PLATT V. SCHREYER.

PLATT, Assignee, etc., v. SCHREYER, Executor and Trustee, etc.1

(Circuit Court, S. D. New York. September 10, 1885.)

BANKRUPTCY-FRAUDULENT CONVEYANCE EVIDENCE.

On review of the facts and evidence, held, that the transfers of the property in this case by the bankrupt to his wife were fraudulent as to his creditors, and should be set aside.

Bill by Assignee to Set Aside Conveyance.

T. M. Tyng, for complainant.

Wm. Lindsay and Frederic R. Coudert, for defendant.

SHIPMAN, J. This is a bill in equity, in behalf of the assignee in bankruptcy of John Schreyer, to set aside the conveyances of Nos. 348 and 350 West Thirty-ninth street, and of Nos. 351, 353, and 355 West Forty-second street, in the city of New York, on the ground that the conveyances were made by the bankrupt to his wife, through the intervention of a third person, in fraud of the bankrupt's existing and subsequent creditors, and also to obtain two mortgages which were nominally made to the said wife, but which are alleged to have been and to be the property of the husband.

John Schreyer was a stair-builder, doing a large business in the city of New York from 1854 to February 15, 1876, when he ceased to work at his trade. Prior to 1871 he seems to have invested his profits in real estate, and on January 30, 1871, owned Nos. 351, 353, 355, West Forty-second street; 17, 19, 21, 23, West One Hundred and Twenty-sixth street; 348, 350, West Thirty-ninth street; 424 West Fortieth street; 135 East Seventy-eighth street; and 73 West One Hundred and Twenty-seventh street, all in the city of New York. The buildings on One Hundred and Twenty-sixth street cost $28,000. The value of the whole property was not proven, but was probably large. The Thirty-ninth and Forty-second street properties have rented for $10,000 or $12,000 per annum.

On said January 30, 1871, said John Schreyer conveyed, through Edward Sharkey, to his wife, Anna Maria Schreyer, all said estate except 135 East Seventy-eighth street and 73 West One Hundred and Twenty-seventh street. No. 135 East Seventy-eighth street was conveyed, through said Sharkey, by said John Schreyer to his said wife on February 11, 1871. On April 23, 1871, said John Schreyer conveyed 73 West One Hundred and Twenty-seventh street to Edward Sharkey, said Sharkey executing an instrument of trust by which he agreed to hold said property in trust for John and Anna Maria Schreyer. Subsequently said Sharkey died, and on May 29, 1873, William H. Leonard was appointed trustee, and was directed by decree of court to convey said lot to Anna Maria Schreyer, which was done July 25, 1873. By these various deeds John Schreyer conveyed

1 See note at end of case.

to his wife all his real estate and all his property, except the machinery, tools, and appliances, and personal property belonging to his stair-building business, the accounts due him, and his balance in bank.

The only testimony in regard to the consideration for these conveyances, and the only oral testimony in regard to the pecuniary condition of John Schreyer, at the time they were made, comes from Schreyer himself. I am not favorably impressed with the truthfulness of his testimony. I disbelieve much of it; but, as he is the only witness, it is difficult to state with positiveness the exact line of demarkation between truth and misrepresentation. He and his wife were married in 1854. His theory is that at the time of their marriage she had $3,000 in money; that Nos. 348 and 350 West Thirtyninth street, then known as Nos. 228 and 230, then belonged to the "Rapalyea Estate," and, as was also the case with other lands of said estate, were leased for a small annual rent to persons who built thereon small frame houses or shanties; that she bought for $1,000 the leasehold interest of the lessees in Nos. 228 and 230, rented a part of them, and thereafter collected the rents, which she loaned to her husband. They lived in a part of No. 228. That she loaned him also, soon after their marriage, $1,500, which he did not pay; that she took two of her husband's workmen to board, and loaned the board money to her husband; that in 1869, the lots Nos. 228 and 230 were sold by the Rapalyea estate to John Schreyer, and that he owed her, in round numbers, at that time

That this money was equitably or legally due from the husband to the wife, and formed the nucleus of all the property which he owned in 1871, and that he thought it right to make over his property to her for the benefit of herself and their children. Nothing was due from the husband to the wife on account of the board money of the workmen who boarded in their family. This money and the rents. were delivered to the husband, who deposited the same with his other moneys in his own name in bank, and used all said deposits alike.

If the statements in regard to the ownership and investment of $2,500 by the wife in 1854 are true, the course of dealing and of life between the parties show that there was no indebtedness in 1871 from husband to wife. The conveyances to her were voluntary and without any substantial pecuniary consideration. On January 30, 1871, John Schreyer was considerably indebted by mortgages upon his real estate. The amount did not appear. Mechanics' liens upon the West One Hundred Twenty-sixth street property to the amount of $12,437.65 were filed against said property, and against him as the owner thereof.

Most, if not all, of these liens were for unpaid work done by subcontractors for the principal contractors. At this time Schreyer was troubled and annoyed with these liens, some of which were for larger sums than were due. He thought, for some reason or other, that he would be better off, and that his existing creditors would be impeded, hindered, and delayed, if he placed his real estate in his wife's name, and he also made the conveyances with the purpose to defraud any future creditors whom he might have, and as a cover for future schemes of fraud. The conveyances were a sham and subterfuge, and his wife's ownership of these properties was a pretense. He managed and disposed of them after the conveyances, received the rents, deposited the same in his own name, and built houses in the same manner as before. He built houses in 1872 upon 348 and 350 West Thirty-ninth street, costing $20,000, with his own money. All said conveyances were made without substantial consideration, for the purpose of hindering, delaying, and impeding his existing creditors, and for the purpose of defrauding future creditors, and were fictitious, and known both to the grantor and grantee to be made merely for the purpose of giving her the nominal title, while the entire beneficial interest was to be and was retained by the grantor, so that future creditors might be defrauded.

In 1874 said John Schreyer, in the name of Anna M. Schreyer, agreed with George Gebhard and Matthew L. Ritchie to advance the money, and to build front houses upon the lots 420 and 422 West ; Fortieth street, which had been conveyed to said Gebhard and Ritchie, respectively, by said John Schreyer before 1871. The money was advanced by him, and the work was done under his direction, and, when the houses were finished, a mortgage on No. 420, dated July 17, 1874, to secure the sum of $7,750, the amount due said Schreyer by said Gebhard, was given to Anna M. Schreyer by said Gebhard and his wife; and on the same day a mortgage on No. 422 to secure the sum of $8,850, the amount due said John Schreyer by said Ritchie, was given to Anna M. Schreyer by said Ritchie and his wife. These two mortgages belonged to and were the property of John Schreyer, though nominally in the name of his wife, and were executed in the name of Anna M. Schreyer, in furtherance and in pursuance of the same scheme of fraud which was entered into in 1871. Peter. J. Vanderbilt did the mason work upon these houses for the contract price of $8,175, in part payment of which he took an assignment of a bond and mortgage held by John Schreyer upon the 350 West Fortysecond street property in the name of Anna M. Schreyer. John Schreyer became indebted to said Vanderbilt in the sum of $5,913.23, which indebtedness grew out of his said work upon said two houses. Anna Maria Schreyer died on September 6, 1876, leaving a last will and testament, which was duly proved, admitted to probate, and recorded by the surrogate of the county of New York, and which is correctly set forth in the bill, by which she devised and bequeathed

all her estate to her husband, John Schreyer, in trust for their seven children, with power to manage said estate during his life, and to sell and convey the same. Said Schreyer continued thereafter in the management and possession of said property as before, collecting the rents and mingling them with his own funds, and has kept no accounts with the estate or with himself as executor or trustee, and has no record of his receipts and payments as executor or trustee, except that he has on paper the amounts received from rents, and he has the bills which he has paid.

On or about September 17, 1878, upon the petition of two pretended creditors of said Schreyer, which was filed August 23, 1878, he was adjudged, by his consent, a bankrupt by the district court for the Southern district of New York. He had on August 17, 1878, made a general assignment of all his property to Gustave A. Canis for the benefit of his creditors. Eight creditors proved debts amounting to $11,852.92, but all of them, except the estate of Peter J. Vanderbilt, claiming $5,913.23, have released and discharged the bankrupt since this action was commenced. Said creditors' petition was instituted for the benefit and at the instance of said Schreyer, for the purpose of preventing said Vanderbilt's estate from obtaining payment of said debt. The complainant became the assignee of said bankrupt on August 12, 1879. Nos. 348 and 350 West Thirty-ninth street, and 351, 353, and 355 West Forty-second street, are still nominally a part of the estate of Anna M. Schreyer. The real estate which was conveyed to her in 1871, by a scheme of fraud which was at that time entered into by her husband and herself, and which still remains nominally a part of her estate, should be devoted to the payment of his debts. The mortgages upon 420 and 422 West Fortieth street are still in the possession of said Schreyer as executor, and were his individual property when he was declared a bankrupt. The point was made upon the hearing that the children of Anna M. Schreyer were necessary parties, and were not made parties. The case is within the forty-ninth equity rule, and there is nothing which calls upon the court to require that they should be made parties. The bill was vigorously defended by John Schreyer as trustee, and the interests of the children were as earnestly taken care of by the trustee as.if they had been formally parties.

Let there be a decree that the said real and personal property, so held and possessed by said Schreyer as executor and trustee, be declared to have been vested in the complainant by operation of law, by virtue of his appointment as assignee in bankruptcy as aforesaid, and that said bankrupt, as such executor and trustee, be directed to convey and transfer the same to the complainant as assignee as aforesaid, and that said Schreyer be enjoined from collecting the rents and interest of said property.

NOTE.

Fraudulent Transfer.

1. FRAUD. The statute of 13 Eliz. c. 5, which was made perpetual by 29 Eliz. c. 5, is the law which furnishes the basis of all remedies for fraudulent conveyances, (Bump, Fraud. Conv. 58,) and all our statutes on the subject are merely declaratory of the common law, or the statute of 13 Eliz. Farr v. Sims, Rich. Eq. Cas. (S. C.) 122, S. C. 24 Amer. Dec. 396

A fraud which will vitiate a sale must be mutual; that is, must be intended by both parties, or by one with a knowledge of such purpose on the part of the other, and thus acquiesced in and furthered. Horbach v. Hill, 5 Sup. Ct. Rep. 81; Mehlhop v. Pettibone, 11 N. W. Rep. 553.

It has been held that, to make a conveyance fraudulent, the fraudulent intent must be shown to have been shared by the grantor and grantee alike. Splawn v. Martin. 17 Ark. 146; Partelo v. Harris, 26 Conn. 480; Ewing v. Runkle, 20 I11. 448; Meixsell v. Williamson, 35 Ill. 529; Hessing v. McCloskey, 37 Ill. 341, Fifield v. Gaston, 12 Iowa, 218; Steele v. Ward, 25 Iowa, 535; Violett v. Violett, 2 Dana, (Ky.) 323; Brown v. Foree, 7 B. Mon. 357; Brown v. Smith, Id. 361; Harrison v. Phillips Academy, 12 Mass. 456; Bridge v. Eggleston, 14 Mass. 245-250; Foster v. Hall, 12 Pick. 89; Kittredge v. Sumner, 11 Pick. 50; Byrne v. Becker, 42 Mo. 264; Bancroft v. Blizzard, 13 Ohio 30; Union Bank v. Toomer, 2 Hill, (S. C.) Ch. 27; Weisiger v. Chisholm, 28 Tex. 780; Leach v. Francis, 41 Vt. 670; Governor v. Campbell, 17 Ala. 566; Magniac v. Thompson, Baldw. 344. Yet it has been held by our courts that a conveyance made to hinder, delay, or defraud creditors is void as to them, although founded on a full and valuable consideration, (Bozman v. Draughan, 3 Stew. Ala. 243; Rogers v. Evans, 3 Ind. 574; Ruffing v. Tilton, 12 Ind. 259, 264; Musselman v. Kent, 33 Ind. 452, 458; Lowry v. Howard, 35 Ind. 170; Poague v. Boyce, 6 J. J. Marsh. Ky. 70; Reed v. Carl, 11 Miss. [3 Smedes & M.] 74; Trotter v. Watson, 6 Humph. Tenn. 509; Peck v. Land, 2 Ga. 1; Chandler v. Von Roeder, 24 How. 224; Walcott v. Brander, 10 Tex. 419; Mills v. Howeth, 19 Tex. 257;) and that a deed fraudulent on the part of the grantor may be set aside, though the purchaser be a bona fide purchaser for value and ignorant of the fraud. Hildreth v. Sands, 2 Johns. Ch. 35; Gamble v. Johnson, 9 Mo. 605; Miller v. Tollison, 1 Harp. (S. C) Eq. 145; Lee v. Figg, 37 Cal. 328. But this cannot be regarded either as the better doctrine or the prevailing law of the land.

Where a vendee participates in the fraud of the vendor to delay, hinder, or defraud the creditors of such vendor, even though a full consideration has been paid for the property, the conveyance will be set aside. Gardinier v. Otis, 13 Wis. 460; Briscoe v. Clarke, 1 Rand. 213; Tootle v. Dunn, 6 Neb. 93. This is a well-recognized principle of law, and courts have held that the purchaser is to be charged with notice of the character of the transaction when he is acquainted with the circumstances sufficiently to convince a court or jury that he knew the facts, (Green v. Tantum, 19 N. J. Eq. 105;) or, if he has a knowledge of such facts as would excite the suspicions of an ordinarily prudent man, and fails to make inquiry, and purchases from a fraudulent vendor, he is not a bona fide purchaser, or a purchaser in good faith, and will be charged with notice of any fraud upon creditors effected by the sale and transfer. State v. Estel, 6 Mo. App. 6.

The transfer, though fraudulent, cannot be complained of by a creditor who has not been injured thereby. Barnett v. Knight, 3 Pac. Rep. 747. And, in an action to set aside a fraudulent conveyance, the petition must set out and the proof show that the grantor had not sufficient property subject to the payment of his debts left for that purpose. Sherman v. Hoglahd, 54 Ind. 578; Zimmerman v. Fitch, 28 La. Ann. 454; Wiley v. Bradley, 67 Ind. 560.

Equity will not set aside a deed which complainant made to hinder, delay, and defraud creditors. Wier v. Day, 10 N. W. Rep. 304.

(1) Definition. In this connection fraud is unlawful conduct operating prejudicially to creditors' rights, (Bunn v. Ahl, 29 Pa. St. 387,) and consists in withdrawing from another that which is justly due him, or depriving him of his rights by deception and artifice. Burdick v. Post, 12 Barb. 168; S. C. 6 N. Y. 522. A fraud upon creditors is any act which, by intention, withdraws the property of the debtor from their reach. McKibbin v. Martin, 64 Pa. St. 352; Alabama Ins. Co. v. Pettway, 24 Ala. 544.

(2) Evidence. The question of fraud is one of fact, to be determined from all the facts and circumstances bearing upon the good faith of the transaction, (Knowlton v. Mish, 17 Fed. Rep. 198; Morse v. Riblet, 22 Fed. Rep. 501; Hills v. Stockwell & Darragh Furniture Co., 23 Fed. Rep. 432;) and a transfer may be held fraudulent, although no distinct fact proves it. McDaniels v. Perkins, 19 N. W. Rep. 902. But, as a rule, evidence of fraud, upon which a conveyance will be canceled, must be clear. Fick v. Mulholland, 4 N. W. Rep. 527; Le Saulnier v. Loew, 10 N. W. Rep. 145.

Insolvency of grantor is not, of itself, sufficient to show fraud. Leffel v. Schermerhorn, 14 N. W. Rep. 418. The acts and declarations of the vendor prior to the sale are