author: The Chancellor.

text:
    National Docks &c. Railroad Company v. Pennsylvania Railroad Company et al. and Edward F. Brooks.
    1. An appeal from the court of chancery is without effect upon the subsequent proceedings in a cause there pending, while it remains undetermined, except it be taken from a final decree within ten days after the decree is signed, in which case it stays process .in execution of the decree unless order be made to the contrary. If other relief against a final decree, while the appeal is undetermined, be necessary or proper, it must be had by order of this or of the appellate court.

      2. Tlie mere existence of an appeal from a final decree does not affect the inherent validity and force of that decree. If the decree is itself an injunction, that injunction remains in force after the appeal, and must be obeyed, unless this or the appellate court shall order a suspension of its effect.
    3. In enforcing obedience to an injunction from a corporation, sequestration may be resorted to.
    On petition and order to show cause why the defendants shall not be adjudged to be in contempt for non-obedience to the decree of this court herein, and punished.
    The complainant, by condemnation, has acquired the right to cross a car yard of the defendants, nearly at right angles to twenty-one railroad tracks laid therein, by means of an arched masonry passageway beneath the surface of the yard. The parties having failed to agree as to the manner in which the work of constructing that arched passageway shall be executed, the aid of this court was invoked to regulate the enjoyment of their respective rights in that respect.
    The suit has been prosecuted to final decree, signed on the 28th of January, 1896, by which, among other things, it was ordered
    “that tlie defendants be and they hereby are enjoined and restrained from obstructing the complainant in the construction of its railroad and arch upon the route of complainant according to the plan and in the manner set forth in the order of amendment of the Hudson circuit court dated September 30th, 1893, and in the statement filed July, 11th 1S95, in the office of the clerk of said court, copies of which are annexed to the bill, marked exhibits B and L respectively, and from placing or maintaining any cars within the route of complainant upon defendants’ yard tracks one, two and three, being the most southerly of the yard tracks in the car yard of defendants covered by complainant’s route, until the complainant shall have completed its arch across said tracks ” &c.
    Erom this decree the defendants duly appealed, within ten days from its date.
    On the 29th of January the defendants having first given notice of their appeal from the decree, through their superintendent, Edward E. Brooks, removed some baggage cars which for some time theretofore had been standing upon their yard track number “ one,” over the route of the complainant’s crossing, and deliberately moved five flat cars loaded with heavy pieces of rock to the place thus vacated, and maintained them there, having in readiness implements to enable the employes of the defendant companies to throw the rocks into any excavation the complainant might make, and thus obstruct the erection of the complainant’s tunnel. ' The flat cars were thus maintained until the complainant’s workmen undermined the tracks upon which they were placed and some of them fell into the excavation, but the defendants did not throw the rocks from them. The defendants have also, since the making of the decree, maintained passenger cars on their tracks “ two” and “three” at the place of the complainant’s crossing.
    Because of this conduct the complainant seeks to have the defendants adjudged to be in contempt for violation of the injunctive provisions of the decree, and punished.

      Mr. Charles D. Thompson and Mr. Charles L. Corbin, for the complainant.

      Mr. James B. Vredenburgh, Mr. Richard V. Lindabury and Mr. Frank Bergen, for the defendants.
   The Chancellor.

The decree prescribes the manner in which the construction of the arched-tunnel crossing of the defendants’ yard is to be executed, restrains the defendants generally from obstructing such execution, and enjoins them particularly from placing or maintaining cars on their tracks at points in the route of crossing at which the complainant may, under the plan of construction, from time to time be proceeding with its work.

The design of such injunction is to give the complainant possession of the route of crossing for the purpose of constructing its tunnel in the manner sanctioned by the decree. It is restrictive in that it forbids interference, and it is mandatory in effect in its requirement that maintenance of existing obstructions, in the shape of cars upon the tracks to be crossed, shall cease.

The defendants have disputed, and in their appeal propose yet to dispute, the lawfulness of the method of constructing the tunnel which the decree prescribes. Their argument is that such method permits the severance of several of the car tracks in the yard at a time during the progress of the work, and thus sanctions the temporary putting of a portion of the yard into disuse, when, in fact, it is possible for the complainant, at additional expense, to accomplish the construction without severing any of the tracks. Therefore, such severance and the consequent deprivation of the use of part of the yard is unnecessary, and hence an unlawful interference with them in the exercise of their franchises.

In answer to this application they insist that the appeal operates as a supersedeas of the injunctive provisions of the decree, so that pending the determination of the appeal no movement may be made by the complainant under the protection of the decree, and they are not restrained from resisting any attempt upon the complainant’s part to prosecute the construction.

In absence of any statutory regulation or established' practice or court rule of our own, the English practice has always prevailed in this court. West v. Paige, 1 Stock. 203; Schenck v. Conover, 2 Beas. 33; Ratzer v. Ratzer, 2 Stew. Eq. 162; Hitchcock v. Rhodes, 15 Stew. Eq. 495.

In Hovey v. McDonald, 109 U. S. 150, Mr. Justice Bradley, who, it is remembered, at one time was an eminent practitioner in this court, said: “ In England, until the year 1772, an appeal from a decree or order in chancery suspended all proceedings, but since that time a contrary rule has prevailed there. The subject was reviewed by the house of lords in 1807 [15 Ves. 184], and an order was made establishing the right of the chancellor' to determine whether and how far an appeal should be suspensive of proceedings subject to the order of the house on the same subject.”

Our cases recognize the later English rule, modified somewhat by court rule, as prevailing in this court.

“ By the practice of the English court of equity,” said Chancellor Green in Conover v. Schenck, supra, “ as well as by the practice of this court so far as regulated by statute, an appeal from a decree in equity, either interlocutory or final, does not stay proceedings in the case below or prevent the issuing of process without a special order for that purpose.”

In the earlier case of Doughty v. Somerville and Easton Railroad, Co., 3 Halst. Ch. 629, the same distinguished judge, then chief-justice, sitting in the court of errors and appeals, said;

“ By the ancient practice it was held that an appeal from a court of equity stayed all further proceedings in the court below; but by the modern English practice, the appeal does not stay proceedings, but an order for that purpose must be obtained in the court of chancery or in the house of lords. * * * By our practice, an appeal from an interlocutory decree does not stay proceedings except by an order of this court or the court of chancery for that purpose. If an appeal from a final decree be filed in ten days, it prevents issuing process on the decree. Rules Ct. Ch., Rule XX.”

The rules of the court of chancery in force when Chief-Justice Green thus wrote are to be found in Potts’ Chancery Precedents, published in 1841. They are as follows:

“XX. Of Appeals.

“ 1. In case of an appeal from an order or interlocutory decree, the appeal shall not stay proceedings thereon without an order of this court or of the court of appeals for that purpose first had, and upon complying with such terms as the court making the order to stay proceedings may impose.
“ 2. In case of an appeal from any final sentence or decree, if the party appealing shall, within ten days after such final sentence or decree, file his appeal with the clerk of this court, it shall prevent issuing process on the said decree without the order of this court or of the court of appeals first had and obtained for that puz-pose.”

The rules to-day are, in substance, the same. They are:

“ 149. An appeal from an interloeutozy decree or order shall not stay proceedings in the cause without an order of this court or of the court of appeals for that purpose first had, which order shall be granted upon such terms as the court making it may impose.
“ 150. If the party appealing from a final decree shall, within ten days after the filing of such final decree, file his appeal with the clerk of this court, process shall not issue on said decree without the order of this court or of the court of appeals.”

■ It appears, then, to be clear that the mere taking of an appeal from this court is without effect upon subsequent proceedings in the cause, except it be taken from a final decree within ten days after the decree is made, and then it stays process in execution of the decree unless order be made to the contrary.

If other, relief against the decree, pending the determination of the appeal, be necessary or proper, it must be had by order of this court or of the appellate tribunal.

Moreover, I find no warrant for the insistment that the mere existence of an appeal suspends or in any manner affects the present inherent validity and force of the decree appealed from. The person in whose favor it is rendered is denied process to enforce it, and that is all. Consequently, where the decree is itself au injunction, that injunction is in force and must be obeyed, unless, to continue the status-quo of the parties pending the determination of the appeal, this court or the court of errors and appeals shall order a suspension of its effect. And it is not necessary to issue a writ to bind the parties to the suit to obedience to such a decree. Being before the court, they are bound, at their peril, to take notice of the provisions-of any decree rendered in due course upon the issues tendered. Hawkins v. State, 126 Ind. 296.

I find that the great weight of authority throughout the country, where statutes, similar in effect to our rules prevail, accords with this view.

In the case of Hovey v. McDonald, already cited, the decree directed a receiver to deliver certain funds to the defendants. After appeal had been duly taken, the receiver obeyed the decree, and question arose in the United States supreme court, whether the appeal had operated as a supersedeas so that the decree should not have been obeyed, and the court held that it had not.

Mr. Justice Bradley, in the opinion of the court, said : “But the decree itself, without further proceedings, may have an intrinsic effect which can only be suspended by an affirmative order either of the court which makes the decree or of the appellate tribunal.” He instances the decision of the United States supreme court in the Slaughter House Cases, 10 Wall. 273, where it was held that appeal, from a decree granting, refusing or dissolving an injunction does not disturb the operative effect of the decree, and in which Mr. Justice Clifford said: “It is quite certain that neither an injunction nor a decree dissolving an injunction, passed in a circuit court, is reversed or nullified by an appeal or writ of error before the cause is heard in this court.”

In the New York court of appeals, in the case of Sixth Avenue Railroad Co. v. Gilbert Elevated Railroad Co., 71 N. Y. 430, a judgment forbade the appellant from proceeding with the construction of its railroad. An appeal was perfected and an order was obtained staying execution upon the judgment, and then the appellant, notwithstanding the restraint of the judgment, having tied up its affirmative enforcement, proceeded with the erection of its road, the thing forbidden by the judgment. A judge at chambers thereupon ordered the appellant to show cause why it should not be held to be in contempt. The general term of the supreme court vacated the order, and its action was carried to the court of appeals, where the appeal was dismissed, because the action of the general term appeared to have been put upon the ground of exercise of judicial discretion and not upon the ground of want of power, and therefore was not appealable. But in the court’s opinion, Judge Allen discussed the subject we consider, taking views which have commanded general approval throughout the country. He said: “ By the appeal, with a stay of proceedings on the part of the plaintiff in execution of the judgment, the judgment was not annulled or its obligations upon the defendant impaired, but its ‘execution’ was stayed — that is, the plaintiff was prohibited from issuing process in execution of it. The order of the judge was in substantial compliance with the statute, and stayed all proceedings on the part of the plaintiff in execution of the judgment. But this did not affect the validity or effect of the judgment pending the appeal, so far as it bore upon and restrained • the action of the defendant, its servants or agents. It did not absolve them from the duty of obedience and permit them to do that which the judgment absolutely prohibited, and the doing of which would cause irreparable mischief to the plaintiff or an injury which could not certainly be compensated in damages.”

To the same effect are the cases of Gardner v. Gardner, 87 N. Y. 18, and Genet v. Delaware and Hudson Canal Co., 113 N. Y. 475. In the latter of these cases, Mr. Justice Andrews said : “ The judgment in this case prohibits the defendant from using its structures on the plaintiff’s lands in the way in which it had been accustomed to use them for several years, and from depositing culm on the surface. It adjudges the right as claimed by the plaintiff, and denies the adverse claim of the defendant. The judgment operates, of its own force and without further process, as a prohibition against doing the act enjoined. The appeal does not of itself relieve the defendant from the duty to obey the judgment.”

In Indiana the same doctrine is maintained in well-considered deliverances. Central Union Telephone Co. v. State, 110 Ind. 203; Hawkins v. State, 126 Ind. 296. And in State, ex rel. Busch, v. Dillon, 96 Mo. 56, where the effect of the statutory provision is that a perfected appeal should stay execution and all further proceedings upon the judgment appealed from, Mr. Justice Brace said: “Our law regulating practice in injunction and appeals is essentially the-same as that prevailing in the federal courts and those of other states, and the overwhelming weight of authority is that injunctions ordered on final hearing on the merits are not vacated by an appeal from that decree. A stay of proceedings, from its nature, operates only on orders and judgments commanding some act to be done and does not reach ■injunctions.”

• The wisdom of this limitation upon the effect of an appeal, and requirement of a special order to suspend the injunctive force of a decree, is conspicuous when we regard the infinite variety of situations which command the exercise of the injunction power in the administration of justice, and consider that it is impossible to formulate any uniform scheme of suspension by the appeal alone which may not be used as an instrument of grievous injustice. Each case must be submitted to judicial discretion.

There is no doubt as to the power of the courts, original and appellate, to ascertain and, by order in furtherance of justice, to preserve the status quo pending appeal.

In Hovey v. McDonald, Mr. Justice Bradley said, upon this subject, this power undoubtedly exists, and should always be exercised when any irremediable injury may result from the effect of the decree as rendered.”

So, also, it is affirmed in Genet v. Delaware and Hudson Canal Co., 113 N. Y. 475, and New Brighton &c. Railroad Co. v. Pittsburg &c. Railroad Co., 105 Pa. St. 13, 23.

Upon the facts presented by the complainant’s petition in the present matter there is no question as to the defendants’ disobedience of the injunctive provisions of the decree. Not only have they failed to desist from maintaining cars upon the tracks specified in the decree, but they have affirmatively substituted for cars which were upon one of the tracks when the decree was made, others more obstructive of the work which the decree' permits. Their disobedience has consisted of not only negative omission, but also of active commission. The facts charged are not denied. Refuge is taken in the advice of counsel, which was in accordance with the insistment here, that the appeal suspended the force and effect of the decree, and a disavowal upon the part of Mr. Brooks of any intent to contemn or defy the authority of the court. The defence is available as tending to eliminate the criminal features of the contempt and to mitigate punishment, but it does not change the fact of disobedience and existence of at least constructive contempt.

Consideration of the action to be taken by the court remains. Should it inflict punishment, and proceed, as the complainant asks, by sequestration or otherwise, to enforce obedience to its decree?

It is argued that in the present situation of affairs such, action would be equivalent to an order that process shall issue to enforce the decree. It is true, resort to sequestration, which appears to be a proper method of securing obedience in case of corporate disobedience (United States v. Memphis &c. Railroad Co., 6 Fed. Rep. 237, 239 ; Thompson v. Pennsylvania Railroad Co., 3 Dick. Ch. Rep. 105, 110; Spokes v. Branbury Board of Health, L. R. 1 Eq. 42; Attorney-General v. Great Northern Railroad Co., 15 Jur. 387; Attorney-General v. Birmingham &c. Board, 17 Ch. Div. 685, 698), would lead to the enforcement of the decree, and also that punishment by fine or otherwise, leaving the decree in force, would be a step in the same direction; but when the court’s decree is. disregarded or deliberately defied, is the punishment of the contemner to be withheld because it may operate to deprive him of an advantage which the court’s rules of procedure give him? The contrary has been held, even where the issuance of process in enforcement of a decree is forbidden by statute (Sixth Avenue Railroad Co. v. Gilbert Elevated Railroad Co., and State, ex rel. Busch, v. Dillon, above cited), the proceedings in attachment being regarded as independent and gmüsi-criminal. And this is the true rule, otherwise the decree of the court would practically be a nullity from the time the appeal is taken until it shall be determined.

In the argument of this matter the defendants’ counsel distinctly declared that they did not ask for-the suspension of the injunctive force of the decree, that they denied the operative force of the decree, and rested upon that position alone.

In this attitude of affairs I deem it to be my duty, in meting out punishment, not only to so act as to rebuke the at least constructive indignity to the court, but also to do that which will insure obedience to the decree in respect to'the complainant’s right under it. 2 Bish. Cr. L. § 269. The injunctive power of the decree remaining in force, such action is necessary to its adequate protection, and must be taken, notwithstanding its effect may be the enforcement or partial enforcement of the decree. Doubting the efficacy of a mere fine to accomplish more than punishment for the offence against the court itself, because of the defendants’ preparation and manifest disposition to resist the complainant’s progress by force, I feel constrained to also resort to sequestration. I will fine each of the defendants $10, to be paid to the clerk for the use of the state, in accordance with the requirements of the statute (Rev. p. 123 § 103), and I will direct the issuance of a commission of sequestration, limited to the car yard in question and the goods and chattels of the defendant companies while therein, to the end that they be so controlled that future interference with the prosecution of the work. permitted by the decree shall be prevented; which commission shall continue in force until the crossing shall be built, unless otherwise directed by order of the court, but, as I am reluctant to believe that the defendants will not immediately give satisfactory assurance of obedience to the decree, which may induce me to revoke the direction for sequestration, the issuance of the commission will be withheld for thirty days.


source: Caselaw Access Project

license: Public Domain

text:
    George W. Kidd and American Distributing Company v. John R. Hurley et ux. and Catharine V. Furey.
    1. A surety is entitled to the benefit of all securities which the creditor holds against the principal as indemnity against loss by reason of his surety-ship. The surety’s right in this respect may be modified or controlled by contract between him and' his principal, but does not'require any contract for its support. It is a right which results from the relation of1 surety and principal, independent of contract, and is founded on the principle of natural justice of placing the charge where, in equity, it belongs.
    2. In equity relief will be afforded to a surety for his indemnity out of the property of the principal where the equitable rights of the surety may be protected, without prejudicing the substantial rights of the creditor.
    3. In such a case, in a suit for the foreclosure of a mortgage given by the surety, all parties being duly before the court, the progress of the cause may, upon equitable terms, be stayed until the securities of the principal shall be first exhausted.
    On exceptions to master’s report in foreclosure.
    On the 13th of May, 1892, Catharine Y. Furey, a dealer in liquors, trading under the name of John Furey & Company, was largely indebted to the complainants, and, desiring them to give her credit in excess of $25,000, in pursuance of an arrangement with them procured John E. Hurley, with his wife, to mortgage property in the city of Paterson, which belonged to Hurley, to the complainant George W. Kidd, “ for the purpose,” using the language of the mortgage, “ of securing unto the said George W. Kidd, his heirs, executors, administrators and assigns, the payment of any sum of money not exceeding five thousand dollars, which is now or may hereafter be or become due or owing from the said Catharine Y. Furey, or said firm, to the said George W. Kidd, and, after the payment in full of such sum, not exceeding five thousand dollars, to said Kidd, to hold the said property as security for the payment to said corporation of such part of the sum not exceeding the amount which may remain after deducting from said five thousand dollars the amount paid to said George W. Kidd as foresaid; provided always, that these presents are upon the express condition that if the said parties of the first part, or the said Catharine Y. Furey, their or either of their heirs, executors or administrators, shall pay or cause to be paid at any time within thirty days after demand made upon the said Catharine V. Furey, her heirs or legal representatives, five thousand dollars of the moneys due to the said Kidd and to said corporation, with interest, or if the aggregate indebtedness of said Catharine V. Furey or of the firm of John Furey & Co., to the said Kidd and the said corporation, shall at any time be reduced to the sum of twenty-five thousand dollars or less, then these presents shall he void, otherwise of full force and virtue.”
    The complainants’ bill seeks the foreclosure of this mortgage and makes the Hurleys and Mrs. Furey parties defendant. It alleges that the indebtedness of Catharine "V. Furey to the complainants aggregates, and that since the giving of the mortgage it has always aggregated, more than $25,000. Hurley and wife have answered, admitting the allegations of the bill, save as to the amounts due to the complainants since the giving of the mortgage, and as to those allegations submitting to the proofs when produced. Mrs. Furey has not answered.
    The matter thus put in issue, being a proper subject of reference to a master, it was referred to one.
    The proofs and admissions before the master show that, prior to the giving of the Hurley mortgage, Mrs. Furey, to secure the complainants the first $25,000 of her indebtedness to them, gave them a mortgage upon her dwelling in the city of New York, and as a further security for her entire indebtedness to them, at any time, assigned to them warehouse certificates for seventy-five barrels of whiskey, worth, after the complainants paid some $2,910 for tax upon it and expenses incidental to its safe preservation, from $5,000 to $5,500, and that the aggregate indebtedness to the complainants, at the date of the master’s report, including the amount expended to preserve the whiskey, was upwards of $32,700.

      Upon these facts appearing, the defendants Hurley insisted before the master that their property should not be sold before the exhaustion of the mortgage of Mrs. Furey upon her dwelling, and the whiskey, pledged for the whole indebtedness.
    The master reported adversely to this claim, and because of such report, the exceptions are filed.
    Upon the hearing of the exceptions, the complainants and answering defendants agreed that the question so raised before the master should be heard and disposed of as though properly presented by the pleadings,' and that the pleadings be hereafter amended, if need be, so that the question may be presented by the record.

      Mr. William B. Gourley, for the exceptants.

      Mr. James P. Northrop, for the complainants.
   The Chancellor.

The equity insisted upon by the answering defendants arises from the circumstances that the debtor has given the complainants security for her debt to them. That fact does not appear by the bill, and hence the equity was not presented when Mrs. Furey was called upon to answer. To bind her now, it should be alleged by cross-bill or answer by way of cross-bill, so that she may have her day in court.

The indebtedness consists of three parts — $25,000 secured by the mortgage on the dwelling in New York, $5,000 secured by the mortgage in question, and a surplus of some $2,700. The whiskey is pledged as security for the whole indebtedness. The right of' the creditors is, to be fully paid from these three sources.

At the same time the answering defendants, as sureties, in absence of a special agreement to the contrary with their principal, are entitled to the benefit of her securities held by the complainants, after the payment of the complainants, as indem- ■ nity against loss by reason of their suretyship.

This right, in a surety, is one which, in the language of Mr. Justice Depue, in the opinion of the court of errors and appeals, in Philadelphia and Reading Railroad Co. v. Little, 14 Stew. Eq. 519, “ results from the relation of surety and principal, independent of contract, and is founded upon principles of natural justice of placing the charge where in equity it belongs.”

When, then, the debt is paid by the surety, he will be entitled to be subrogated to all the properties, belonging to his principal, which the creditor holds as security for the debt, in order' that he may indemnify himself against loss under his suretyship. At law, he will be compelled to pay the debt, and, after' that, may look to the collaterals of his principal for indemnity, but in equity, which does more exact justice under the circumstances of the given case, if there be circumstances from which it appears directly or by reasonable inference that substantial injury or prejudice will not result to the creditor by the enforcement, in the first instance, of the surety’s right to have the debt paid from his principal’s property, the surety may, in a case of hardship to himself, compel the creditor to resort to the securities in the creditor’s hands or under his control, the property of the principal, in satisfaction of the debt, before coming upon him. Irick v. Black, 2 C. E. Gr. 189, 195; Philadelphia and Reading Railroad Co. v. Little, supra.

In the present case the testimony before the master was taken between the complainants and the answering defendants to develop whether the answering defendants shall have the relief indicated, and it has disclosed a situation in which it does not appear, and is not to be inferred, that the enforcement of resort to the principal’s securities íd the first instance will result in substantial prejudice to the complainants, and in which it does appear that it will be a hardship to the answering defendants to raise and pay $5,000, a large portion of which may not be ultimately required of them. But it does appear that, in any event, part of the $5,000 must, by reason of the insufficiency of the other securities, come from the answering defendants’ mortgage. The débt, adding to it for the purposes of the following calculation the amount paid for the preservation of the whiskey, is upwards of $32,700, and it is a simple mathematical proposition, assuming, as I justly may, in the absence of all proof to the contrary, most strongly for the sureties, that the $25,000 mortgage will fully pay $25,000 of the indebtedness, that upwards of $7,700 will remain to be satisfied out of the whiskey and the mortgage of the answering defendants, and, if the whiskey be worth $5,000, that upwards of $2,700 necessary to the satisfaction of the debt must come from the Hurley mortgage. This being so, it will be but equitable to require that such sum shall be paid to the complainants as a condition precedent to any stay of this suit until the securities of the debtor shall be exhausted.

But even this relief should not be afforded until Mrs. Furey shall be brought into court upon this issue. The court should proceed upon sure premises. It may be that, by some agreement with the sureties, Mrs. Furey has the right to have their liability exhausted before resort is had to her securities. In short, it may be that the right claimed does not, in fact, exist.

The order of reference to the master required him simply to report the amount due upon the mortgage of the answering defendants, and whether the mortgaged premises should be sold in parcels or together. The insistence of those defendants upon a right to resort to their principal’s securities, in the first instance, does not show that $5,000 is not due upon their mortgage, and such equity cannot be urged upon exception to the master’s ruling, that by reporting against it he has failed to find the correct amount due. It was not referred to him to ascertain and report upon the merits of the question argued under the exceptions.

I find, however, that in the master’s calculation of the amount due upon the mortgage in the suit, he debited the complainánts’ account with their expenditure of $2,910 in preservation of the whiskey. It is obvious that the answering defendants cannot be charged with that expenditure. That charge must be against the security it protects, and is only to be taken into the general account if the whiskey is to be made presently available to the answering defendants in reduction of that which they are to be called upon to pay. I have so regarded it in stating the equity to which they are entitled. Upon the basis of disallowing that charge against the general account, the amount due upon the mortgage here in foreclosure, at the date of the master’s report, was $4,825.34 instead of $5,000. To secure this small reduction the exceptions are well taken.

I will 'dispose of this matter in this way: If the answering defendants desire to amend their answer so that, by way of cross-bill, it will claim the equity above discussed and bring Mrs. Furey with the complainants before the court upon it, they may apply to do so within a reasonable time to be fixed by the order hereon, or if Mrs. Furey will consent to an order staying the suit until her securities shall be resorted to, I will so stay the suit upon the answering defendants paying to the complainants, on account of their claim against the mortgage herein, the amount which will remain after subtracting from the sum of $32,700 and upwards found by the master, $25,000 (amount of Fúrey mortgage) and $5,000 (estimated value of the whiskey).

If neither of these courses shall be pursued, I will make the usual foreclosure decree, and direct the sale of the mortgaged premises to raise and pay $4,825.34 with interest from the date of the master’s report.


author: Pitney, Y. C.

text:
    National Shoe and Leather Bank of the City of New York v. Simon August, Jacob S. August, Abraham S. August and Henrietta August.
    The mortgagor and owner in possession of chattels subject to a mortgage, which is void as to creditors for want of registry and possession taken under it, but is good as between the parties, may sell and dispose of the goods with the consent of the mortgagee, and pay the proceeds to the mortgagee on account of the mortgage debt, and the mortgagee may retain such proceeds of sale as against a judgment creditor of the mortgagor who has failed to make a levy.
    Final hearing on pleadings and proofs.

      The suit was commenced by a creditors’ bill framed under the eighty-eighth and subsequent sections of the Chancery act (Rev. p. 120). An order for discovery was made therein and the defendants were examined, and subsequently a new bill was filed, based, in part, upon the result of the said discovery.
    The complainant is a judgment creditor of the defendants Simon, Jacob and Abraham August. The debt is that of Jacob and Abraham, who were doing business when it was contracted under the name of' “August Brothers.” Simon August, the other defendant, appears to occupy the position of endorser. The object of the bill is to obtain a decree against Henrietta August, who is the wife of Simon and mother of Jacob and Abraham, for the payment by her, on account of complainant’s judgment, of certain moneys received by her from her two sons, proceeds of the sale of personal property belonging to them as composing the firm of August Brothers. Complainant recovered judgment in New York, on the 5th day of December, 1893, and suit having been brought on that judgment in the Essex county circuit court, judgment was there recovered on tho 9th of December, 1894, and execution thereon returned unsatisfied.
    The firm of August Brothers failed in August, 1893, and on the 24th day of that month they executed to their mother, the defendant Henrietta, a paper in these words:
    “ Whereas we, August Brothers, composed of Jacob S. August and Abe S. August, are indebted to Henrietta August in the sum of twenty-seven thousand two hundred and fifty-eight dollars and seventy-six cents ($27,258.76).
    “Now we, the said August Brothers, do hereby grant, bargain, sell and transfer unto the said Henrietta August all the goods, wares, merchandise, stock in trade, and three cutting machines belonging to us, and now stored in the subcellar of the premises No. 8 West 3d street in the city of New York, together with all policies of insurance thereon.
    “ To have and to hold to the said Henrietta August, as security for the payment of the said indebtedness to her, with authority to her to hold and sell the same at public or private sale, with or without notice to us, and after the payment of the expenses of such sale and the said indebtedness, with interest in full, to render the overplus, if any, to us or our assigns.
    ‘ ‘ Witness our hands and seals this 24th day of August, 1893.
    “August Brothers, [l. s.]
    “Jacob S. August. [l. s.]
    “Abe S. August. [l. s.]
    “Acknowledgment dated August 24th, 1893.”

      This document was never filed or recorded in any public office as a chattel mortgage or otherwise. At the time it was made the goods covered by it were on storage in the subcellar of a warehouse in New York city, in the possession of a firm (Bernheim, Bauer & Company) who were friends of August Brothers, and who permitted them to use their subcellar for the purpose of storing and selling these goods. No manual or other possession of them was ever taken by Mrs. August, unless the possession of her sons can be deemed her possession. They sold of the goods moré than sufficient to pay complainant’s judgment, and either paid the proceeds directly to their mother or placed them to her credit in bank, or with business houses in New York city.
    The disputed question of fact in the case is whether August Brothers, were, at the time, indebted to their mother in the sum mentioned in said instrument, or in any other sum. And the disputed questions of law are (1) whether, if the firm was so indebted, the instrument executed by them to their mother was, in substance, a chattel mortgage; and if it be a chattel mortgage, then (2) whether its existence under the circumstances renders Mrs. August liable to account for the moneys received by her from her sons as the proceeds of the sale of said goods. It was agreed that the state of the law iu New York might be arrived at by a consideration of the adjudged cases as reported, and from the statutes, a copy of which relating to chattel mortgages was offered in evidence.

      Mr. Bishop (of New York) and Mr. Joseph F. Randolph, for the complainant.

      Mr. Frederic W. Stevens, for the defendants.
   Pitney, Y. C.

First. A reading of the instrument in question leads me to the conclusion that it is, in its essential features, a mortgage, and not, as was contended by counsel for defendants, a mere conveyance absolute with power of sale for the purpose of paying, pro tanto, a debt. The use of the words, to have and to hold to the said Henrietta August as security for the payment of the. said indebtedness to her,” and the provision for rendering the surplus to the grantors, seem to me to render it a mortgage rather than an absolute conveyance. A right of redemption upon payment of the indebtedness is clearly implied, it seems to me, from the use of the language quoted.

Second. The statute of New York relating to chattel mortgages is.substantially the same as ours, and instruments of that nature are absolutely void as against creditors unless recorded, or unless immediate and actual possession is taken under them. Here I find, as a matter of fact, that no sufficient possession was taken. There was proof offered of authority for the sons, or one of their clerks or salesmen, to take possession in the name of their mother; but it was so clearly colorable and contrary to the spirit of the act, that I conclude, as above stated, that there was no possession taken.

The result is that the instrument is absolutely void as against the complainant, who, it was admitted, was a creditor at the time the instrument was executed, for the very debt on which its judgment is founded.

Third. These propositions having, been resolved in favor of the complainant, its counsel take the position that, having executed .such a paper, and having purported to act under it, the moneys which were the proceeds of the sales of the goods covered by it may be followed by a judgment creditor into the hands of the mortgagee of the void mortgage. This position is taken in the face of the admitted proposition that it was entirely lawful for August Brothers to prefer their mother as a creditor by selling the goods in the ordinary way and paying her the proceeds.

The difficulty with the complainant’s position is apparent at once. It claims, in one breath, that the mortgage is absolutely void, and that, at the same time, it may derive a benefit from its, so to speak, negative existence.

There is a line of cases decided in New York, cited and relied upon by counsel, which hold that where the mortgagee of a chattel mortgage which is void by reason of not having been recorded and immediate possession not having been taken under it, subsequently and without the concurrence of the mortgagor, takes possession under it, and by virtue of it sells the goods and receives the money, a judgment creditor, who recovers judgment subsequent to the sale of the goods founded upon a debt existing at the time, may recover from the mortgagee the moneys so by him received. Such was, in effect, the cases of Mandeville v. Avery, 124 N. Y. 376, and Stephens v. Perrine, 143 N. Y. 476.

In the first case the defendant (Avery) was the holder of two chattel mortgages executed by one Beck — one to Avery directly and the other to a bank of which he was president, and by the bank assigned to him. The mortgage to the bank was the older of the two and was not recorded, and no possession was taken under it until the later mortgage was executed, when immediate possession was taken under both by Avery, who sold the goods. And it was held, reversing the supreme court, that the receiver appointed under a judgment recovered by one Ross, a creditor of Beck, could recover against Avery so much of the proceeds of the sale of the goods as was appropriated by him to the payment of the mortgage of the bank. At the bottom of page 385, the learned judge, speaking for the court of appeals, says: The general term based its decision [in favor of the bank] upon the ground that the debt to the bank having been a valid one, and having been paid out of the mortgaged property before any lien was obtained thereon, another creditor could not compel the mortgagee to refund the money, on the ground that, as against creditors generally, the mortgage given to secure the paid debt would have been adjudged void. Two classes of cases are cited by the supreme court to sustain this conclusion. [Omitting the first class.] ‘Second. That the objection that a chattel mortgage is void is not available, when, before any creditor had questioned its validity, the mortgagor delivered the chattels to the mortgagee and authorized an immediate sale thereof by him. * * *

As to the second [class], there is no doubt as to the right of a debtor to prefer any creditor and to pay his debt in full, either in money or property, to the exclusion of all others. But to apply that principle to this case is to ignore completely the facts pleaded and found by the court. There was no claim that the property sold was turned over by Beck [the debtor] to Avery in payment of the debt. The complaint alleged that the property was sold by Avery under the mortgage, and this fact was not denied by the answer.’ The court also found that Avery, by virtue of both mortgages, took possession of the mortgaged property, and as such mortgagee caused the same to be advertised at public sale and sold under said mortgages. There is nowhere any suggestion in the evidence or findings that the mortgage was waived or abandoned, or that the debtor had voluntarily delivered the property to Avery with authority to sell it. Everything that was done was pursuant to and under the mortgages. Avery could not and did not claim to have received the property or the proceeds of the sale in payment of his debt as the voluntary act of the debtor, but as mortgagee. He cannot, therefore, assert against the claim of other creditors the honesty of his own debt. The mortgage being void, all proceedings under it were void, and although he may possess an honest claim, he cannot retain property obtained by him under a fraudulent mortgage against a pursuing creditor. The proceedings taken to collect the debt are unlawful.”

It will thus be seen that the decision was put upon the distinct ground that the claim of Avery rested upon the mortgage, and not upon a voluntary payment by the debtor.

In the next case — Stephens v. Perrine — the failing debtors, Aldrich & Company, had given a chattel mortgage to the defendant in the action, Mrs. Perrine, to secure her for money due her, but it was not recorded until a month after it was given, and the omission to file was intentional, and there was no immediate change of possession. On the day the mortgage was filed the mortgagee took possession, and after advertisement, sold the property and bought it as the highest bidder at the auction sale. Other creditors obtained judgment subsequent to the sale under the chattel mortgage, and upon executions being returned unsatisfied, a receiver was appointed. He brought this action to set aside the mortgage and recover the property or its value. Judgment was rendered for plaintiff in the court of first instance, not on the ground that the mortgage was not given to secure an actual indebtedness, but that it was absolutely void because it had not been recorded as soon as made. If was held on appeal, reversing the supreme court, that the receiver, under the judgments, was entitled to recover on the ground that the mortgagee claimed under the mortgage, having taken possession wider it, there being no evidence that it was done by the consent or concurrence of the mortgagor. The ease was put substantially on the same ground as that of Mandeville v. Avery, as will be seen by an examination of the opinion of Judge Peckham, on pages 480 to 482. At page 481 he says: “ If, before any lien had been acquired by the creditors, the mortgagors had delivered the property to the mortgagee in payment of her debt, she could have then held it, because it would have been, in such a case, a transfer of property by them in payment of their debt, and although it would have been, in fact, preferring such debt, yet it would have been a preference which the mortgagors then had the right to make. But in this case there was nothing of the kind done. The mortgagee acted under and by virtue of her mortgage all the time. The mortgagors did not deliver the property to her in payment of her debt. She took it under the assumed right given by the mortgage.” He then refers to the opinion of Judge Earl, in Tremaine v. Mortimer, 128 N. Y. 1, where that learned judge says that: “ The mortgagor in a mortgage which has not been filed may, as between himself and his creditors, treat the mortgage as if it did not exist, and before the creditors obtain a lien on the property, he may deal with it in any honest way. He may sell it, or assign and transfer it and give an absolute title, or he may deliver the property to the mortgagee in payment of his debt.” And again, in distinguishing two other cases, he says: It will be seen, upon a perusal of the facts, that it was the act of the mortgagor by his general assignment in each of the cases, made subsequent to the making of the mortgage, which transferred the title and caused the decisions in those cases.”.

The language of Judge Earl above quoted is quite in point.

None of the cases cited by counsel go further than the two just referred to, and the radical difference between these cases and that in hand is that in the New York' cases possession was taken and title claimed under a mortgage absolutely void at the moment when possession was taken. Here whatever change, actual or constructive, of possession took place, occurred at the moment when the mortgage was executed. So that it was always either absolutely void or absolutely good.

Here it is plain that Mrs. August claimed and got nothing under the mortgage. The mortgagors remained in possession and sold the goods and voluntarily paid the proceeds to their mother.

In answer to the very able and ingenious argument of the counsel for complainant upon this point, I make this general remark: It seems to me that the complainant is in this dilemma: If Mrs. August did not take possession under the mortgage as is alleged, and as I find, then it was absolutely void; she claims nothing under it; and her sons had the right, as against complainant, to sell the property and pay her her debt out of the proceeds. If, however, the sons or any other person acting as her agent, took possession of the goods, it being admitted that whatever possession was taken, was taken immediately, then the mortgage was perfectly good; and I do not see how the complainant can say in this case that it was void for one purpose and good for another. In other words, the two sons were, in the actual possession of the goods, and such possession was either in their own right as owners and mortgagors, or in the right of their mother as mortgagee as her agents and representatives. In either ease they had the right to sell the goods, and she had the right, if her claim was just, to receive and hold the proceeds of sales as against their creditors not having actual liens. As between mother and sons this mortgage was good, though void as to creditors; and the right of the mortgagor and owner while in possession and before levy made to sell and dispose of the chattels with the consent of the mortgagee of a mortgage void as to creditors, and to pay the proceeds to the mortgagee, is conceded, not only by the two cases relied upon by the complainant and above mentioned, but by other New York eases, notably Kitchen v. Lowery, 127 N. Y. 53.

It follows that this last question of law I must decide against the complainant, and hold that if August Brothers did, in good faith, owe'their mother the moneys claimed, they had a right to sell the goods and pay the proceeds to her, and thereby prefer her as a creditor.

The argument that the instrument- in question was actually made use of to hinder creditors has not escaped my attention. The evidence indicates that the bulk of the goods was sold after complainant recovered judgment in New York. No proof was offered to show that the mortgage was at any time used to prevent the sheriff from making a levy. No proof was offered that he ever attempted to make one. The law governing the case being well known to complainant, it follows that the instrument could not stand in the way of the sheriff making a levy, except when set up by some one in the actual possession of the goods as the agent and representative of Mrs. August, the mortgagee, for, in order to satisfy the statute, the possession must not only be actual but continued. Now, there is no proof of any such claim made to the sheriff. On the other hand, it appears that the defendant Jacob was examined upon supplemental proceedings upon complainant’s judgment in New York, on the 15th of February, 1894. He then disclosed the whereabouts of the stock of goods, and the fact that it had been transferred to his mother in payment, or attempted payment, of her claim against the firm, and that he and his brother were in actual possession and engaged in selling the goods, and were paying the proceeds over to their mother. The general nature of the deed of transfer was stated by the deponent from memory, and its present possession and custody by his mother’s counsel in New York frankly and freely stated. Whether an effort was made at that time by complainant to see and ascertain its true nature does not appear. But it does appear that it was produced by some person and seen by counsel for complainant at the examination of the defendants held under the bill for discovery before a master, in May, 1894, and the true situation of affairs and the legal rights of the parties were then fully developed and made plain. There was no concealment. At that time only about $7,000 of goods had been sold, while the total sales reached $19,000. Complainant’s judgment is less than $7,000. It thus appears that complainant had ample opportunity to issue an alias execution in New York and levy upon goods enough to pay its debts after it had complete information as to the situation of affairs and the rights of the parties. "Why such proceeding was not taken does not appear.

No point was made that the complainant obtained a lien under the laws of New York upon the goods by the mere delivery of the execution to the sheriff without actual levy.

Fourth. This brings me to the question of fact in the cause, was there an actual debt due from August Brothers to their mother ?

The answer to this question requires us to go back to the original formation of the firm of August Brothers, in the year 1878, and to the situation of the family at that time.

Simon August, the father, who has died pending this suit and before the hearing, was for many years a merchant in the clothing trade in the city of New York, being the head of the mercantile house of August, Bernheim & Bauer, which was continued after his retirement under the name of Bernheim, Bauer & Company. The uncontradicted evidence of his wife and children is that he was at one time a man of considerable means, and of good commercial standing. They had four sons, whose names, stated in the order of their ages, are Elias, Jacob S., Abraham S. and Charles. Elias and Jacob formed the first partnership of August Brothers, in 1878. They had some little money of their own, and other moneys were given to them by their father and mother to use as capital. In addition to out-and-out gifts, their father and mother, as they allege, also loaned them money. The books of August Brothers show a credit to Henrietta August, on September 17th, 1878, of $6,000 cash. She is afterward credited regularly with interest on that sum, and charged with some small payments, apparently on account of interest. The first question is as to the origin of that $6,000. She says that it was the proceeds of a mortgage which she had and which she sold, and the origin of the mortgage debt was money which her husband gave her from time to time for the support of the family and for her own use, and that, being of a saving disposition, she saved it up and accumulated it. She certainly had monéy in savings banks prior to 1878, to the amount of several thousand dollars, as shown by the bank accounts. The father’s account is also credited at the same time on the books with $30,000 or more cash loaned.

On the 2d of January, 1880, the third son, Abraham S. August, was admitted as a partner into the firm of August Brothers, although he was not yet quite of age, and on that day his mother, as the defendants all swear, made him a present of $6,000, and his father made him a present of $4,000, to put in as capital, and his mother’s account on the books of the firm is, on that day, charged with $6,000, and his father’s account with $4,000, and both sums credited to Abraham S. August. . Then on the last day of that year, 1880, the account of Simon August, on the books, is charged with $10,000, and the account of Henrietta August is credited with $10,000 transferred from the account of Simon. This, the defendants swear, was a present from the father to the mother, perfected by a transfer by debit and credit from the father’s to the mother’s account, and' this is the real commencement of her claim. She is credited with interest on that sum from year to year up to the 31st of December, 1884, aud charged with some payments made on account. She is further credited, on the 19th of September, 1884, with the sum of $4,692.03. This sum, the sons explain, was not paid into the firm at that time, but was the accumulation of a series of loans in smaller sums previously from time to time made by their mother to the firm and carried on the petty-cash book, and then on September 19th, 1884, by her direction, transferred in a lump from that book to her general account, so that on the 31st of December, 1884, she stands credited with a balance of $15,372.58. She is credited with interest from time to time on that sum, and on the 17th of June, 1886, she is credited with the sum of $6,758.14, which, like the previous sum of $4,692.03, under date of September 19th, 1894, was composed, as her sons swear, of items of money previously deposited by her with them from time to time and entered on the petty-cash book, and then transferred by her direction in a body to her ledger account. Afterward interest is added and charges made for moneys paid, so that the balance, on the 31st of October, 1887, was $23,864.50. That balance is found on Ledger No. 3 of August Brothers. Ledger No. 4 of August Brothers and the accompanying journal are missing. They covered the period from 1887 to the fall of 1890. On January 1st, 1890, Elias August left the firm, and the business Avas continued under the same name by the two brothers, Jacob and Abraham, the defendants herein. Their ledger, called Ledger No. 1 of the new firm, shows a credit to Henrietta (there called Henrietta 8. August, meaning Henrietta, the Avife of Simon, to distinguish her from another Henrietta August, the Avife of another man of that name), January 6th, 1891, of $481.22; October 31st, 1891, interest and discount, $28.87; November 1st, cash, $1,500, and on the same day with $25,000, it being alleged and sworn to by the defendants, that that $25,000 was the balance due her upon the last ledger, No. 4, of the previous firm of August Brothers, their evidence being that on the last day of the year 1890 there was due her $25,481.22 on the missing ledger, and of that sum $481.22 was carried forward to the new firm ledger on the 6th of January, 1891, and the even money, $25,000, stood to her credit on the old ledger until the 1st of November, when it was transferred to the new ledger, the reason for this delay being that the old firm was in liquidation, and these and similar accounts were not carried forward to the new firm ledger until the solvency of the old firm was proven by its liquidation. They swear that it was so proven, and that the old firm’s debts were all paid and the stock of goods taken by the new firm, and that the mother directed that her account should be transferred to the new firm. She is further credited with interest and discounts, and with divers items of cash, so that the balance on the 5th of December, 1892, was $27,258.76.

The firm fell into difficulties early in 1893, and attempted to liquidate. They paid a great many of their debts, aggregating a large majority of their indebtedness; moved away from their former place of business, and placed their remaining stock of goods in the subcellar of the firm of Bernheim, Bauer & Company, and sold them out as before stated, and paid the proceeds to their mother in payment of this debt.

The original books of the firm were produced in court, having been taken possession of by a receiver appointed under proceedings supplemental to judgment in the city of New York, and were inspected by the court. In addition to the entries on the books themselves, Mrs. August produced seven statements, purporting to be transcripts of the ledger, made from time to time, in the handwriting of some bookkeeper or member of the firm, which she said were sent to her from time to time for her satisfaction. They are dated, respectively, January 1st, 1885, January 22d, 1886, January 1st, 1887, November 1st, 1887, October 31st, 1888, November 1st, 1890, and November 1st, 1891. A comparison with the ledgers produced shows them to be true transcripts so far as the books are produced. They have the appearance of being genuine, and of having been made at the time they respectively bear date. No promissory note was ever given, or other evidence of indebtedness except these statements. She swears that she trusted her sons to take care of her money and pay her interest on it, and that the statements of account which she received from time to time were all the evidence that she required or desired. There is no room for doubt as to the authenticity of the books or the genuineness of the entries found therein. The statements of account produced by Henrietta supply documentary evidence of the existence of the balance in her favor on the missing Ledger No. 4.

If these facts are reliable, then the indebtedness is established.

Their reliability is attempted to be met and overthrown by the preliminary examinations, taken under the creditors’ bill, of the three defendants Henrietta, Jacob and Abraham. I have read those examinations with great care, and have compared them with the evidence of the same persons given orally at the hearing of the cause, and with the entries on the books, and I come to the conclusion that, while there are some apparent inconsistencies raised from the casual reading of the preliminary examination, I find that, upon closer examination, most of them disappear or are otherwise satisfactorily accounted for. Mrs. August never saw the books of account, knew nothing about them, except as she was furnished with statements. I think it quite manifest that when she was first examined she had not looked at the statements for a long time — in fact, had not prepared herself at all for the examination. She is of foreign birth, and speaks and understands our language pretty well, but not perfectly. She is somewhat advanced in years. The most suspicious thing in her evidence is that she at first had forgotten that her husband had given her $10,000 to loan to the firm; but I think, taken altogether, her evidence is clearly consistent with the evidence of her sons and the books, including the transcripts from the savings bank books which have been put in evidence; that she was a saving woman, and did put by money from time to time as she received it; and that her money was put to her account with her sons from time to time in comparatively small amounts. There is no dispute but that her husband was, at that time, a man of considerable means; in good mercantile standing up to a very recent date; and there is nothing improbable in the statement that he made her presents from time to time of money, and that she saved considerable of what was given her for her personal use, and what may be termed house-money.”

The conclusion that I have reached on this part of the case is contrary to my first impressions, and is made in full consciousness of the duty of the court to scrutinize these family accounts with great care. Notwithstanding these considerations, I am forced to the conclusion that the debt to Henrietta was a real one in one sense of the word — that is to say, it was not in any sense fictitious; the money was originally had and used by the old firm.

It was urged that even if that be so, and the old firm did actually have their mother’s money to the extent claimed, still it does not sufficiently appear that the debt was not, in fact, paid by the old firm in the course of its liquidation; that there are circumstances tending to show that such was the fact. In the first place, it is urged that the absence of the last ledger, No. 4, of the old firm, and the corresponding journal, is suspicious and not well accounted for. So far as relates to the accounts given by the members of the firm under oath, of the loss of those books, I cannot say that there was anything suspicious in the manner in which that evidence was given. The remarkable circumstance is that two large books like these should have disappeared and not reveal themselves upon the careful search which appears to have been made. All the books were moved with and at the same time as the stock of goods was moved from the store formerly occupied by August Brothers to that of Bernheim, Bauer & Company, and these two books in question were first missed after that removal. The brothers swear that diligent search was immediately made for them, without success. The only probable theory that suggests itself to my mind as to their loss' is that they were separated from the larger mass for the purpose of the liquidation of the old firm, and were never restored to their proper place, and were overlooked.

Another circumstance relied upon as suspicious is that the entry on the ledger of the old firm of $25,481.22 as of November 1st, 1890, to the credit of Mrs. August, appears to .have been made at two sittings, the figures “ 25 ” at one time and the figures “481.22” at another time. How long apart the sittings were the expert was unable to state. I have already referred to the separation of these two component parts of the whole sum of $25,481.22 on the ledger of the later firm. The ledger upon which this difference was found by the expert was an extra ledger, called a pocket ledger, kept by the firm as a transcript of their regular ledger, and deposited each night in a neighbor’s safe for safety in case of fire. The one in question covered but a few of the last entries of the year 1890, which was the last year of the existence of the old firm of August Brothers. They seem to have made up their accounts each year to November 1st, 1890, and it may well be that the figures “25” were written first, and then,- after exact calculations of interest were made, to ascertain the precise odd dollars and cents due, the figures “481.22” were added, it may be, half an hour, or an hour, or twenty-four hours later. While I am pretty well satisfied that the expert’s evidence is reliable, I am not satisfied that they indicate any fraudulent manufacture of a debt. The circumstances do not reveal any occasion that the firm had, at that time, to indulge in any such fraudulent entries. The other books of the firm — the check-books, hank pass-books and others, showing their daily transactions — were preserved. The complainant had access to them while they were in the possession of August Brothers, and they were subsequently taken away by the receiver and produced at the trial by the complainant. They had every opportunity to ascertain whether they disclosed any evidence of payment of this large sum to Mrs. Henrietta August. No such evidence is pointed out. I find myself unable to infer a payment of this loan from the circumstances referred to.

But counsel for complainant take the further point that these family accounts, including one not before mentioned, to Minnie August, the wife of Jacob, were so arranged and carried on the books as to work a fraud on the creditors, and should not be paid until after the creditors are paid, they being, in point of fact as against creditors, mere contributions to the capital and subject to the payment of all the debts. I am unable to find anything in the evidence to warrant that conclusion. It does not appear that representations were ever made by the firm as to their capital in which a fraudulent use was made of these loans, or that' their indebtedness to their relatives was ever denied or concealed. The fact that persons so engaged in business are liable to owe confidential debts is notorious, and creditors inquiring into the financial standing of their debtors, or proposed debtors, always make inquiries on that subject. These credits to their relatives were kept openly upon their regular ledgers, and I am unable to perceive upon what principle it can be held that they were capital and not debts.

' I think the bill should be dismissed, and will so advise.


text:
    Frederick V. D. Skillman, executor &c. of Ebenezer King, deceased, v. Lizzie A. Wiegand.
    1. Where- an account is opened and money deposited by a father in the joint names of himself and his child, in a sayings bank whose by-laws provide for the issuing of a pass-book to each depositor and require its production when money is drawn, the question whether the intention of the parent is to create a joint estate with absolute right of survivorship or merely to make the child his agent for convenience in drawing the money, is to be determined by the circumstances of the case and the conduct and declarations of the parent.
    2. Where it clearly appears that such deposit is not merely for the convenience of the parent in drawing money, and not with the intention to make a gift to the child in case of its surviving the parent, a subsequent change of intention and determination to make a gift to the child must be proven by clear and satisfactory evidence. The mere permitting the account to remain in joint names and loose declarations indicating a gift are not sufficient.
    Heard on bill, answer and proofs.

      Mr. James D. Manning, for the complainant.

      Mr. Henry Puster. for the defendant.
   Pitney, Y. C.

The contest in this cause is over the sum of $2,776.99, drawn by the defendant, Mrs. Wiegand, out of the Provident Institution for Savings, known as the Bee Hiye Bank, in Jersey City, the day before the death of the complainant’s testator, Ebenezer King. The money, at the time, stood on the books of the bank, as shown by the pass-book, in the joint names of the testator and the defendant, by her maiden name of Lizzie A. King. She was the testator’s daughter. He died on the 29th of September, 1891, at her house in Jersey City, in his eighty-second year.

The by-laws of the bank provide that the pass-book held by the depositor must be produced when money is drawn.

The bill alleges that the bank account was opened by the testator in 1875, and that all the moneys deposited therein were his own moneys, and not those of the defendant; that the testator, for convenience to himself, so that moneys could be drawn therefrom without his personal presence at the bank, caused the name of his daughter to be joined with his own in the passbook. The answer admits that the account was opened in the joint names, so that drafts could be obtained without testator’s personal attendance at the bank, but denies that this was done for the sole convenience of testator. The answer does not deny the express charge in the bill, that the moneys deposited to the joint account were, at the time of such deposit, the moneys of the testator. The answer further states that the defendant drew the amount in question from the bank by both the implied and expressed consent and knowledge of the testator. It further states that the account was kept in the joint names of the defendant and her father, so that, in ease of the death of either of the said parties, the survivor could draw the amount due thereon and close the same without the expense of administration or other legal steps. It further charges and insists that the said deposits were made for the sole benefit of the defendant, and that she drew the amount by her father’s special instance and request, made to her personally, on the day that she drew the same.

The following facts appeared: For many years prior to the 1st of January, 1891, the testator had been employed at Jersey City at a salary. His bank account commenced on the 2d of December, 1875, with a deposit, of $100, and increased by subsequent deposits, mainly in small sums, and additions of interest, from month to month, and year to year, until it amounted, on the 28th of September, 1891, to $2,776.99. He appears to have been a widower for many years, and to have kept house, one or more of his daughters acting as • housekeeper, up to the 1st of May, 1891, when he broke up housekeeping and went to live with his daughter Mrs. Wiegand. His family consisted at first of four daughters and two sons, but the sons dying, and, as I infer, without issue, there remained the four daughters, viz., Mrs. Sarah Skillmau, the wife of complainant, Mrs. Minnie Lemont, Mrs. Lizzie Wiegand and Matilda King, a helpless cripple and invalid, who always lived with her father. Mrs. Lemont was twice married; became a widow in 1884, when she came home to live with her father. Shortly after that Mrs. Wiegand married and went to Philadelphia, and lived there until May, 1891. In March, 1891, Mrs. Lemont married a second time, and later went to live with her present husband, leaving her father without any housekeeper except Matilda, who was unable to perform the duties thereof. Shortly after Mrs. Lemont’s marriage, Mrs. Wiegand bought a house in Jersey City, and took her father and Matilda to live with her.

The proofs show that the bank account was originally opened in the name of the testator alone, and that several years afterward he caused his daughter Lizzie A. King’s name to be inserted in the original book. His object and purpose in making this change was not shown by direct evidence, but the circumstances show that it was done, not for the purpose of making a gift to Miss King, or creating a joint estate with the right of'survivor-ship, but merely for convenience for drawing money. In point of fact, he retained possession of the book and treated the money on deposit as his individual, exclusive property up to at least a very short time before he died. His declarations and conduct all point in' that direction, and they are competent for that purpose, as the authorities all agree, especially as evidence was given by the defence of the same character. Be that as it may, no objection was made to their introduction. The deposit in bank constituted his whole property with the exception of a small house and lot which rented for $18 a month, subject to a tax of $55, equal to $4.50 a month, and subject to repairs and insurance, which would reduce its net rent to not more than $12 a month.

On the 13th of January, 1891, while still living in his own house with his daughters, Mrs. Lemont and Matilda, he made his will, giving everything that he had, both real and personal, to his daughter Matilda, her heirs and assigns forever, and then appointed the complainant, his son-in-law, his executor, adding these words:

“And I direct his attention to the fact of there being money to my credit in the Provident Institution for Savings, in Jersey City.”

Before and after the time of making this will, he declared that his intention was that his whole estate, including the money in bank, should go to his daughter Matilda, giving as a reason that she was helpless and that his other children were provided for; and such intention and desire was a matter of general talk and understanding among all the children, and, I am satisfied, was known by the defendant, Mrs. "Wiegand.

At the execution of the will testator was advised by the counsel who drew and witnessed it, that it would be prudent for him to have the bank deposit put in his individual name, and after-wards, in the month of March, he took the pass-book to the bank for that purpose, but upon being informed by the officers that such change would involve a loss of interest (the regular dividend days being the 1st of January and the 1st of July), he refrained and left it standing in the joint names of himself and daughter.

About the 1st of April, 1891, after the marriage of Mrs. Lemont, Mrs. Wiegand determined to purchase a house in Jersey City and move there, and to that end wrote her sister, Mrs. Skillman. to make a contract to purchase a certain house and to procure from her father the down money necessary for that purpose; and at Mrs. Skillman’s request testator went to the bank on the 8th of April and drew $150, and handed $100 of it to Mrs. Skillman for the purpose of securing the contract for the house, but upon the express condition that it was to be repaid to him, and it was repaid to him by Mrs. Skillman, who procured it from the defendant. This was the last money drawn from the account until September 28th, 1891. The semi-annuál dividend of interest was credited as of the 1st of July, and by the draft on September 28th, 1891, interest from July 1st was lost.

The testator was apparently taken sick and obliged to take to his bed only a few days before he died. One of the complainant’s witnesses saw him the day before he died, and found him 'hardly able to speak. Beyond that evidence none is given as to his physical and mental condition during the last few days of his life, nor as to how the pass-book came into the possession and under the immediate control of the defendant, nor what induced her to go to the bank and draw the money at the time she did. No evidence was given iii support of the allegation of the answer that defendant drew the money by the request of her father.

The executor, after the funeral, ascertained that the money had been drawn the day before the testator’s death, and then, with a witness, called on Mrs. Wiegand and demanded the money. She declined to give it. He then spoke of the bill for the burial lot and the funeral expenses which he had paid, and she intimated that they would be paid, but declined to give him the money. Neither in that conversation nor in any other did she at any time state on what ground her claim to keep the money rested, but stated as a reason why she would not give it up that she was unwilling it should go into the hands of the complainant and his wife. Matilda King left Mrs. Wiegand voluntarily shortly after her father’s death, and • went to the Skillmans to live.

Evidence was given of declarations by the testator, made a few weeks before he died, that “ they ” had compelled him to make a will, but that Lizzie “would down them all.” The evidence fails to indicate that the least pressure was brought to bear upon the testator to make the will. On the contrary, it seems to have been strictly in accordance with both his wishes and duty.

The question in this class of cases is whether it was the intention of the creator of the joint estate to give to his joint tenant the right of survivorship, or whether the title was so vested in him in trust for the creator. Where the creator stands in the relation of parent toward the joint tenant, the usual presumption is that the arrangement and intention were that the parent was to have the sole use for his life, with right of survivorship, and the child was to have the right of survivorship. Such arrangements have been quite common in England in dealing with stocks of various kinds, where they have been used to evade legacy duty and probate fees, but in the absence of the parental relation the presumption is that the donee of the joint tenancy holds as trustee for the creator. In all cases, however, of personalty the courts look at the circumstances and declarations of the creator of the joint estate, made both before and after its creation, in order to determine whether it was made in trust for the creator or as a gift with right of survivorship.

The authorities show that the courts are less disposed to infer a gift from the deposit of money in the joint names of the owner and another, than in the case of vesting stocks in such joint names. The reason of this is obvious. Stock of any kind is an investment, and the certificate is not the evidence of a debt, but of an interest in some business enterprise, and there is little or no room for the motive of convenience. On the other hand, and especially in view of the well-known practice of savings banks to pay money only upon the presentation by the depositor in person of his or her pass-book, the motive of convenience in drawing money without personal attendance becomes at once prominent and a not uncommon purpose in the placing of moneys in bank to joint account. The effect of the creation of such joint account is, in such eases, simply to make the one party the agent of the other to draw the money; and in ease of a savings bank the proprietor of the fund, by retaining the pass-book in his possession, retains complete control of it.

The competency of the declarations of the creator of the joint estate, made both before and after its creation' to show his or her intention, is sustained by the following authorities: George v. Howard, 7 Price 265; Rider v. Kidder, 10 Ves. 360; Kilpin v. Lamb, 1 Myl. & K. 520; Garrick v. Taylor, 29 Rear. 79; 7 Jur. (N. S.) 116; 30 L. J. Ch. 211; and, on appeal, 4 De G., F. & J. 159; 7 Jur. (N. S.) 1174; 31 L. J. Ch. 68; Whitney v. Wheeler, 116 Mass. 490.

In Kilpin v. Lamb, 1 Myl. & K. 520 (1838), a wealthy gentleman named Widmore had an illegitimate but acknowledged daughter, who had married a Mr. Kilpin and bad four children, who were the acknowledged grandchildren of Mr. Widmore. On August 25th, 1820, he transferred £900 per annum, long annuities, into the joint names of himself, Mr. and Mrs. Kilpin and their son, James (W.) Kilpin. At the same time he made the following entry in his memorandum-book or journal, page 525 :

“ Transfer of £900 per annum, long annuity, by Messrs. Ladbroke & Co’., from my name to myself, Mr. Kilpin, Mrs. Kilpin, and James Kilpin, made August 25th. For my use during my life, then to Mr. Kilpin and Mrs. Kilpin, for the benefit of their children equally at the age of twenty-one.
“ L. A. £900 per annum. I think James should now relinquish and give up all interest in the above. January 18th, 1821.
“ James is amply provided for under my will; he will not have occasion beyond that. January 21.
Equitable division of £900 per annum, long annuity; one-third for life to Mr. and Mrs. Kilpin or the survivor; then to become the property of W. H. Kilpin and O. J. Kilpin, it being allowed to James Widmore Kilpin to take £1,000 out and out. January 12th, 1822.”

In addition to these written declarations, divers verbal declarations, made by Widmore after the creation of the joint estate, as to these long annuities, and also as to other stocks involved in the suit of Kilpin v. Kilpin, heard at the samé time, were proven and read in evidence. Between this- last date and July 26th, 1.825, 'Mr. Kilpin, the husband, and James W. Kilpin, died, leaving James Widmore, the donor, and Mrs. Kilpin, surviving. On that date, July 26th, 1825, Widmore made a codicil to his will, by which he bequeathed the long annuities to his executors, in trust for his two grandchildren, William and James Kilpin, the complainants, declaring that he had placed the stock in the joint names of himself and Mr. and Mrs. Kilpin and James W. -Kilpin, in trust, and directed his executors to obtain possession of the stock. The daughter survived her father and claimed the stock as survivor. She died pending suit, and her executor, Lamb, was made defendant in her stead. The decree was in favor of the children, the complainants, first by Sir John Leach, master of the rolls, and afterwards by Lord Brougham, on appeal, and the declarations of the testator, both orál and written, were relied on by complainants. The case, in its material aspects, is much like that under consideration.

In Garrick v. Taylor, supra (1861), the question was as to the right of survivorship to forty shares of bank stock, which had been transferred by a Mrs. Grazebrook into the joint names of herself and a Miss Leigh. Evidence was admitted of the declarations of Mrs. Grazebrook as to her object in so transferring the shares, and it was held, first by the master of the rolls and afterwards, on appeal, by the lord-justices (Knight Bruce dubiiante), that the survivors were entitled. The decision was based upon the effect of the parol declarations of Mrs. Graze-brook. Miss Leigh had lived many years with and been supported by Mrs. Grazebrook, and called her “ aunt.”

In the more recent case of Fowkes v. Pascoe, L. R. 10 Ch. App. 343 (1875), a rich lady who had large sums of stock standing in her name, and who had no children or descendants, and centered her affection upon the children of her deceased son’s widow by a second marriage, purchased from time to time small amounts of stock and had it transferred to the joint names of herself and a son of her daughter-in-law, who had lived with her and was supported by her. Sir George Jessel, as master of the rolls, held him as a trustee for her executors, but the lord-justices gave him the stock upon inferences drawn from the circumstances of the case.

In Marshall v. Crutwell, L. R. 20 Eq. Cas. 328 (1875), there was a bank account opened by a husband in the joint names of himself and wife, and so kept by successive deposits and drafts. The balance due upon -it at his death she claimed as his survivor. Sir George Jessel, as master of the rolls, gave it to the husband’s estate upon the inference from the evidence that it was kept in their joint names for convenience in drawing money. He states the law thus: “ The mere circumstance that the name of a child or a wife is inserted on the occasion of a purchase of stock is not sufficient to rebut a resulting trust in favor of the purchaser, if the surrounding circumstances lead to the conclusion that a trust was intended. Although a purchase in the name of a wife or a child, if altogether unexplained, will be deemed á gift, yet you may take surrounding circumstances into consideration so as to say that it is a trust, not a gift. So, in the case of a stranger, you may take surrounding circumstances into consideration, so as to say that a purchase in his name is a gift, not a trust.”

In In re Gadbury, 32 L. J. Ch. 780 (1863), government stocks were purchased with the money of a husband in the joint names of the husband and wife. Before his death a portion of it was sold out by the joint act of the husband and wife, and the money taken by the wife and in her possession in the house at the time of his death. It was held that the money so drawn belonged to the husband’s estate, but that the stock remaining belonged to her by survivorship.

In our own state we have the ease of Schick v. Grote, 15 Stew. Eq. 352, decided by Chancellor Runyon in the prerogative court. There a husband deposited moneys in a savings bank to the credit of himself and wife, who survived him and took out letters of administration on his estate. The question was whether she should be charged as administratrix, with the money standing at his death to their joint account. The learned chancellor, affirming the orphans court, held that she must be so charged, basing his judgment on the ground that the circumstances showed that the case in its inception was one of trust for himself and not of gift to his wife. He further found that the evidence failed to show with sufficient clearness that there was any subsequent change of the equitable title by a gift from the husband to the wife. There was in that case, as here, declarations by the husband, sworn to by a witness, which tended to show a subsequent gift. The learned chancellor cites Brown v. Brown, 23 Barb. 565, and Marshall v. Crutwell, supra, and both are strongly in point. In the former the court found that it was probably the desire of the husband that his wife should have the fund as his survivor, but that he had not taken the proper means to perfect the gift.

To the same effect are Taylor v. Henry, 48 Md. 550; 30 Am. Rep. 486; and The Matter of Bolin, 136 N. Y. 177; and see Thornt. Gifts § 335. Other authorities are cited in 31 Am. Encycl. L. 730.

The evidence in this case shows clearly that the joint account was opened and maintained by the testator solely for convenience, and that it was not at any time prior to May 1st, 1891, the intention of the testator to make a gift of the fund to the defendant. The testator lived with defendant from May to the date of his death, and upon his death-bed was under her complete control, so that she had ample opportunity to obtain possession of the pass-book without his consent. By her answer she fixed the date of the actual tradition by her father to her of the pass-book, and direction to draw and keep the fund, on the day before his death. No proof was offered of such tradition or direction to draw the money, though her husband was living with her and was an available witness. Moreover, when called upon for the money by the complainant she did not put herself upon the ground of a recent gift of the money.

Reliance is placed for proof of the intention to give upon certain declarations made by testator a few weeks before his death. Applying to these declarations the rules adopted in the cases last above cited, and by the court of errors and appeals in Smith v. Burnet, 8 Stew. Eq. 314 (at p. 333), I come to the conclusion that they are insufficient to prove a gift. They were proven by the husband of the defendant and a nephew of the testator, John King, and his housekeeper, Miss Closs. They amount to no more than this, that the house devised was enough to support Matilda, and also that the defendant would “ down them all,” or beat them all.” There is no proof of any declaration of gift to the defendant or in her presence, nor of any delivery of the pass-book, which, as we have seen, was in his hands up to the date of the withdrawal of the money.

No question was raised as to the jurisdiction of this court. Counsel no doubt relied upon the fact that a trust and accounting were involved.

I will advise a decree that the defendant pay to the complainant the sum of $2,776.99, with interest from the 28th of September, 1891. Complainant is entitled to costs.