Stanley v. Nat'l Union Bank

• Decision Date: 11 June 1889
• Citation: Stanley v. Nat'l Union Bank , 115 N.Y. 122, 22 N.E. 29 (N.Y. 1889)
• Parties: STANLEY v. NATIONAL UNION BANK et al.
• Court: New York Court of Appeals Court of Appeals

115 N.Y. 122

22 N.E. 29

STANLEY

v.NATIONAL UNION BANK et al.¹

Court of Appeals of New York.

June 11, 1889.

Appeal from supreme court, general term, Fourth department.

Hannibal Smith, for appellants.

John C. McCartin and Levi H. Brown, for respondent.

RUGER, C. J.

The plaintiff sought in this action to recover the value of certain personal property alleged to have been wrongfully taken from her by the defendant, and converted to its use. The defendant's answer justified the taking under certain judgments and executions against one O. M. Stanley, upon allegations that the property belonged to the judgment debtor, and had been conveyed by him to the plaintiff in fraud of the rights of his creditors. Upon a trial of the issues, the jury rendered a verdict for the plaintiff, and the judgment entered thereon was affirmed by the general term. This appeal is sought to be supported by the claim that certain circumstances, hereinafter referred to, afforded conclusiveevidence of a fraudulent intent, and that the judgment should therefore be reversed, notwithstanding the verdict of the jury in favor of the plaintiff. The plaintiff made title to the property through an alleged purchase upon an auction sale under a chattel mortgage executed February 7, 1879, by O. M. Stanley to her, she being his wife, to Helen Stanley and Florence Stanley, his daughters, Mrs. Ryder and Mrs. Matteson, sisters of his wife, Mary Weaver, his wife's mother, one George Babbitt, and Mrs. Membry, to secure the payment, one day after date, of certain debts, therein described, owing by him to the several mortgagees, respectively, amounting in the aggregate to upwards of $2,700. This mortgage was duly delivered by the mortgagor, at the time of its execution, to the plaintiff as the assumed agent of the several mortgagees named therein, and was duly filed in the clerk's office of the town where the mortgagor resided on the day of its date. In June, 1879, default having been made in the payment of the debts secured thereby, the mortgagee Babbitt, and the plaintiff, in her own behalf and as the agent of the other mortgagees, caused the property to be taken on the mortgage, and to be advertised for sale at public auction. On June 11, 1879, upon such sale, the plaintiff, as the highest bidder, became the purchaser of that portion of the property involved in this action. By this sale the interest of the mortgagor in the property was extinguished, and the plaintiff became the owner thereof through the execution of the power of sale created by the mortgage. The purchaser thereby became liable to pay the other mortgagees their proportional share of the purchase price of the property, and the mortgage debt was paid to the extent of the sum bid for the property. Since the sale the title of the plaintiff to the mortgaged property has been based upon the purchase thereof by her at a public sale, lawfully conducted, and not upon the mortgage.

The action of the plaintiff in selling the property in behalf of the several mortgagees was never disapproved by them, but, on the contrary, has been ratified and approved by them so far as brought to their knowledge. After the sale she executed and delivered to each of them, respectively, with the exception of Babbitt and Mrs. Membry, her several promissory notes for their proportionate shares of the proceeds of such sale, and the same were accepted and retained by them. The plaintiff also made payments upon several of the notes so given. The property in question consisted of cows, horses, wagons, harnesses, lumber, grain, and farming utensils used in cultivating and carrying on a dairy farm owned by the mortgagor, and which was continued to be owned and occupied by him until June 10, 1879. Previous to that date, upon proceedings duly had upon a judgment recovered by one Hubbard against him, one E. Collins Baker was duly appointed receiver of all the property and effects of said Stanley. Upon that day the receiver took possession of the farm, with Stanley's consent, and on the same day executed a lease thereof to the plaintiff for the term of one year, and delivered the lease and possession of the farm to her. Subsequent to such lease and sale the plaintiff assumed to occupy and carry on the farm and dairy. The milk produced by the cows, the main product of the farm, was delivered at the cheese factory in her name, and she received the proceeds thereof, as well as of other produce of the farm. In all this she was aided and assisted by her husband, and the profits of the business were, to some extent, used in the support of the family.

It will also reflect some light upon the questions determined by the jury if we refer to the situation of the judgment debtor at the time this mortgage was made. Previous to January, 1879, he had for many years apparently been a prosperous farmer, and in the habit of indorsing quite largely for a brother. In January, 1879, his brother became insolvent, and failed, and upon an investigation by O. M. Stanley of his liabilities at that time he found himself, by reason of his liabilities as indorser, insolvent, and unable to meet his obligations. He then owned the property in question and a large amount of real estate comparatively unincumbered. Being unable to pay all his creditors, and threatened with judgments and executions, he resolved to devote his property to the payment of those claims which he considered most meritorious and deserving of preference by him. He thereupon mortgaged his real estate to borrow money and secure debts, and devote its proceeds to the payment and security of debts which he had incurred on behalf of his brother, and gave the chattel mortgage in question to secure the debts mentioned therein. If he honestly owed these debts, and gave the mortgage in good faith with the intention of securing their payment, there was no legal reason why he could not do so. The fact that the several mortgagees were members of his family, or that the transfer to them of this property would necessarily prevent other creditors from reaching it by execution, presented no legal objection to the validity of such transfer. While the circumstances referred to would naturally call for close scrutiny and criticism, for the purpose of discovering whether any scheme to defraud lurked under the form of the transaction, yet if the transfers were made in good faith, for an honest consideration, no rule of law prevented the insolvent debtor from paying one creditor in preference to another, or enabled the unpreferred creditors to take away from those secured a preference honestly received or obtained.

The main contention on the part of the defendants on the trial was that some of the debts included in the mortgage were fictitious and fraudulent. Among others, those of Mary Weaver, his wife, Mrs. Ryder, Mrs. Matteson, and a portion of the debts to the two daughters were alleged to be of that character. If this claim was well founded, it would undoubtedly invalidate to a certain extent the plaintiff's title to the property. A brief history of these claims will dispose of this contention. In 1869, O. M. Stanley, in consideration of money and property of the value of upwards of $4,000, transferred to him by Mary Weaver, covenanted to support her and her daughter, Mary Ann Weaver, during their respective lives. This covenant he performed until the death of Mary Ann, in 1874, and after that time he supported Mary Weaver until the execution of the mortgage in question. Realizing, when compelled to surrender his property in payment of his debts, that he would be unable to perform his contract with Mary Weaver, and after consultations with her, he agreed to secure her this sum of $1,000 as damages for the apprehended breach of his contract, and she agreed to receive that sum therefor. The trial court submitted the question to the jury to determine whether that sum was a reasonable amount to insure a comfortable support to Mary Weaver during her life, and whether the agreement to secure it was entered into between the parties in good faith, and without intent to defraud the creditors of Stanley. The jury found the good faith and honesty of the transaction, and we think the finding was warranted by the evidence. The creditor here had a legal contract, and was lawfully entitled to take precautions to insure its performance. There is no rule of law or ethics which required her to sit idly, by and witness the efforts of contending creditors to appropriate the property of her debtor, without an effort to secure her own lawful demand. The claims of Angeline Stanley, Mrs. Ryder, and Mrs. Matteson, the three sisters of Mary A. Weaver, grew out of the following circumstances: Previous to 1874, Mary Ann Weaver received $1,000 as her share of a brother's estate, and loaned that sum to O. M. Stanley. In 1874, Mary Ann died, leaving her mother and three sisters surviving. During her life-time O. M. Stanley had paid $300 of the $1,000 to her brother George as a gift, at her request, and had paid to Mary Ann Weaver the interest on the balance of the indebtedness. Letters of administration were not issued on Mary Ann's estate, but the next of kin voluntarily settled the same among themselves. In January, 1875, O. M. Stanley gave Mary Weaver, as the next of kin of her daughters's estate, his note for $700, being the balance remaining unpaid upon the loan. During the same year, Mary Weaver, desiring to give to her three daughters, Mrs. Stanley, Mrs. Ryder, and Mrs. Matteson, the amount of O. M. Stanley's obligation to her, upon his promise to pay one-third of such sum to each of her said daughters, destroyed the $700 note; and thereupon he executed and delivered to Mrs. Ryder and Mrs. Matteson his notes for $250 each, and promised to deliver a similar note to his wife,...