

l-’aid Fitton mortgage and interest................'......... $4,240 94
Sheriff’s costs........................................... 81 54
Court costs............................................. 70' 84
Costs of bill in equity.................................... 50 00
Recording mortgage...................................... 8b
Services in foreclosure and equity ease..................... 100 00
Making a total of................................. $4,544 17

This amount of $4,544.17, deducted from $6,160, left a balance due Turner of $1,615.83, which was paid to Turner by Judge Thompson’s check. This statement was forwarded to Mr. Turner by Judge Thompson, together with the receipted bill for the sheriff’s execution fees and check, with an explanatory letter from Judge Thompson, enclosing also the bond for $10,000, and a few days later another letter, with the mortgage securing the same.

Let us now go back to the commencement of the foreclosure proceedings’. The subpoena, with tickets, which issued on the filing of the bill to foreclose, was duly served on Mrs. Turner at her house, and the sheriff’s return shows that the copy for Mr. Turner was also left at the house for him. Those papers Mrs. Turner immediately forwarded, without examination, to her husband, who then had an office or some sort of a residence in Philadelphia.

This was done in pursuance of a standing request made by Mr. Turner to his wife.

Mrs. Turner heard nothing more of the affair until a few days before the sale, when she saw an advertisement of the sale of the premises in a newspaper, and at once obtained an interview with Judge Thompson, which she relates this wise:

“ ‘Mr. Thompson, I understand, or I seen in the paper where the music hall property is to be sold,’ and I said, ‘You know Mr. Turner is doing bad, has left home and is doing bad,’ and I said, ‘Don’t let him sell it, Mr. Thompson,’ and he said, ‘Why, Mrs. Turner, don’t worry anything- about it; your property will not be sold by the sheriff.’ ”

She states that she went to Mr. Thompson because she knew that he was Mr. Turner’s lawyer. Then she further says that her husband came to her house the night before the sale and stayed-all night, and that the next morning she asked him if the Music Hall property was going to be sold, and he said, “No,” and she said, “I see it advertised in the paper where it was to be sold Saturday,” and he said, “That don’t mean that it has to be sold.” Later and in the afternoon of that day she saw him again, and she asked him if the property had been sold, and he said, “No, it “had not, and it was not going to be,” and she said, “You say, then, it isn’t going to be sold?” and he said, “No, not a damned bit of it.” In the meantime, however, she had sent her son to the place of sale, and he told her that it had been sold, but did not mention the price. About two months afterwards she called at Judge Thompson’s office and saw Mr. Cole and asked him about the matter, and he told her the property had been sold, and she told him she had not signed any paper in connection with it, and he went to the safe and got the sheriff’s deed and looked at it and told her that her name was in the deed, and she asked him to look after her interests in the property, and he replied that he could not do it.

Let us now see what the effect of these proceedings were in equity upon the complainant’s inchoate right of dower.

We have Judge Thompson employed by Kuehnle in February, 1896, to perfect his title in the premises by enforcing against Turner the Wheeler contract, of which he was assignee, and we have a deed of conveyance prepared by Judge Thompson to be executed by Turner and his wife, and the bond and mortgage prepared to be given to Turner for a part of the consideration money, in strict accordance with the terms of the contract, and we have Judge Thompson, at Turner’s request, asking Mr. Westcott to try and procure Mrs. Turner’s signature to the deed, and we have her refusal and the report thereof to Judge Thompson, and we have Judge Thompson’s refusal, on behalf of Turner, to pay more than $300 or $300, the amount of the costs of the foreclosure of the Fitton mortgage. It is true that Judge Thompson denies any recollection of having made the statement which Westcott swears he did. But a careful consideration of the manner of Mr. Westcott on the stand and of all the circumstances leads .me to the conclusion that his evidence on that subject is reliable. He was' quite clear in his recollection, and I cannot bring myself to the conclusion that his evidence was manufactured. It is much easier to believe that Mr. Thompson has forgotten that he used the language in question.

And here it is proper to mention a circumstance not previously referred to, viz., that the original conveyance from Hoffman to the two Allens and the assignment of the-mortgage to Fitton were all carried through under Judge Thompson’s supervision, and he personally negotiated the assignment of the mortgage to Fitton.

I therefore conclude that the foreclosure of this mortgage, in order to bar Mr?. Turner’s inchoate right' of dower, was in the mind of Judge Thompson at the outset.

Then we have the filing of the bill for specific performance and the issuing of process thereon, with the filing of the Us ■pendens, the failure of Turner to file any answer thereto, and the failure of Judge Thompson to enter a decree pro confesso for want of an answer, or to take any proceedings thereon. He said he advised his client to let the matter lie for the present. For this deliberate delay he gives no reason whatever. It is to be remembered that his client, Mr. Kuehnle, had a considerable amount at stake. He had advanced $4,000 in cash to Wheeler, the original contractee: had bought in the premises at sheriff’s sale for $3,000, and had been in possession, as he swears, at that time for about six months. But I find no difficulty in accounting for that delay in pressing the specific performance suit when. I find by the master’s report in the foreclosure case that the interest on the mortgage in question had been paid by somebody, presumably Mr. Turner, up to the 38th of February, 1896, the bond being dated August 31st. It would be suspicious at least to commence suit in foreclosure immediately after having received the semi-annual payment of interest. So a delay occurred until the 13th of October, when the bill was filed.

Then we have the remarkable statement made to Judge Thompson by Mr. Fitton when he handed him the bond and mortgage for foreclosure, which. has already been quoted, namely, that Turner told Fitton that he would pay the expenses of a foreclosure.

Mr. Thompson then knew that the foreclosure was the result of an arrangement between Turner and Eitton. Turner was notoriously, at that time, able to pay the interest on the mortgage, so that Thompson must have known that the foreclosure was at Turner’s request, and it is impossible to avoid the conclusion that he understood that the object of it was to cut off complainant’s inchoate right of dower and perfect the title which Turner was willing to make to Kuehnle, and he, Thompson, acted on that arrangement up to the very last, when he charged Turner $100 counsel fee, over and above the taxed costs in the foreclosure case, and over and above a fee of $50 in the specific performance case.

Now, when the property came to a sale, Judge Thompson accompanied Fitton to the sale and bid the property in in his own name for the amount of the decree and costs.

The question arises at once, Did he buy that for himself, or as trustee and agent of some other person or persons, and if as agent and trustee, then for whom, and where were the interests of his client, Mr. Kuehnle, who had a large sum at stake ?

That gentleman swears that he paid no attention whatever to the matter from the time he put it into Mr. Thompson’s hands, but trusted to and relied upon that gentleman to look after his interests. Then we have it quite clear that Judge Thompson acted as trustee, first, for Mr. Fitton, to the extent of the amount due on his mortgage, and second, for his client, Mr. Kuehnle. He could not stand by and see property worth $25,000 sold for a little over $4,000 without protecting that client’s acknowledged interest.

Was he trustee for anybody else? If not, then his plain duty was to transfer the bid to Mr.' Kuehnle upon that gentleman paying the amount of his bid to the sheriff. But this he did not do, but recognized the rights of Mr. Turner, thereby, as I conceive, acknowledging in the plainest manner that he was also acting as trustee for that gentleman, and before assigning the bid he saw to it that Mr. Turner received the amount of purchase-money to which he was entitled -under the Wheeler contract.

In other words, lie acknowledged by his conduct that he bid off the property for the benefit of the three persons, the mortgagee, the vendor and the vendee, as their rights severally appeared under the contract of sale and the mortgage.

It is quite impossible to suppose for a moment that Mr. Turner stood by and saw this valuable property, his equity in which was worth at least $14,000, struck off to Judge Thompson for the comparatively trifling sum due on the mortgage, unless he had a previous arrangement with the bidder to protect his interests. In fact, the case in this respect is entirely transparent. «

And it seems to me idle to argue that in all that transaction, from the unsuccessful effort to procure the signature of Mrs. Turner down to the close of the transaction, as manifested by the statement and letters of March 1st, 1897, that Mr. Thompson was not acting voluntarily and intelligently as the agent of the three persons named severally, and as the solicitor in this court of Fitton and Kuehnle, and with a full knowledge, at every step taken, of their object to produce the result finally arrived at.

Now, I think that conclusion brings the case within the equitable rule upon which I relied in dealing with the demurrer to the bill.

I think that the case is not varied by the circumstance that no active measures are shown to have been taken to prevent intervening bidders.

The sacrificing of property at sheriff’s sale under similar circumstances is too common in this state to excite remark or raise doubts.

The real transaction was in substance and effect a sale and conveyance by Turner to Kuehnle for $18,000, of which the amount due on the mortgage was devoted to its payment and the balance paid to Turner. This balance of over $14,000 constituted the real surplus money on the sale, and should have been paid into court, and the case must be treated accordingly.

The more serious question arises from the fact that the complainant had actual notice of the sale, and did not employ counsel to look after her interests. She did, however, go to Judge Thompson, -whom she was entirely justified in believing was acting as counsel for her husband, and whom I find, as a fact, was acting as such in the very matter in hand, and she asked him about the sale and begged of him not to let it go on, and she swears that Thompson said, “Why, Mrs. Turner, don’t worry anything about it; your property will not be sold by the sheriff.” Now, Judge Thompson does not recollect this interview, but here again I feel constrained to believe Mrs. Turner. Moreover, I have not overlooked the peculiar verbiage which Mrs. Turner puts in Judge Thompson’s mouth. She was' speaking of the advertised sale of the Music Hall property, and his answer was sufficiently ingenious, “Your property will not be sold by the sheriff.” She was severely cross-examined, and on the cross-examination her previous evidence on direct was treated by counsel for defendant as being an assertion that Judge Thompson told her that the Music Hall property would not be sold, and the question was so understood by Mrs. Turner in answering. But I cannot infer that he used words different from those stated by the witness, however she may have understood them.

Then we have her asking her husband about it the morning of the sale, and his assurance to her that it was not going to be sold.

Then we have her sending her son to the place of sale and his report to her that it had been sold, without stating the price.

Then we have her asking her husband whether it had been sold, and his denying it. Then we have her consciousness that she had not signed any mortgage or paper relating to that property, and this feeling of assurance she still had a right to entertain, for her husband acquired the property in 1896, and she swears that the break between the two occurred in 1894; so that she had a distinct recollection that she had signed no paper in connection with the property, and felt a confidence that no suit could affect her interest in it. The idea that a mortgage could be put upon it before her husband took the title did not occur to her.

However, later on, and after the sheriff’s'deed was made and delivered, she did call at Mr. Thompson’s office and saw Mr. Cole and asked him about it, and was informed by him that, although she had not signed any paper, her name was in the sheriff’s deed. She also called on Mr. Kuehnle, according to his story, after he had paid for the property, and made some sort of an assertion of right in the premises, which Mr. Kuehnle refused to recognize. This is testified to by him, but the complainant’s attention was not called to it on the stand.

The precise and only present right of Mrs. Turner which she neglected to enforce was to except to the sheriff’s sale on-the ground of the insufficiency of the purchase price, and to resort to the proof of the Wheeler contract on record and the subsequent rights of Kuehnle thereunder and expenditures made on the property in support of her exception, and. it is to be presumed that if she had taken that course she would have succeeded in having a large surplus sum paid into court to be dealt with precisely as Chancellor Zabriskie dealt with the surplus in Vreeland v. Jacobus, 19 N. J. Eg. (4 C. E. Gr.) 231.

If she had understood her rights and comprehended the facts and situation in time to have intervened to prevent the confirmation of the sale, much might be said in favor of the position that she had deliberately abandoned her rights. The record of the foreclosure shows that the sale took place on February 6th; that it was reported by the sheriff on the 8th, and his report filed February 10th, and the sale confirmed on the 17th of February, so that she had very little time in which to think over and learn her rights.

But here comes in the consideration mentioned in my opinion on the demurrer. It was a part of the plan of the gentlemen who devised and carried through the scheme in question that Mrs. Turner should not be advised of her rights, and they did all in their power to keep her in ignorance and to assure her that her rights were not in danger, and they cannot now complain that their plan succeeded, and that her anxiety was not sufficiently aroused in time to enable her to thwart and break up their scheme.

One other point put forward by the defendant is that if Mrs. Turner had intervened sooner, Kuehnle might have saved himself out of the $10,000 mortgage which he subsequently paid. I think the observation which I have just made applies to that point. But Mr. Kuehnle had direct notice, shortly after he got the sheriffs deed and paid his money, and long before the mortgage became due, that the complainant was dissatisfied, and hoped for at least some compensation, which he declined to make.

In fact, he is chargeable in equity with knowledge not only of the facts, all of which were known to his counsel, Mr. Thompson, but also with the knowledge of the law of the land as applied to those facts, and should have fortified himself by a proper guarantee against complainant’s claim at the time he took the title.

And this brings me to what I conceive to be the principal point made by the defendant in his able and ingenious argument. He contends that the defendant is not chargeable with notice of the constructive fraud practiced by Judge Thompson upon the complainant, and he refers to the rule laid down by Mr. Pomeroy (Pom. Eq. Jur. § 6SS) and to the case of Saffron v. Raynor, L. R. 14 Ch. Div. 406 (1880). But that ease and the section of Pomeroy relied upon apply to an entirely different set of facts. The true rule, as applicable here, is laid down in sections 666 and 667. In section 667 the learned author says:

“Tile general rule also applies where the same agent or attorney in reality acts on behalf of both parties to the transaction, for both the grantor and the grantee, the vendor and the vendee, the mortgagor and the mortgagee,’’

citing a long list of authorities, among others Losey v. Simpson, 11 N. J. Eq. (S Stock.) 246 (at p. 251), where the rule is stated by Chancellor Williamson.

But another rule intervenes here which is applicable to all such cases. A purchaser situate as is the defendant here cannot take advantage of the doctrine of “innocent purchaser without notice,” when he is claiming the'very fruit of the fraud which his agent has practiced without his knowledge or authority. I acted on that principle in Johnston v. Reilly, 68 N. J. Eq. (2 Robb.) 130 (at p. 150)., citing 2 Pom. Eq. Jur. § 909. The same doctrine is laid down in Perry Trusts § 172. The rule is a familiar one, and requires no citation of authority to sustain it.

We have seen that the complainant first became aware of the real transaction between her husband and the defendant when she came into possession of the papers relating thereto, found in her husband’s trunk some time after his death in March, 1904. She then put the papers in the hands of competent counsel in Camden for advice and action, who kept them for a period of time and returned them to her without taking any action thereon. She then employed her present solicitor, who filed a bill for heron the 10th of March, 1905, to which a demurrer was interposed, and was held good and the bill dismissed. As no opinion was filed, I am not informed as to the grounds on which the demurrer succeeded. That decree was on the 16th of May, 1905, and the present bill was filed on the 17th of May, 1905. I state these facts to show that there has been no unreasonable delay since the complainant became aware of the facts upon which her right is based. But be that as it may, the delay has worked no injury to defendant, but the contrary.

It remains to inquire as to the extent of the complainant’s relief.

She relies upon the seizin of her husband, and the extent of that seizin measures her right. That seizin was the title in fee, subject to the mortgage of $4,000. Then the value of the land must be taken as at the time of the sale by the husband, which was, in equity and for present purposes, the date of the Wheeler lease. But it is immaterial whether it is taken at that date or the date of the sheriff’s sale, since the husband was not entitled to the increase in value by reason of improvements put on the property by the defendant.

I am also of the opinion that the principal sum of the mortgage, $4,000, is all that can be charged against the complainant on the one side, and that she is not entitled to any increase over and above the $18,000 by reason of interest on that sum.

The result is that she is entitled to interest on one-third of $14,000 from the date of her demand for her dower. Whether for this purpose the filing of the first bill on March 10th, 1905, is to be deemed a demand, or whether the bill herein must be considered as the only demand, has not been discussed, and 1 have not carefully considered it. If counsel wish to be heard on that question I will hear them.

The logical result is that an annuity equal to-the interest on $4,666.66 in favor of complainant during her lifetime should be decreed to be a charge upon the land.

Chancellor Green, in the case of Chiswell v. Morris, 14 N. J. Eq. (1 McCart.) 101, ascertained the total present value of the widow’s dower upon the principle of life annuities to be calculated upon the basis of the table prescribed by the rules .of the court. I am not at present aware that the widow can bq compelled, against her will, to accept a sum in gross, ascertained on that basis, and the question was not discussed by counsel in their arguments. I will hear counsel on that subject if they desire, and will determine the question upon settling the form of the final decree. The complainant is entitled to a counsel fee, in addition to her costs.


source: Caselaw Access Project

author: Pitney, V. C.

license: Public Domain

text:
    The Morris Canal and Banking Company, The Lehigh Valley Railroad Company, and Thomas Oakes, David Oakes and George A. Oakes, partners, &c., v. The Diamond Mills Paper Company.
    [Submitted August 10th, 1906.
    Decided September 1st, 1906.]
    1. A verbal protest against defendant’s act in discharging refuse from' a paper mill into a canal was inefficient to arrest the running of time for the purpose of acquiring an easement to make such discharge by adverse user.

      2. Where the operators of a paper mill, located by the side of a canal, who drew water therefrom under a deed, had for years discharged refuse consisting of fibre heavily charged with lime into the canal, which discharge did not interfere with the operation of the canal, and complainant, canal owners, stood by while defendant expended thousands of dollars in repairs and additions to the paper mill in the introduction of new and expensive machinery therein without objecting to the further discharge of such refuse into the canal, they were estopped thereafter to object to che discharge of a much less quantity of such refuse than had previously been discharged.
    3. Defendant deposited lime-bearing material from its paper mill in a canal from which the water and refuse was discharged into a river. Complainant, a woolen company, derived its water for dyeing from the river, and the water so charged with lime was thereby rendered unfit for. such purpose.—Held, that the .proximate cause of complainant’s injury was the act of the canal company in unnecessarily discharging the water from the canal into the river, and not the act of defendant in discharging its lime-bearing material into the canal.
    On final hearing on bill, answer and proofs.
    The bill, as originally framed, was filed November 29th, 1905, by the Morris Canal and Banking Company and its lessee, the Lehigh Valley Railroad Company, against the Diamond Mills Paper Company, and the answer thereto was filed January 11th, 1906, and an amended answer was filed March 13th, 1906.
    The cause was set down for hearing on the 4th of April, 1906, and on that day the firm of Thomas Oakes & Company, in the name of 'its individual members, applied for leave to be made parties complainants, on the ground that they were interested with the canal company in the subject-matter and prayer of the bill, and were duly admitted complainants by an order of that date. No change was made in the pleadings.

      Mr. Gilbert Collins and ilir. George 8. Hobart, for the canal company.

      Mr. Harry E. Richards, for Thomas Oakes & Company.

      Mr. Frederick T. Johnson, for the defendant.
   Pitney, V. C.

The ease made by the bill has a double aspect.

In the first place, it charges the defendant with emptying into the canal certain solid matter, which there accumulates and is required to be occasionally removed by the canal company in order to properly facilitate the operation of its canal.

In the second place, it charges the defendant with discharging into the canal certain waters holding lime in solution, which lime water is of no injury whatever to the canal company, but which it finds convenient to discharge into a small stream called Third river, through which the lime water finds its way into the millpond of the complainants Oakes, who are manufacturers of woolen goods for men’s wear, and use the waters of their millpond for making dyes, and when the water becomes impregnated with lime above a certain degree it becomes unfit for dyeing purposes.

Oakes & Company complained to the canal company for discharging this lime water into their millpond, and the canal company, by way of defending themselves against this complaint, filed this bill against the paper company. Then, after answer filed, and on the day set for hearing, Oakes & Company applied for leave to be made complainants with the canal company, taking the pleadings precisely as they stood. An order was thereupon made admitting them, against the strong protest of the counsel for the paper company.

I must say that I think it a matter' of regret that Oakes & Company did not, in the first instance, file their bill against the canal company, against which, it is not improper at this point to say, they seem to have a perfect case.

Taking up now the case made by the pleadings and proofs we find the following facts:

The Morris canal, as originally constructed, had an unbroken level from a point near Lincoln Park, in Morris county, to Bloomfield, in Essex county, known as the “seventeen-mile level.”

At Bloomfield it descended a vertical height of sixty feet by an inclined plane known as “No. 11 east.”

The mechanism of the plane is this: An inclined railway upon which runs a large ear or cradle, which runs down into the water at each end and takes on a canal boat, which it carries up or down, as the case may be, from one level of the canal to the other.

The motive power is a water wheel known as the “Scotch motor,” being a hollow vertical shaft with hollow arms and openings on one side, from which the escaping water causes the shaft tc revolve, which drives a drum, around which is wound a wire cable, which in turn is attached to the car or cradle, and in performing its work passes around a large horizontal wheel lying in a pit at the foot of the plane (also at the head). This pit is sufficiently depressed below the level of the bottom of the canal to receive the car or cradle at a sufficient depth to allow the boat to be floated on and off of it.

This depression in the bottom of the canal was, in the evidence, called the “wheel pit.”

In the year 1858 the canal company, finding that it was able to divert from the Passaic river above Little Falls, without being-prevented by the water power company of Paterson, more water than it really needed for operating its canal from that point to tidewater, conceived the idea of selling water power at its Bloomfield plane, and in that year granted in perpetuity to one Tihangst the right to use what was called the “feed water” of the canal; for an annual rental.

The grant contemplated the use of the water in two sections of over twenty feet vertical fall each.

This grant was acted upon by the assignees of TTnangst almost immediately, and about forty years ago a paper mill was established on the lower section, and a paper mill has been there maintained and used ever since, with some slight interruptions, which I will refer to farther on.

By the terms of the grant, all the water used must be returned into the canal at the foot of the plane, and in point of fact, that has been done by the several successions of paper mills which for all these years have occupied the location of the defendant’s paper mill.

The defendant came into possession and title in the year 1894.

A previous occupant had failed financially in 1888-1890, and the mill had lain idle for a considerable period of time. A successful occupant took it about 1890.

When the defendant took possession it immediately expended many thousands of dollars in repairs and additions to the mill necessary for the manufacture of its peculiar product—white tissue paper.

This was done openly and under circumstances which must have brought it to the knowledge of the canal company and its officers. That company was entirely familiar, by many years’ experience of a succession of paper mills, with the effect of its operation on the operation of the canal. And if it had any objections to the operation of a paper mill at that point it seems to me it should then have made them, and having stood by while these large expenditures were being made, it is now estopped from asserting that any injury has been done or is being done to it by the defendant’s operation.

But to dispose of this part of the ease at once I will say that at the earnest request of all parties on April 5th, 1906, I visited the mill plant in their presence and was pointed out the whole operation of paper making from beginning to end, and saw with my own eyes the results. And some of my observations at the time were taken down by the stenographer.

In the course of the manufacture the raw material, composed of the. clippings of white linen or other white material, was ground into a fine pulp and in a milky condition was passed over a fine moving wire screen, the object of which is to allow the liquid to escape and the fine fibre to be carried on, dried and made into paper. But the mesh of the screen cannot be made so fine as to allow the water to escape without carrying with it a small quantity of white fibre which is discharged with the water at the foot of the plane. To a casual observer the fibre-laden water appears like lime water. Beside this fibre there is .absolutely nothing emptied into the canal by- the defendant which can possibly interfere with its operation.

When the canal is substantially idle and the water drawn out, as it is every winter and has' been for the whole season for a considerable period of late years, and no boats are moving and the large circular wheel in the wheel pit is not revolving to stir up the fine and exceedingly light fibrous and fluffy matter, it settles in considerable quantities and turns to a dark gray color.

And here it may be proper to remark that there are several different channels in which the water passes from -the upper level to the lower level of the canal.

One is the tailrace of the Scotch motor which carries the boats up and down, and when few, if any, boats are moving, little or no water comes in that way.

Another is the old original byrace which carries the actual overflow of water from the upper to the lower level.

And the third is the tailrace of the turbine wheel which in part drives the machinery of the paper mill. Besides these there is the water actually used in the washers and also beaters, which grind the rags into pulp, and the water which drains off through the wire screens, as before remarked.

Now, the turbine wheels, which are relied upon in part to drive the machinery of the paper mill, are gauged to suit the quantity of surplus water which the canal can furnish when it is in full and active operation. The remainder of the power necessary for driving machinery is supplied by steam.

The result of this situation is that for the last two or three years and more, during which not a third of the number of boats have passed through the canal of what formerly passed through, the inactivity of the water and horizontal wheel at the foot of the plane have allowed a much larger quantity of fibre to stop and settle there than would have been the case or ever had been the ease when the canal was in anything like active operation.

Upon the whole case and quite independent of the question of estoppel, I am not satisfied that the canal company is suffering any substantial injury from the operation of the defendant’s mill. I will give more in detail farther on my reasons for this.

The contribution of water highly impregnated with lime held in suspension to the canal by the paper company furnishes a more serious question. There is no doubt that up to the time of the hearing the defendant did deliver at the foot of the plane more or less water highly impregnated with lime. Samples taken in January, 1906, and again in March, 1906, and I believe fairly taken, did indeed show no unusual quantity of lime. But sampies of water thickened with fibre taken from the wheel pit in my presence on April 5th, 1906, upon analysis did show a large quantity of lime.

Let us now inquire how and under what circumstances this lime gets into the Oakes’ millpond.

The canal at the foot of the plane is several feet higher than Third river, which runs near it, and as the wheel pit is two or three feet deeper than the canal, and, of course, the emptying of the canal does not drain it, in order to drain it an underground conduit is provided leading from its bottom to the edge of the river. In my presence the gate or stop at the upper end of this conduit was opened and the water in the pit permitted to run out into Third river. No evidence at the next hearing on May 26th, 1906, was offered to show that this contribution of lime water affected the hardness of the water at Oakes’ mill, though it was quite easy to make the test. All that was shown on this subject was that a discoloration of the water was seen at the head of the pond. Samples of water taken from the pond on May 3d showed no more hardness in the water than usual.

I shall assume, however, that the emptying of that wheel pit, when charged with sludge, into the pond, would have the effect of temporarily making the water at Oakes’ mill too hard for use in making dyes.

The evidence of -the experts was to the effect that the. limit of hardness in water for use in making dyes was thirteen or fourteen degrees of hardness by Clark’s test, and that the natural hardness of Third river was from eight to eleven degrees, varying with the seasons of the year, so that there was a margin of softness of in the neighborhood of three degrees. Now the evidence was entirely clear that on several occasions prior to the filing of the bill the water was much too hard for use for dyeing purposes, and the evidence satisfies me that that hardness was due to the emptying of the water from the canal into Third river, and the hardness of the canal water in its turn was due to lime contributed to it by the defendant’s paper mill.

The canal crosses Third river just below plane No. 11 by an aqueduct made of planks, being a part of what is called the ■ one-mile level just below plane No. 11, ending in a lock. The canal company provided this aqueduct with large gates at one side of it by which the water can be conveniently and rapidly drawn out of that one-mile level and into Third river. But I find, as a matter of fact, from the evidence, that it was in nowise necessary for them to empty it at that point.

There was another gate in the side of the canal near or at Second river, on the next level below, where it could be equally well discharged, though perhaps not so rapidly.

But with regard to the water settling in the wheel pit below the plane and below the level of the canal bottom, that could only be discharged by the underground conduit previously mentioned, ending at the edge of Third river and thus necessarily mingling with the waters of Oakes’ millpond.

Now, with regard to the sludge, which, while the canal is not in operation, settles and accumulates in the wheel pit. It is composed largely of this very minute white fibre which is given off by the paper machines in the process of manufacture. It is exposed in the process to contact with water highly impregnated with lime held in solution, and seems to have a great affinity for lime and a sort of capacity for grasping and holding it when it subsides, as it does when the canal is not in operation at the foot of the plane and the wheel pit becomes a sort of reservoir for lime. This.attraction for lime and capacity to grasp and hold it accounts for the large amount of lime found in the sludge and sludge water, samples of which were taken in my presence, as before stated.

Now, this fibre subsides very slowly and is easily excited by any physical disturbance, and mixes readily with the water above. The proof of the canal witnesses was that while the canal was in operation it was stirred up by the horizontal wheel and carried along for miles by the passing boats and the current of the water, and finally deposited in the bottom of the canal or carried on through to an overflow or outlet. It formed no obstacle whatever to the navigation of the canal, but in years gone by a quantity would naturally in the winter season, as before remarked, accumulate around the wheel in the pit, and in the spring, when the canal was being prepared for navigation, it had to be removed. Now, a very easy mode of removal was to let down into the wheel pit a heavy flow of water, which was easily done through the tailrace of the Scotch motor and thte sidewash, open the lock gates at the end of the one-mile level or in the side of the aqueduct over Third river, stir up the sludge with a rake or hoe, and let it wash down the canal.

I am entirely satisfied, from a careful study of the evidence and an observation of the matter on the ground, that this last was actually done by the canal employes in several instances in the spring of the year, and the whole or the greater part of the contents of this wheel pit emptied into Oakes’ millpond, and this mode of disposing of the sludge, highly impregnated with lime, accounts for the fact that the Oakes were troubled with this excess of linie in their millpond only just after one of these annual discharges, the effect being felt, as they swear, on one occasion several weeks.

Now, I find, as a matter of fact, as before remarked, that there is no sort of necessity for the canal company to discharge this accumulation of lime into Oakes’ millpond. I find that it can all be driven down beyond the river and pond and deposited where it will be harmless.

I find further, as a fact, that it is entirely practicable for the canal company not only to substantially free the wheel pit of sludge in the manner just stated, but also, by flushing it freely with water, that it may, at any time after such flushing, empty the water left in the pit out into Third river without any appreciable injury to the waters of that river. I doubt if the whole liquid contents of the pit, highly charged as they were with lime, which were discharged into the river on the 5th of April in my presence, had any appreciable effect on Third river. The quantity of water in the wheel pit was too small, in comparison with the size of Oakes’ pond, to produce any appreciable effect. A different result, however, might be expected from the discharge into the river of the sludge there deposited, which, as before remarked, contained a large amount of lime ready to be taken up and held in suspension by running water. But that highly-charged water can be easily flushed out by a free discharge of clear water from the upper level into the canal, with the gates of the next lock below opened to insure a free flow. I find, therefore, as a fact, that there is no practical difficulty in so operating the canal that practically no lime water shall be delivered by it into Oakes’ millpond.

Now, to go back again to the paper mill itself.

The process of making this fine white tissue paper is substantially the same as that which is in use in all paper mills for making nearly all kinds of paper, and was in use in the paper mills which preceded that of the defendant. All paper-making, or nearly all, and all those which preceded the defendant at this point, use chloride of lime in the shape of a bleach. The evidence is clear that those which preceded the defendant used a great deal more than does the defendant, and that formerly they deposited the spent lime, with the rest of their refuse, in the canal. Complaint was made of this lime deposit from time to time, but it was never remedied until about six or seven years before the bill filed herein, when the defendant corporation, having its attention called to this deposit of lime, made an arrangement by which all its spent lime was deposited on its own ground and carted away. I am satisfied that none of it has found its way into the canal or into Third river. This appears by a careful examination of the mill and all its processes, made on the 5th of April, in the presence of all the parties, including one of the Messrs. Oakes and his counsel, Mr. Richards, himself an expert chemist.

• In addition to the lime held in solution and grasped, as before stated, by the fine fibre which, escaping through the fine meshes of the endless wire screen, found its way into the canal, there was but one process used by the defendant by which lime, except in fibre, could be contributed thereto by the defendant. That was an instrument called a rotary digester. I have said the defendant company used for its stock entirely the refuse cuttings from shirt factories. These were all perfectly clean, and nearly all pure white. But they did also use some clippings of a figured material for shirts containing colors, and in order to remove these colors, they subjected this material to the action of this digester in contact with a chemical liquid, of which lime, as milk of lime, was a component part.

The amount of lime used in this digester was so small that it had not been supposed that it could seriously affect the water of the canal. Upon attention being called on April 4th to this matter, the defendant company at once took measures to have oven this small quantity of lime separated and kept by itself, and excluded from the canal or the Third river, and those measures were perfected before the final hearing.

It is proper to remark that the liquid which comes from this digester is dark in color, and accounts for the dark color of the refuse sometimes seen coming from defendant’s mill in sharp contrast with the usual pure milky flow whose hue, or rather lack of hue, was due to the fine white fibre.

I will here state the process of making tissue paper from pure white clippings, as detailed by Colonel Thompson, the president of the defendant company, and as witnessed by all of us on the 5th of April. The clippings are first sorted over to remove, as far as practicable, any colored cloth or foreign material. They are then cut up while dry, reducing them to a proper fineness to be washed. They are then immersed in a bleach, being a weak solution of water and chlorine, and agitated. This is called washing them. They are then placed on a drainer to allow this chlorine water or bleach to drain off. This water, after being drained off, is pumped up and used over again. The rags are then subjected to an anti-chlorine treatment to remove, as far as practicable, all chlorine that may remain. They are then placed in an engine called a beater, wherein they are subjected to a severe process, which reduces them to a fine white pulp. This pulp is then placed on a moving wire screen with a mesh of about-ninety- to the inch. The water is drained out, and with it some of the fibre, and this water, rendered milky in appearance by the fibre, runs down into the canal.

One more remark may be made. Notwithstanding any pains taken to prevent any chlorine from escaping, there was a slight odor of chlorine in the water at the foot of the plane on the 5th of April. But it clearly appears that this chlorine could not injure the Messrs. Oakes, except as it had a slight tendency to render the water a little harder.

One or two other matters may be mentioned.

The water brought down by the canal is naturally softer than that of Third river, and both are unusually soft. When delivered to the defendant company it contains many foreign matters-—decayed vegetables, dead animals and the like—which, before using it for washing the rags, are carefully and thoroughly excluded.

The deposit found in the wheel pit is not composed exclusively of the refuse fibre of the mill, but. there is also found in it leaves, decayed vegetables and some ordinary earth, gravel and coal ashes which filnd their way into it in the shape of wash from one or two roads in the neighborhood and from the banks of the canal.

Let us now inquire as to the rights of the parties under this state of facts. I have already intimated that the canal company has no cause of action. There was, indeed, a hiatus of about two years at or near 1890 when the paper mill in existence at this point was idle, but that will not help the canal company, for it abundantly appears that it had already been in existence under the grant of the canal company to TJnangst for more than twenty years before this suspension, and though the grant itself does not specify any particular use to which the water power should be put, yet its use for so many years by a paper mill, operated in its most offensive manner, ripened into a right; moreover, I think that the defendant’s argument that it was a practical construction placed by the parties upon the terms of the grant is sound.

The canal company, it appears, did, from time to time, object to the paper mill people casting refuse matters into the canal, but-it appears that those refuse matters were lime in its crude condition and pieces of rope and jute canvas and things of that sort which defendant does not claim the right to place, there and is not in the habit of placing there.

The proof does not satisfy me that the canal company ever seriously objected to the discharge into the canal of the pulp fibre which, during all this time, had been discharged, and, as the evidence satisfies me, in much greater bulk and quantity than the defendant has ever done, the discharge of which is quite necessary for the making of paper.

Under the doctrine of McFarlan v. Canal Company, 43 N. J. Law (14 Vr.) 605, a verbal protest was inefficient to arrest the running of time for the purpose of acquiring a right by virtue of adverse user.

The only possible effect that I can conceive that a verbal protest has upon the relative rights of the parties is tp iso far modify the practical construction -which the parties have put upon the contract as to reduce the quantity and-offensive character of the contribution by the paper mill to the canal to such matters as did not affect injuriously the- operation of the canal, and that such protest could not, from the very nature of things, extend to the contribution of so much of the paper pulp as the proof shows necessarily must escape from the machines.

But be that as it may, I think, as before stated, the canal company is clearly estopped by its standing by without objection while the defendant was expending thousands of dollars in repairs and additions to the structure of the mill building and many more thousands in the introduction and installing therein of new and expensive machinery.

There remains to deal with the position of the Oakes’ company.

I have found, as a matter of fact, that there was no necessity for the canal company to deposit any of this lime water or lime-bearing material into Third river.

I have found also that the defendant was guilty of no wrong to the canal company in any deposit which it has recently made in the canal.

Now, before the Oakes’ company can show itself entitled to a remedy by injunction against the defendant, it must show that the defendant is doing it an injury for which it would have a -remedy at law.

Now, I find it difficult to see where the defendant is doing the Oakes’ company any actionable injury. The contribution of lime held in suspension or in the grasp of paper fibre to the waters of the canal is not the cause of any injury to the Oakes. That injury is due to the independent action of a third party, the canal company, in causing that lime to be emptied into Third river.

Chief-Justice Cooley, treating of this subject in his book on Torts (p. 68), says:

“If an injury has resulted in consequence of a certain wrongful act or omission, but only through or by means of some intervening cause, from which last cause the injury followed as a direct and immediare consequence, the law will refer the damage to the last or proximate cause and refuse to trace it to that which was more remote.”

And farther on (at p. 70) he says:

“If the original act was wrongful, and would naturally, according to the ordinary eourse of events, prove injurious to some other person or persons, and does actually result in injury through the intervention of other causes which are not wrongful, the injury shall be referred to the wrongful cause, passing by those which were innocent. But if the original wrong only becomes injurious in consequence of the intervention of some distinct wrongful act or omission by another, the injury shall be imputed to the last wrong as the proximate cause, and not to that which was more remote.”

The learned author, in support of these propositions, cites several adjudged cases, commencing with the famous squib case of Scott v. Shepherd, 2 W. Bla. 892, and he also mentions Morrison v. Davis, 20 Pa. St. 171; Michaels v. New York Central Railroad Co., 30 N. Y. 564.

Now here, granting for argument’s sake only, that the defendant committed a wrong as against the canal company in depositing the lime-bearing material in the canal, that wrong would never have injured the complainant Oakes if the canal company had not in turn deposited it in the Third river. So that, according to the well-settled canon in such cases, the Oakes’ company have no cause of action against the defendant.

But there is another point of view worthy of notice. The deposit of lime water in the canal was not inherently injurious to the canal for any purpose; hence it was not what may be termed a natural wrong, whatever it may have been if deposited in Third river.

Now, it is of the essence of the proposition that a party secondarily injured shall not, under any circumstances, be allowed to go back to the original cause of the injury for a remedy when the original act was not a wrongful act in itself, as in the case of the original thrower of the squib.

I find no authority for the position that an act originally innocent of itself can be turned into a wrongful act by the intervention of the act of some third party.

These considerations lead me to the conclusion that none of the complainants are entitled to relief, and I will advise that the bill be dismissed.


text:
    The Knickerbocker Trust Company v. Edmund H. Carhart and Diana B. Carhart, his wife.
    [Submitted August 18th, 1906.
    Decided September 4th, 1906.]
    1. Defendant, prior to signing an underwriting undertaking, was seized in fee of certain real estate and was a tenant for life of a town house. Just prior to the maturity of his underwriting obligation he conveyed all of his real estate to his wife, leaving him unable to pay a judgment recovered by complainant on such undertaking.—Held, that such facts were sufficient to establish a prima facie case that the conveyances to the wife were fraudulent.
    2. A voluntary appropriation by a wife of her money to the improvement of her husband’s homestead in general indicates a gift to the husband on condition or expectation that the wife will be entitled to occupy the property during their joint lives.
    3. Where a wife received the proceeds of a tontine insurance policy on the life of her husband which matured during his lifetime, and later contributed more than the amount of such policy to the improvement of the homestead in which he held a life estate, the excess so contributed constituted a valid debt of the husband to the wife which she was entitled to secure by taking a conveyance of his property.
    4. After a wife had collected the proceeds of a tontine policy on the life of her husband which matured during his lifetime, she contributed more than the amount thereof to the improvement of the homestead at his solicitation, and thereafter advanced $2,000 to a limestone company in which he was interested, which he guaranteed.—Held, that such conveyance as against the husband’s creditors was not fraudulent, but was enforceable as a mortgage, having priority over complainant’s judgment for the amount of the husband’s debt to his wife.
    On final hearing on bill, answer and proofs.

      Mr. George G. Tennant, for the complainant.

      Mr. William R. Morrow, for the defendants.
   Pitney, V. C.

The bill is filed by the Knickerbocker Trust Company, a judgment creditor of the defendant Edmund H. Carhart, to set aside, as against its judgment, a conveyance made by Carhart to his wife, the defendant Diana B. Carhart, on the ground that the same is fraudulent and void as against its judgment.

The complainant makes out a prima facie case as follows: On the 6th day of March, 1904, the defendant Carhart underwrote an undertaking, with the North Hampton Railroad Company to the complainant trust company, to pay $7,500 in six months, with interest, and receive, upon such payment, $10,000 of the bonds and $5,000 of the stock of the railroad company. This undertaking is the basis of the complainant’s judgment against him.

At and for a considerable-period of time previous to the signing of this undertaking Carhart was seized in fee of two small pieces of unimproved and unproductive real estate, and of a lot-upon which stood a dilapidated and barely tenantable dwelling, all situate in or near the town of Belvidere, in Warren county. He was also the tenant for life of a comfortable residence in that town, which had cost, first and last, $12,000 or more, but which was actually worth, either for sale or measured by its rentable value, not over $7,000.

He was fifty-one years old and in delicate, if not feeble, health, having suffered many years with chronic heart disease.

Subsequently, on the 4th of August, 1904, just prior to the maturity of his obligation to the complainant, he conveyed all this real estate, through an intermediary, to his wife.

This makes out the prima facie case for the complainant.

Mrs. Carhart meets this case by offering proof of a full consideration for the conveyances previously passing from her to her husband.

The consideration of this defence leads me into the history of the married life of the defendants, a large part of which was brought out on cross-examination, against the objection of the counsel for the defendants.

Mr. Carhart was, in his young days, engaged in the clothing business in New York City. He was a member of a firm, and though, owing to ill health, he withdrew from active business about 1886, when he was a little over thirty years old, he was unable to withdraw all his capital and profits and wind up his financial affairs until several years later.

He returned to his natural home in Belvidere and resided there with his parents.

In May, 1886, he purchased from the heirs of the late Colonel James M. Robeson that gentleman’s homestead in Belvidere. This is the property in which he now has a life estate. The purchase price mentioned was $8,000. A part of this consideration was real estate conveyed by him to the Robesons.

This house and lot he almost immediately conveyed to his brother, Theodore, in trust for his father and mother and himself during their joint lives and the life of the survivor, and at the death of the last survivor, to the heirs-at-law of the grantor, the defendant Edmund, in fee.

Upon the death of his brother, Theodore, his heirs-at-law conveyed this property to the defendant Diana upon precisely the same trust, so that it is proper to say that prior to the deeds of x'kugust 4th, 1904, she had and could have no personal interest in the property except that which a wife has in property in which her husband is a life tenant, and where her own children are the expectant remaindermen.

Shortly after Mr. Carhart retired from business he purchased a farm near Belvidere and two pieces of productive real estate in that town.

Afterwards, on the 21st of August, 1889, he married the defendant Diana, whose maiden name was Belford.

She was then two or three months short of twenty-one years of age, and was entitled to about $2,500, as her share of her mother’s estate, who had been dead several years. In addition to that little fortune, her father settled upon her a wedding present of $1,500 in the shape of securities, which were placed, as I interpret the evidence, in the hands of her guardian, who was her uncle.

Shortly after the marriage her husband made her a present of divers securities, amounting in value to $15,000 or more, most of it being in first and second mortgage bonds of the Wabash railway, the remainder in the bonds of a water company and stock of the Pennsylvania Railroad Company. These personal securities she always kept by themselves in her own strong box, and collected the dividends and coupons. She opened an individual bank account shortly after she was married and kept it up from that time down, and a copy of it was produced and put in evidence showing the deposits and the drafts, and in almost every instance the name of the party in whose favor the draft was made, and also the daily balances. Almost all of the original vouchers were lost.

In the year 1891 her husband conveyed to her all the real estate which he had previously purchased, as above stated, except the three pieces of insignificant value heretofore mentioned.

In addition to the land so conveyed to her in 1891 through a third party, one Young, and so called the “Young deed,” her husband purchased for her in April, 1892, the Pratt farm near Belvidere, for the consideration of a little over $9,000. Of this consideration her husband advanced all above $6,000, as shown by her bank account. She gave a mortgage for the remaining $6,000, holding the Wabash bonds for an advance in value. She afterwards sold enough of them to pay this mortgage.

When the defendant Carhart purchased the Robeson house he gave upon it a mortgage to two gentlemen named Hixon for $2,000, and in 1892 he induced his wife to take an assignment of that mortgage from the Hixons, which she did, paying for it with the proceeds of the sale of some of the very securities which she received as her share of her mother’s estate, and taking an assignment of the mortgage from the Hixons to her.

In the meantime the defendants were occupying the Robeson house with the elder Mr. Carhart, as its tenants for life, and a strong attachment arose between the latter and the defendant Diana and continued down to his death, which occurred very recently.

Several years before his marriage Carhart had taken out a tontine policy of insurance upon his life in the Equitable Life Insurance Company. This policy he had a long- time previously assigned to his father and mother. After his mother’s death and after his marriage and after his father had become attached to his wife, as already stated, and not long before the tontine expired, the father reassigned the policy to his son upon the condition and understanding that if his wife, the defendant Diana, was alive at its maturity she should have it, otherwise it whs to go over to the Carhart family. It matured in September, 1904, and on the day of its maturity Carhart and his'wife went to New York and received the proceeds, which amounted to $6,423.75. The check given to the husband was immediately endorsed over to the wife, and deposited in the bank to her credit on the 6th of September, 1904.

Of this sum she shortly after drew $1,250 to the order of her husband, who loaned it out on interest in small sums to residents of Belvidere, taking the notes in the name of his wife.

Later on, in the winter of 1895, the husband and wife decided to make some improvements in the house, modernizing it and rendering it more comfortable and roomy. Plans and specifications were drawn by one Kimenour and he entered into a contract to do the work for $2,771. Later on a supplemental-contract was made for additional work amounting to $329, making in all $3,100.

The fact was that no architect besides Kimenour was employed, and he took the contract for much less than he could afford to do it, and after nearly $3,000 had been paid him he threw the work up and the job was finished by small sub-contracts and day’s work, and the whole job cost over $7,000, though it would seem that the amount paid Kimenour was more than he actually put into the house.

In May, 1895, about the time that the work on the house was commenced, Mr. Carhart induced his wife to cause the Hixon mortgage to be canceled, and for that purpose they procured from the Hixons, who lived in Belvidere, a receipt of that date and authority to cancel the mortgage of record endorsed on the mortgage. This would seem to have been required by the clerk of Warren county, although the Hixons had received their money more than two years previously. At the same time Mrs. Car-hart signed a similar document endorsed on the back of the assignment. I will quote it:

“Belvidere, N. J., May 20th, 1895.
“Having received full satisfaction on the within-described mortgage, X hereby authorize and direct the county clerk to cancel the same of record.
“Diana B. Carhart.”

In point of fact, however, nothing was paid by the husband to the wife at that time, and the bond, so far as appears, was not delivered up, so that the debt was not, in point of fact, satisfied. Moreover, both of the parties swear that the husband promised the wife that he would repay her the money whenever she called for it, with interest. He never has repaid the principal nor any.interest on it.

One other small transaction may be mentioned here. 'After the receipt by the wife of the six thousand and odd dollars from the life insurance company she loaned to her husband $2,081.25, which he invested in a small spéculation on his own account in Ontario and Western railroad stock which he held for about two months and sold out at a loss, and deposited to his wife's credit what remained, namely, $1,856.25, showing a loss of $225.

I may as well say here that the amount paid by Mrs. Carhart out of her own bank account for the improvement on the house and grounds in the year 1895, which was nearly all used by the husband in paying bills for work on the house, together with the item of $225, exceeds the amount of the sum she received from the life insurance policy by nearly $1,000, the precise sum can be made up from the statement furnished by counsel for the defendants, the items of which are well established by competent evidence.

In giving this history of the affair so far I have relied upon the evidence of the two defendants. ‘ Their evidence stands uncontradicted by any other evidence, either oral or documentary, and is sustained by such documentary evidence as has been produced and by the circumstances. For instance, at the time that the I-Iixon mortgage was assigned to Mrs. Carhart, I can conceive of no object that Mr. Carhart could have had of procuring its assignment to his wife if he himself had paid the money to the mortgagees. He was not at that time engaged in any business, nor was he expecting to be engaged in any business except that of looking after his wife’s real estate in and about Belvidere. The “Young deed,” settling his previous holdings of real estate upon his wife, was dated November 30th, 1891. The purchase of the Pratt farm was April 1st, 1892. Towards this, we have seen, Carhart advanced a trifle over $3,000 and the wife .gave her mortgage for the balance. Now, the Hixon mortgage was assigned on the 30th of December, 1892, nine months after the purchase of the Pratt farm, and there is little probability that Mr. Carhart had in the meantime come into possession of sufficient money, from the winding up of his New York business, to pay the Hixon mortgage. Then the reason given by the defendants for satisfying the mortgage in 1895 is a reasonable one, namely, that they had a pride not to have a mortgage upon the record standing against the homestead house and lot which they were beautifying and rendering somewhat showy.

The fact that much more than the amount of the insurance money was spent on the house shows that none of that money was appropriated to the payment by the wife of the Hixon mortgage debt. The husband was under contract to pay the contractor $3,100 and had already borrowed from his wife $2,081.25 for use in his speculation in Ontario and Western railroad stock. His bank account shows that he had no balance at that time or other available funds except what he obtained from his wife.

Counsel for defendants contends that the proceeds of the life insurance was, properly speaking, under the circumstances, the property of the wife, being in effect a gift to her from her father-in-law. This may be true, and yet it may not follow that a debt from the husband to the wife arose out of her application of it to the improvement of the dwelling. The general rule is that the voluntary appropriation by a wife of her money to the improvement of the husband’s property indicates a gift. Black v. Black, 30 N. J. Eq. (3 Stew.) 215. But it is a gift upon condition, or rather in expectation, that she will be entitled to occupy it as his wife during their joint lives. But I am not aware that that implied condition or expectation has ever been or can be used as the basis of a right to turn what was originally a gift into a debt as against creditors. In the present instance there is no evidence tending to show that there was any promise by the husband to repay the large sum of money which his wife put in their home.

Counsel for defendants contends that no promise on the part of the husband to repay moneys which he has received from his wife is necessary in order to create a debt, since the cases of Cole v. Lee, 45 N. J. Eq. (18 Stew.) 779, and Adoue v. Spencer, 62 N. J. Eq. (17 Dick.) 782. It must be admitted that those cases, especially the later one in 62 N. J. Eq. (17 Dick.) 782, do dispense with an express promise on the part of the husband to repay the wife, although the later opinion was based upon a complete misapprehension of the evidence and the facts in the case. (I say this because when the cause came back for a new trial a careful examination of the evidence taken at the first hearing, as well as of that taken at the second hearing, and of long accounts stated and of hundreds of vouchers of various kinds, failed to disclose the least evidence that the husband ever received or had in his hands or used any money or other personal property or its proceeds belonging to his wife or which came to her by gift, devise or descent or otherwise whatever.)

But in the present case I think that the evidence shows that the costs of the improvements, so far as they were covered by the insurance mone.y, are outside the rules laid down by that case.

My inference from all the evidence and the circumstances is that, as it clearly appeared that when the undertaking was commenced both parties believed and understood that the proceeds of the life insurance would be more than enough to pay for the proposed improvements, the defendants both understood that no debt should arise from the husband to the wife on account of it. But in this they were disappointed, as we have seen. Now, the husband had the management of all that matter. The contract was in his name. He made all disbursements. It was his duty to know and see to it that the cost did not exceed what I will call the appropriation, and it was his fault that it did so exceed. I doubt if the wife was even aware that she was paying out so much money. Under these circumstances I deem it simple justice that the excess of the cost of the improvement over the amount of the insurance should be treated as an honest debt from the husband to the wife, and that so far the rule- in Adoue v. Spencer applies.

We come now to a period eight years later, in 1903. In or about that j^ear a few gentlemen in Eastern Pennsylvania formed a little corporation called the Easton Quarry and Limestone Company, which became the owners of what they thought was a valuable limestone quarry, and proceeded to attempt its development. To that end they invited Mr. Carhart to act as a director and as its secretary, at a salary of $2,000 a year, and qualified him by issuing to him a share of stock. He acted as such secretary for a few months, and as long as there was any work for him to do for the company in that or any other capacity. The enterprise was a failure, although, so far as appears, the company never became insolvent. It was simply unable to make sale for its product, and it never paid Mr. Carhart one cent of salary.

In the meantime, however, it did need money for current expenses, and borrowed money of Mrs. Carhart to the extent of $2,000. To raise this money she sold two Wabash bonds, or other securities, apparently one at a time. Her bank account shows that on September 3d, 1903, she is credited with Brown Brothers & Company’s check for $1,140, and on the 5th of September she drew her check, to the order of the Easton Quarry and Limestone Company, for $1,000, and received in return the company’s note, dated September 5th, 1903, for $1,000, for one year, with interest at five per cent. A good deal of time and space in the stenographer’s notes was taken up on April 12th, 1906, the last day of the taking of the evidence, trying to determine how the second $1,000 was paid to the quarry company. Mr. Carhart thought that the amount was paid either by currency or by the check of a broker or brokers for securities. On the 4th of June, 1906, the day of the argument, the question was settled by the production of the check of Hackett & Chidsey, brokers, of Easton, dated October 7th, 1903, for $1,132.50, to the order of Mrs. Carhart, endorsed by her over to her husband,' and again by her husband, which shows the consideration for the second note, which was dated October 8th, 1903, for $1,000, at one year, with interest at five per cent.

Now, both of the defendants swear that the contract between them at the time the money was advanced was that the husband should take care of the wife in the transaction, and make the notes good to her or take them off her hands. It is to be observed that she did not meet any of the other officers of the quarry company; that her husband solicited the loan from her, and it was natural and proper that Ire should guarantee it to her.

Now, as before remarked, I believe their evidence. Their manner on the stand inspired confidence. Both seemed entirely willing and desirous to be truthful in their evidence.

We come now to the circumstances of the making of the conveyance which is impeached. The husband had been engaged in no business, since the marriage, requiring any capital, business tact or judgment. His health was delicate. He seems to have busied himself with looking after his wife’s farms and real estate, and occasionally buying and selling a little produce. His judgment as to the value of the real estate which he did buy, as well that which he settled on his wife as that which he settled on his parents and himself, proved to be faulty, and the land became very much depreciated in value. The wife’s income was scanty. She learned that he had underwritten the bonds of the nascent railroad company for a large amount. She sawr that the quarry company enterprise was a failure; that he got no salary from that company, and that the notes which she took for the $2,000 loaned the company,were not likely to be paid at maturity. She expressed the situation by saying that she saw <£he was getting into things,” and she felt that she ought to be secured. She therefore, without any conference with her husband, called on Judge Morrow and consulted him more than a month before the maturity of either her husband’s obligation to the trust company or the quarry company’s notes. And here it is proper to say that she was not expecting that her husband would certainly lose the amount that he had underwritten" to the trust company. He had been led into that transaction by two gentlemen who were named in the evidence, and who, as she understood, had agreed to indemnify him. However, she called on Judge Morrow and gave him, sooner or later, all her papers and vouchers, and instructed him to devise means to secure her. The result was that the judge ascertained from the county records what available assets her husband had, including his life estate in the old homestead, and footed up from the documents (many of those connected with the addition to the homestead were found among the papers of the late H. S. Harris, who attended to the settlement of the accounts with Kimenour) the amount which he, as a lawyer, concluded that her husband owed her, and found that it far exceeded the aggregate value of the real estate which the husband owned in fee-simple and the value of his life estate in the homestead, and so he concluded that her proper remedy was to take a deed of conveyance absolute from her husband for all those properties.

He then called her husband into his office, went over the matter with him, and the husband found the judge’s statement of the matter correct, and acceded to his request to make a conveyance to his wife. This was done through a third party on the 4th dajr of August, 1904, a month before the maturity of her husband’s obligation to the complainant, and before the quaTry notes matured.

She procured the deed to be recorded, and at the same time endorsed over without recourse the two quarry company notes to her husband.

Now, I hold that the consideration for that deed was good to • the extent of the $2,000 Hixon mortgage, the $2,000 of the quarry company’s notes, and between $800 and $900 for the excess of the cost of the improvements put upon the homestead over the amount of the life insurance money, the whole sum amounting to nearly $5,000, without allowing any interest on the earlier items, and without allowing some small repairs subsequently paid for by the wife, and without allowing for taxes and insurance paid by her for several yeárs upon the homestead, all of which are claimed by the wife.

Against this result counsel for complainants (besides making a severe attack upon the credibility of defendants as witnesses, which I have already met to my own satisfaction) urges that the court, in dealing with the ease, should take into consideration the result of a decree in favor of the defendant, namely, that the entire fortune of the husband will become vested in the wife, resulting in his having the substantial benefit of it.

This point is not without force, but I think it is not sufficient to alter the result.

The original settlement by the husband of most of his property upon his wife was made at a time when he neither had any creditors nor expected to have any. He did not contemplate entering upon any hazardous pecuniary enterprises, and he did not, in fact, enter upon axij until 1904, more than ten years after the settlement, when he was drawn into this railroad syndicate, and then only upon being, as he supposed, indemnified. It does not appear that he, at any time, held himself out as or put on the least appearance or assumption of being a man of properly. The situation of the title of all the property which he owned or ever had owned appeared clearly by the public records. In fact, the title to the land settled on the wife shortly after their marriage was not attacked by the complainant, nor indeed could it be with the least prospect of success. 'Under these circumstances I am at a loss to perceive how I can treat the case otherwise than I would treat it if none of the wife’s property had come from the husband, unless it be in the matter of interest, which I have not found it necessary to determine.

Again complainant’s counsel argues that the conveyance in question cannot stand because it was made for the purpose of defeating the complainant’s claim.

Leaving out of view the circumstance that it was supposed that the husband would be protected against that claim by his indemnifying friends, there is nothing to show that the object of the wife in the transaction reached any farther than the securing herself. She may, indeed, have been aware that the result of so securing herself would be to defeat the complainant’s claim, but that condition of mind is not sufficient to defeat the conveyance. This principle is fundamental. Otherwise few deeds made to give a friendly creditor priority could stand against other creditors. Clearly the argument put forward by counsel for complainant would lead to the abrogation of the well-established rule in New Jersey that a debtor may prefer a creditor.

The present case is entirely distinct from that class of cases of which Green v. Tantum, 19 N. J. Eq. (4 C. E. Gr.) 105; S. C., 21 N. J. Eq. (6 C. E. Gr.) 364, is an example, where the conveyance, though founded upon an actual and full consideration, is part of a scheme to enable the debtor to withdraw his property from the reach of his creditors and enjoy it himself. Another example is where a party, with his own ready money, buys put a business establishment, as, for instance, a store full of merchantable goods, and knows that the owner is heavily indebted, and intends to abscond from his creditors with the cash in his pocket.

It is true that the result of sustaining this conveyance will probably be to enable the husband, as' a member of his wife’s household, to enjoy, so to speak, the life estate which otherwise would go to the creditor. But against that consideration comes in the other result, namely, that it will enable the wife to enjoy what she has paid for and justly acquired, and from the enjoyment of which a contrary decision would deprive her during her husband’s lifetime. The fact that the husband will probably remain a member of his wife’s household does not, and, in my judgment, should not, deprive her of the right to enjoy her own.-

The result is that I hold that the only right of the complainant is to have that conveyance declared a mortgage, with priority over its judgment, to secure the wife the sums of money I have above mentioned, with the right to redeem the same with interest from its date, costs included.

If complainant does not desire to accept that remedy its bill will be dismissed, with costs. .

If it shall exercise its option to have the deed declared a mortgage, I will make up from the evidence before me the precise amount in which the husband became indebted to the wife for moneys paid to go into the building in 1895.

If the complainant does not care to accept the only remedy I can give it it is not worth while to incur any farther labor in the cause.