Pidcock v. Swift

• Decision Date: 05 September 1893
• Citation: 27 A. 470,51 N.J.E. 405
• Parties: PIDCOCK v. SWIFT et al.
• Court: New Jersey Court of Chancery

27 A. 470

51 N.J.E. 405

PIDCOCK

v. SWIFT et al.

Court of Chancery of New Jersey.

Sept. 5, 1893.

(Syllabus by the Court.)

Creditors' bill by James N. Pidcock against Edwin C. Swift and others. Heard on pleadings and proofs in open court. Decree for complainant.

Louis Hood and Theodore Runyon, for complainant.

Elwood C. Harris, for James E. Bathgate, Jr. John R. Emery and Frederick W. Stevens, for Edwin C. Swift.

VAN FLEET, V. C. Two questions are at issue in this case: First, has the complainant a right, as a judgment creditor, to maintain this action? and, second, were four conveyances made by the complainant's judgment debtors, in April, 1885, to the defendant Edwin C. Swift, executed under such circumstances as entitled a judgment creditor of the grantors to any relief against the deeds? That the complainant was at one time a judgment creditor of the persons who made the deeds which are assailed is un disputed. He recovered a judgment in the supreme court of this state on the 29th day of June, 1885, against James E. Bathgate, James E. Bathgate, Jr., and John B. Bathgate, for a sum slightly in excess of $9,000. Nor is it disputed that the complainant assigned this judgment to the defendant Edwin C. Swift on the 16th day of April, 1886; nor can it be successfully disputed that the complainant was induced to assign his judgment by fraudulent representations, if it be true that the deeds in question are subject to successful attack by the creditors of the grantors on any ground. The consideration given for the assignment was 10 per cent in cash of the amount of the judgment, and the promissory note of James E. Bathgate, Jr., for 15 per cent more. The sum paid in cash was paid out of money furnished by Mr. Swift. Nothing has been paid on the note to James E. Bathgate, Jr., so that the fact is, as matters now stand, the complainant has thus far received only one-tenth of the actual amount of his debt. The negotiations resulting in the assignment of the judgment were conducted, on behalf of Mr. Swift, entirely by James E. Bathgate, Jr., who hereafter will, for brevity, be called James. Neither Mr. Swift nor the complainant ever uttered a single word to the other on the subject. It is undisputed that James, to induce the complainant to accept the consideration offered, and assign his judgment, represented that he and the other judgment debtors had no assets, "were completely snowed under," and that, in order to raise money enough to pay 10 cents on the dollar of their indebtedness, they had to mortgage their future. The complainant alleges that these representations were false, and that, instead of its being true that his judgment debtors were without assets at the time these representations were made, the truth is that Mr. Swift then held a large amount of property, which they had made over to him by deeds, and transfer absolutely on their face, but under a secret arrangement by which a part of the property, or its value, should ultimately be restored to them, or to one of them. He therefore claims that he is not bound by the assignment, but has a clear right to relief in equity, both against the fraud which was committed when he was induced to assign his judgment, and also that which was perpetrated by his debtors in attempting to conceal their property.

To the case thus made Mr. Swift answers that, even if it be assumed that everything alleged by the complainant has been satisfactorily proved, still, according to a well-settled principle, it is clear that he is not entitled to relief. The reason assigned in support of this contention is that the complainant, prior to the institution of this suit, neither returned, nor offered to return, the consideration which he had received for the assignment of his judgment. This is true. He neither returned, nor offered to return, the consideration. All that he has done in that regard is to submit himself, by his bill, to the direction of the court. He says that he is ready either to return the money, or credit it on his judgment, as the court may direct. There can be no doubt that the general rule, both at law and in equity, is that the party who would recover back, on the ground of fraud, what he has parted with under the contract, must, before bringing suit, offer to return whatever he has received under the contract, and which he is able to return. This rule has been repeatedly enforced by the courts of this state. Byard v. Holmes, 33 N. J. Law, 120; Guild v. Parker, 43 N. J. Law, 430; Dough ten v. Association, 41 N. J. Eq. 556, 7 Atl. Rep. 479. But this, like other rules of justice, must be so applied, in the practical administration of justice, as shall best subserve, in each particular case, the undoing of wrong and the vindication of the right. In Guild v. Parker, just cited, the material facts, briefly stated, were: The directors of the New Jersey Mutual Life Insurance Company, in violation of their duty, passed over to the testatrix of the plaintiff in error mortgages belonging to the corporation of the value of $15,000, in exchange for stock of the corporation of the par value of $10,000. On the delivery of the mortgages, the stock certificates were surrendered. The testatrix of the plaintiff in error acquired her stock as the legatee of her husband, who, in his lifetime, had been a director of the corporation, and a promoter of the scheme under which mortgages were exchanged for stock. The corporation was subsequently adjudged to be insolvent, and a receiver was appointed to wind it up, who, without offering to return her stock, brought an action at law against the testatrix of the plaintiff in error for the value of the mortgages passed over to her, and had a recovery. A writ of error was then brought, and one of the errors assigned was that the receiver could not maintain an action to recover the value of the mortgages until he had first rescinded the contract under which they were delivered, and that he could only do that by returning the stock, or offering to do so. The court, however, repudiated this view, declaring that the rule invoked by the plaintiff in error did not apply to a suit by a trustee to recover property which had been wrongfully obtained from his cestui que trust, for, in the language of the court, "otherwise, the inability to make a tender of what was not within the possession of the cestui que trust would often prevent an action to recover property misappropriated by the trustee. Besides, the stock itself, immediately upon the rescission, becomes hers again, and she can pursue it into the hands of those claiming to own it" This decision, while not directly on the point in dispute here, must, nevertheless, I think, be regarded as pertinent to this extent in this controversy. It shows that the courts, in dealing with the principle under consideration, so apply it as to do justice, and not defeat it. Now, if it be true, as the complainant contends, that the consideration he received for the assignment of his judgment proceeded from James, and was in truth James' money, according to the real understanding between Mr. Swift and James, and that James procured the assignment to be made to Mr. Swift for his own benefit, and not for the benefit of Mr. Swift, and if it also be true that when James induced the complainant to assign his judgment, by representing that he and the other judgment debtors were without means, while the truth was that Mr. Swift held a large amount of property for them under a secret trust, it appears to me to be entirely clear that neither Mr. Swift nor James occupy a position where either has a right to demand that the complainant shall be required to repudiate and restore before he will be permitted to maintain an action to obtain redress against their wrong. If the consideration proceeded from James, it is certain Mr. Swift has no right to its restoration. And why should it be restored to James? On what principle of justice or honesty can he demand its restoration? He has not paid his debt. The money he passed over was only one-tenth of the sum he justly owed. True, he did not pass it over as a payment, but, if the money was in fact his, and he concealed that fact, and also falsely represented that he and the other judgment debtors were in a state of absolute poverty, then he passed the money over in consummation of a fraud. It was the means by which he made his fraud effectual, and he has no right, therefore, to the restoration of the money; for no rule of equity jurisprudence is better settled, or rests on higher considerations of justice and morality, than that which declares that no man can take advantage of his own fraud, nor make his fraud the foundation of a right in his own favor. In view of this principle, the utmost effect that can be given to the delivery of the money by James to the complainant is to treat it as a payment pro tanto on the judgment. The question whether or not the assignment of the judgment was made for the benefit of James, on a consideration which he in fact paid, can be much more conveniently and satisfactorily discussed after it has been decided whether the deeds assailed are valid or not, as absolute conveyances against the creditors of the grantors, than at this time. For this reason the question involving the validity of the deeds will be considered first.

For several years prior to the date of the deeds in question the complainant's judgment debtors, consisting of a father, James E. Bathgate, and his two sons, John B. Bathgate and James E. Bathgate, Jr., had carried on the business of butchers as copartners, under the name of James E. Bathgate & Sons. James was also, at the date of the deeds, a member of a firm composed of himself, Henry N. Swift, and Edwin C. Swift, engaged in the business of selling Chicago dressed beef on commission in the city of Newark, under the name of the Newark Beef Company. This latter firm was formed on the 1st day of August, 1883. James held a...