Opinion
02-03-1903
CONGLETON v. SCHREIHOFER et al.
W. T. Day and J. E. Howell, for complainant. E. S. Black, for defendants.
Bill by Jerome T. Congleton, as trustee, against Jacob Schreihofer and another, to set aside a conveyance as an alleged preference by a bankrupt. Bill dismissed.
W. T. Day and J. E. Howell, for complainant.
E. S. Black, for defendants.
EMERY, V. C. Complainant, a trustee in bankruptcy of Jacob Schreihofer duly adjudicated a bankrupt by the United States District Court, files this bill to set aside a conveyance made by the bankrupt to defendant Elizabeth Steigert. The deed was dated and acknowledged August 8, 1900, and recorded August 9, 1900. The petition in bankruptcy was filed August 17, 1900, and the date of adjudication of bankruptcy was September 17, 1900. Under the United States bankrupt act of 1898, § 70 [U. S. Comp. St. 1901. p. 3451], the trustee is, inter alia, "vested by operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt, to all * * * (4) property transferred by him in fraud of his creditors; (5) property which prior to the filing of the petition he could by any means have transferred, or which might have been levied upon and sold under judicial process against him. * * *" Section 60, par. "b" [U. S. Comp. St. 1901, p. 3445], also provides "that if a bankrupt shall have given a preference within four months before the filing of the petition, or after the filing of the petition and before the adjudication, and the person receiving it, or to be benefited thereby, or his agent acting thereon, shall have had reasonable cause to believe that it was intended thereby togive a preference, it shall be voidable by the trustee, and he may recover the property or its value from such person." Section 67, par. "e" [IT. S. Comp. St. 1901, p. 3449], also provides that the conveyances of the bankrupt's property made within four months prior to filing the petition, "with the intent and purpose on his part to hinder, delay or defraud his creditors, or any of them, shall be null and void as against the creditors of such debtor, except as to purchasers in good faith and for a present consideration, and all property of the debtor conveyed," etc., "as aforesaid shall * * * be and remain a part of the assets and estate of the bankrupt and shall pass to his said trustee, whose duty it shall be to recover and claim the same by legal proceedings or otherwise for the benefit of creditors." Conveyances of property made by the debtor within four months prior to the filing of the petition against him, and while insolvent, which are void against creditors by the law of the state where the property is situate, are also declared void under the same section of the bankrupt act. and the property conveyed passes to the assignee, and may be reclaimed and recovered by him for the benefit of the creditors of the bankrupt.
The bill alleges (1) that the deed in question was without consideration and fraudulent as against creditors; and (2) that the consideration, if it existed, was that of an existing debt, and the conveyance was a preference avoided by the bankrupt act, because the bankrupt was then insolvent, and the grantee had reasonable cause to believe that the deed was intended by the bankrupt to give a preference. Upon the hearing it was also claimed (3) that the deed was not delivered to or accepted by the grantee until after the filing of the petition in bankruptcy, and it was, therefore, under the act, ineffective against the trustee's title.
As to the first claim—that the deed was intended to defraud creditors—the evidence clearly establishes that the bankrupt owed Mrs. Steigert, his sister, $500 for money borrowed some years before, upon which he had been paying the interest, and that the deed in question was for the purpose of paying the note, which was surrendered upon the receipt of the deed by the grantee. The property conveyed is not worth the amount of the note, $250 being the only value given in the evidence. At the time of the conveyance the debtor was insolvent, and, as I conclude from the evidence, intended a preference by the conveyance, but under our laws such preference is not a fraud upon creditors. Complainant's counsel contend that such conveyance by a bankrupt by way of preference is itself a fraud upon creditors, under the bankrupt law, and can be avoided by the trustee, under the sixty-seventh section [U. S. Comp. St. 1901, p. 3449], because Mrs. Steigert was not a purchaser in good faith and for a present consideration. I cannot give my assent to this construction. The language used in this section is the same used in the statute of frauds, and I take the section to be intended to reach transactions of the same character, and to give to the trustee the same right which creditors had under that statute to set aside fraudulent conveyances. Its language cannot be construed as intended to make acts which were not previously fraudulent against creditors frauds on creditors under the bankrupt act. Preferences fraudulent under the act are described in the sixtieth section [U. S. Comp. St. 1901, p. 3445], and remedies therefor are provided. These sections would have been unnecessary if every conveyance for a precedent debt was a fraud upon creditors under the act. No authority has been cited by counsel for this contention as to the construction of the act.
Second. The trustee's right to recover the property from the creditor, Mrs. Steigert, as an unlawful preference, depends upon the proof that at the time of the conveyance the debtor was insolvent, and the creditor, or her agent, "had reasonable cause to believe that it was intended thereby to give a preference." The proofs sufficiently establish, as I have said, that at the time of the transfer the debtor was insolvent, and the dispute on this branch of the case relates to Mrs. Steigert's having reasonable cause to believe that a preference was intended. The only evidence on this question is that of the debtor and the creditor, the two witnesses called by the trustee. Both of these witnesses had been previously examined under oath in the bankruptcy proceedings in regard to the conveyance, and the evidence then given by both witnesses is offered in addition to the evidence of both regularly taken on this hearing. The evidence in the bankruptcy proceedings was taken in October, 1900, shortly after the conveyance, and in some respects differs from the evidence on this hearing, which occurred nearly a year later. The evidence of Mrs. Steigert, taken in the bankruptcy proceedings, relating to the transfer, being offered entire as an admission against her. Is also admissible, as having the effect of evidence in her favor, and as evidence on this hearing of facts there testified to by her bearing on the present issues. Best, Evid. sec. 520; 1 Jones, Evid. § 295. She is a woman of little or no business experience; seems to have had no business transactions whatever, except with relatives (her brother and daughter), to whom she has loaned the comparatively small sum received from her husband's estate. Her memory at the present hearing was defective, especially in the matter of dates, which are of importance; and, as to her evidence, I am inclined to think that, where her evidence taken here differs materially from the evidence taken in the bankruptcy proceedings, the latter is more reliable. I see no reason whatever to doubt her honesty in either account.
The evidence of the debtor, taken on bankruptcy, stands on a different footing as to its admissibility against Mrs. Steigert. His statements there made are not admissible against her as evidence of the truth of the statements there made, if they contradict his present statements, but only for the purpose of affecting the reliability of the evidence here given by him. 2 Jones, Evid. § 861, and cases cited in note 9. The distinction is of importance in the decision of the case because the debtor's testimony given here as to the circumstances of giving the deed differed in some respects (claimed by counsel to be material) from the evidence given in the bankruptcy proceedings, and upon the arguments the statements in the bankruptcy proceedings were treated as evidence of the truth of the facts then stated, and not as merely affecting the credibility of the witness' present statement.
Taking this view of the legal relation of the evidence given before me, and the evidence given in the bankruptcy proceedings by the bankrupt and the creditor, I conclude that the situation disclosed by the entire legal proofs against Mrs. Steigert upon the point now under investigation, viz., the circumstances of giving the deed, and her knowledge or cause to believe that it was intended as a preference, is substantially as follows: Mrs. Steigert, upon the death of her husband, eight years ago, came into possession of a small sum of money, $500 of which she loaned to her brother, the bankrupt, about two years after her husband's death. He was then carrying on business as a butcher in Newark. The loan was to be paid in six months, and a note for that period was given, as it was not intended by Mrs. Steigert as a permanent loan. It was not paid at maturity, and a new note for another six months was given. This note was also renewed by a similar note, and the same course as to renewals was continued down to 1896, when the last note for six months was given, and this was the note surrendered on receiving the deed. No renewal was given after 1896, because the brother informed his sister that it was not necessary, and she accepted his statement. Interest was paid on the notes, usually once a year, and when the sister asked for it. For some time previous to July, 1900, when she received her last interest, Mrs. Steigert, on getting her interest from her brother, urged him to pay the money; but the brother did not do so, saying that he did not have the money then. At this time he owned real estate in Newark, one of the places in which he did business, and other real estate, worth, in all, from $7,000 to $9,000 (or $1,000 to $3,000 above the mortgages), and also conducted a business in the market. The sister's urgency from time to time to pay the money borrowed was not due to any apprehension on her part of his then or immediate insolvency, but to the fact that the loan had run so long, and that she wanted the money to lend to her daughter, who had already some of her money on mortgage. She urged him to sell some property and give her the money. In July, 1900, when she came for her interest, she again urged her brother, as she said in the evidence in bankruptcy, "to give me the money, or give me something that I can stand by." She says she did this because he had not given her any note for the "last couple of years." The brother then said, "I will give you the deed for my lots in the rear"; and she says, "Of course, I was then satisfied." The debtor owned property in Newark running from Eighteenth street to Nineteenth street, and the "rear lots" referred to were unimproved property fronting on Nineteenth street On the Eighteenth street front, buildings were erected; and the whole property was, to some extent, used together, by means of the rear entrance on Nineteenth street. Nothing appears to have been said at this time about the date for conveying the property, and no further conversation took place in reference to the conveyance until after the deed was executed by the bankrupt (August 8, 1900), and left by him for record at the register's office. The deed was executed at the same time that he made several other conveyances and transfers, comprising substantially all his property; and he then stopped the business of marketing, and it was continued by his sons, to whom he transferred it, in the same places where he had transacted business. The debtor evidently intended the conveyance as a preference to his sister, but he also intended it, I think, to carry out his promise made to her in July to convey the rear lots to her for her debt. After the conveyance (the exact time is in dispute, and will be hereafter considered), the sister visited her brother's family in Newark, and while there her brother came home; and he then told her that be had made the deed to her, and that it was at the register's office, and she could get it in about two weeks, or in about three or four weeks. Both witnesses give both sets of dates. He told her to bring over the note when she came to get the deed. She came to Newark subsequently (about October 10th, and after the adjudication of bankruptcy, is the date which I would fix upon the entire evidence), and obtained the deed herself from the register's office. She then at once delivered the note to her brother, who had accompanied her to the door of the office, and who had given her a card to receive the deed. At no time, up to the delivery of the deed, did she have any conversation with her brother about his debts to others or about his financial condition, nor did she know that he had stopped business. This is her statement and her brother's, and, aside from the fact that there is no evidence impeaching the statement, I think the whole course of the brother's conduct indicated that up to the time of recording the deed he didnot give his sister any information about his failing circumstances. He had apparently taken advantage of her inexperience to get from her, and continue for years, at the risk of his business, the original loan, which was to have been repaid in a short time; and, in order to continue the loan after her repeated requests to pay it, he would have been more likely to conceal than to disclose his business debts.
The statement principally relied on by complainant as evidence of Mrs. Steigert's personal knowledge of the debtor's insolvency at the time the deed was received by her is the debtor's statement in the bankruptcy proceedings that he told her "she had better secure herself, and take this deed for her note." Whether this was in July, when he paid the interest, or at the first interview after the deed was executed, is not clear from the debtor's statement, but this statement was not made by the bankrupt when examined on this hearing; and, as it was denied by Mrs. Steigert, the statement of the debtor in the bankruptcy proceedings cannot be now considered against her as evidence given here, or as evidence of the truth of the statement. Nor does it, in my judgment, amount to such a statement by the debtor in reference to his financial condition as to charge her with reasonable cause to believe that he was then insolvent. At the furthest, it could only give rise to a suspicion of insolvency, and suspicion is not reasonable cause for belief.
Complainant's counsel further claim that, even if Mrs. Steigert had no personal knowledge, the knowledge of the debtor was in this case chargeable to her, because he was her agent in the execution and delivery of the deed, and his knowledge is chargeable to her. The facts proved do not establish an agency of the debtor to this extent. Mrs. Steigert, in arranging for the deed at the conversation in July, acted for herself; and she acted for herself in the interview which took place after the deed was executed and left for record, when she was informed that the deed had been executed and left for record for her. It was at this interview that the arrangement to accept the deed which had been executed, and to deliver the note therefor, was made. In this transaction Mrs. Steigert acted for herself, and the debtor was not her agent; and his knowledge of his own insolvency, previous to or up to the time of her agreement to accept the deed which had been left for record, is not chargeable to her.
Complainant claims that, even if Mrs. Steigert had no actual knowledge or information that a preference was intended, the circumstances connected with the transfer were unusual, and were such as put Mrs. Steigert upon inquiry as to her brother's financial condition, and that, having failed to make such inquiry, she is therefore chargeable with notice of insolvency. These circum stances are that she agreed to take and did take the deed for the land without any examination of it by herself or counsel to see what it conveyed, or whether the title was good; that she does not know how many lots it conveyed, or their value, or whether it was incumbered. She left everything to her brother, she said, and did not ask or inquire into anything. The deed does not, in fact, convey the entire lots on Nineteenth street, but only the front of the lots. The bankrupt's property ran through from Eighteenth to Nineteenth streets, and the Eighteenth street front had been built up, while the Nineteenth street front—100 feet or a little more—was unimproved. In this situation of the property, by the "rear lots," which Mrs. Steigert agreed to accept, she understood, I think, the lots on Nineteenth street, running to the usual depth of the city lots there—about 100 feet; and it is quite probable that in July, when he promised to convey the "rear lots" to his sister, the bankrupt intended to convey lots to the usual depth. But in making his transfers of property on August 8th he intended, as he now says, to convey to one Hauser (another creditor) the property from the Eighteenth street front through to within about 20 feet, or less, of the Nineteenth street line. By a mistake of the scrivener the deed to Hauser conveyed lots 100 feet deep, leaving about 80 feet of the rear of the Nineteenth street lots, which were unconveyed, and this became vested in the trustee. This mistake in Hauser's deed was not known to the bankrupt until after the adjudication in bankruptcy. He does not seem to have informed his sister that her deed conveyed only the front of the Nineteenth street lots, nor does she seem to have been informed of it until after the receipt of the deed and the examination in bankruptcy. The circumstances show sufficiently, I think, that Mrs. Steigert relied entirely on her brother to carry out his agreement to transfer the rear lots to her, and supposed he was doing so fairly and according to the spirit of his promise. This confidence the bankrupt abused by conveying only a portion of the rear lots, and without informing her of this when he secured the delivery of his note. But her confidence in her brother was not unreasonable; nor, under the circumstances, do I think she was put on further inquiry. She knew what the "rear lots" were, in the ordinary meaning of the words, which she was entitled to accept; and her failure to make those inquiries about the title or incumbrances or descriptions which might be usual in case of purchase from a stranger cannot be said in this case to be due to anything else than the confidence she placed in her brother that he was carrying out his promise in good faith. So far, therefore, as complainant's claim depends upon the grantee's belief, or cause of belief, that the debtor was insolvent, and a preference was intended, Iconclude that no case has been made out by the proofs.
The third point in the case is whether the deed was delivered to Mrs. Steigert before the filing of the petition in bankruptcy, August 17th. She did not actually receive it from the register's office until about October 10th, as I conclude from an examination of all the evidence on this point; but she had previously been informed by her brother that the deed was there for her, and had arranged to come over for it, and bring the note for delivery when she received the deed from the register. The complainant's claim is that the delivery of the deed took place when Mrs. Steigert actually received it from the register, and that it certainly did not take place before her agreement to accept the deed, when informed that it was at the office. This interview was, it is claimed, after the filing of the petition, and the actual delivery was after the adjudication. In either event, and if the delivery did not, in law, take place before the filing of the petition, the transfer, being a preference, is avoided by the bankrupt act (section 70 (5) [U. S. Comp. St. 1901, p. 3451] The question, therefore, is when, upon the facts of the case, did the delivery of the deed, in law, take place—upon its delivery for registry, upon Mrs. Steiger's acceptance when informed that it was at the office for her, or only upon its actual delivery to her? Upon the question of the effect of the delivery by the grantor of a deed at the register's office for registry as being a delivery to the grantee, the Supreme Court held in Jones v. Swayze, 42 N.J.Law, 279, 283 (1880), that where, upon the facts of the case, it appeared that a chattel mortgage was filed, with the knowledge and consent of the mortgagor, for the benefit of the mortgagee, in pursuance of a previous promise made by the mortgagor to secure the mortgagee, the delivery of the mortgage to the mortgagee will be held to have taken place upon the filing of the mortgage for registry, although the mortgagee did not know that it had been executed or filed until after a subsequent mortgage upon the property had been executed. In reference to the delivery of deeds, all courts seem to agree upon the fundamental principle that the question of delivery is one of fact, and resolves itself into a question of intention. Courts, however, differ in regard to the presumption or inference as to this intention to be primarily drawn from particular facts or circumstances connected with the delivery, and especially as to the inference to be drawn from the delivery of the deed by the grantor for registry without the knowledge of the grantee. Our Supreme Court, after a critical examination of the decisions, disapproved the rule followed by some courts—that in such cases an actual acceptance of the deed by the grantee, by words or acts indicating his assent, after knowledge that it has been left for registry, is necessary in order to justify the conclusion of a delivery, and held, with the English and other courts, that where a deed is for the benefit of the grantee, and by the delivery to a third person (the register or other), not the agent of the grantee, the grantor parts with all control over the deed, a delivery will be presumed to take place from the instant of the delivery to such third person, and, as between grantor and grantee, this presumption continues until it is rebutted by proof of refusal to accept. The legal theory is that the law will presume, if nothing appears to the contrary, that a man accepts what is for his benefit. And in reference to the facts authorizing the inference of benefit by the deed, Jones v. Swayze holds that, where it is shown that the deed in question is a mortgage executed in pursuance of a previous general promise made by the mortgagor to the mortgagee to secure the mortgagee, the mortgage will be presumed to be for the benefit of the mortgagee. This rule declared in Jones v. Swayze has never been questioned and has been recently approved in this court. Schlicher v. Keeler, 61 N.J.Eq. 394, 396, 48 Atl. 393 (Reed, V. C, 1901). Applying this rule to the present case, it would seem that the delivery of the deed to Mrs. Steigert must be taken as effectual from August 9th, when it was left for record. Upon being informed of the delivery, she had the right to refuse to accept, but, as the evidence shows, she did not refuse, but, on the contrary, assented to the delivery and execution of the deed. This assent was, of course, subject to the risk of having the deed avoided by the trustee, under the bankrupt act, if at the time of the delivery for record she had reasonable cause to believe that the grantor was insolvent and that a preference was intended; but under the rule as to the time delivery takes effect, laid down in Jones v. Swayze, as applied to the facts of this case, the title passed on the delivery for record. It should, moreover, be noted that, even if the rule requiring assent or acceptance by the grantee as essential to a delivery and to the transfer of title be held applicable, the conclusion upon the evidence in the cause must be that this assent of the grantee was given before the filing of the petition in bankruptcy. The only evidence in this hearing fixing the time of the first interview between Mrs. Steigert and the bankrupt after the delivery of the deed for record is that of the bankrupt, who says two or three times that he thinks it was three or four days after the deed had been executed. The petition was filed August 17th—eight days after the registry. The debtor's accuracy or reliability in fixing this date is shaken by his statements that the interview was, "maybe," two weeks before he got the note, which date was in October; but the effect of destroying his credibility on this point is to leave the case without any satisfactory evidence on this point, and, as complainant has the burden of proving that the interview was after thefiling of the petition, his case fails. Mrs. Steigert herself cannot fix the date of this interview, and as to whether it was before or after the filing of the petition in bankruptcy, upon all the evidence, I conclude that it has not been shown by the complainant that the petition was filed before her notification and acceptance of the deed.
A decree dismissing the bill will be advised.