Case Name: Doughten and Wilson vs. Gray, assignee, et al.
Court: New Jersey Court of Chancery
Jurisdiction: New Jersey
Decision Date: 1855-05
Citations: 10 N.J. Eq. 323
Docket Number: 
Parties: Doughten and Wilson vs. Gray, assignee, et al.
Judges: 
Reporter: New Jersey Equity Reports
Volume: 10
Pages: 323–331

Head Matter:
Doughten and Wilson vs. Gray, assignee, et al.
M. K. and W. made an assignment for the benefit of creditors. On the persona] property assigned there was a mortgage, the bona fides of which was not disputed. The assignee having sold the property, and converted it into money, the mortgagee, or person claiming under him, has an equitable lien on the proceeds of sale for the payment of the mortgage.
The interest of a mortgagee in personal property, where the possession remains with the mortgagor, and before condition broken, cannot bo taken in oxocution as the property of the mortgagee. A mortgagor’s interest in personal property is the subject of execution and sale, a mortgagee’s interest is not.
In New Jersey, the same doctrine prevails as to the respective rights of mortgagor and mortgagee of personal property, and as to the character of their respective interests, as governs mortgages of real property.
A judgment and execution creditor of the mortgagee may file a bill of discovery against a.n alleged fraudulent assignee of the mortgagee, and if the assignment is fraudulent, the creditor is entitled to the mortgage fund. The statute avoids all difficulty which might have existed to a creditor’s maintaining his bill for a discovery as to property not subject to execution.
An assignment may be frndulent although it was made for a valuable consideration. If the purchase was not bona fide, but was made to defraud creditors, the assignment is not valid, although an adequate consideration was given.
Under the circumstances, the court declared the assignment good only so far as to reimburse the assignee for the actual advances'made by him.
The bill alleges, that on or about the 3d day of May, 1853, Benjamin M. McMurtrie, Julius King, and Peter Williamson were partners, doing business in Gloucester City, in this state; that they became indebted to the complainant in the sum of $567.70, for which they gave their note at three months; that on the 5th day of December, 1853, the complainant recovered judgment on said note against the drawers, thereof, issued execution thereon, and caused a levy to be made on certain personal property, in the said bill afterwards mentioned as mortgaged to the said Peter Williamson, and also assigned to Philip J. Gray, as assignee ; that on the 1st of August, 1853, Williamson retired from the firm, having sold his interest to the other partners, for the sum of about $2000, and took as security a mortgage on all the property and effects belonging to the said partnership being in Gloucester City, their then place of business, which mortgage was dated the 15th of August, 1853, and recorded on the 17th day of August, 1853. The bill charges, that this mortgage vested the legal estate of the property so mortgaged in the mortgagee, Peter Williamson ; that Williamson pretends, that on the 17th day of December, 1853, he assigned the said mortgage to Janies Molyneux, for paying a debt for money lent and advanced to said Molyneux to him and various other debts by said Williamson then owing to sundry persons, in consideration of the release of said debt of said Molyneux and of the further sum of $764.10 paid, but that the complainants had no notice or knowledge of said assignment.
The bill charges the assignment of the mortgage to be fraudulent, to defeat the claim of the complainant; that the assignment, if made at all, was on the 17th of December, after the judgment and levy of the complainant, and is therefore subject to the same ; that the property mortgaged was the machinery with which the firm earned on business, and that after Williamson withdrew from the firm McMurtrie and King carried on the same business. and continued in the use of the same machinery and property mentioned in the mortgage until about the 8th of October, 1853, when they became embarrassed, and made a general assignment of all their partnership to Philip J’. Gray; that said Gray, as such assignee, on the 14th of December, 1853, after the complainants’ judgment and levy, and previous to the assignment to Molyneaux, sold the property to assigned, and realized from such sale about the sum of 810,000, which he now holds for the benefit of the creditors. The bill charges, that the assignee’s sale was made with full notice of the said mortgage, and judgment, and levy, and insists that the legal estate of the said personal property, by virtue of said mortgage, was vested in said Williamson, and that the said mortgage is a lien upon the funds in the hands of the said assignee, which funds now represent the said mortgaged property; and that the mortgage is entitled to priority of payment out of the proceeds of sale, and that by reason of his judgment and execution against Williamson, as well as McMurtrie and King, and the levy upon the interest of the said Williamson in the mortgage property prior to the assignment, the complainant has a right to have his judgment and execution satisfied out of that part of the funds in the hands of the said assignee due to said Williamson or James Molyneaux on the said mortgage. The bill further insists, that if the complainants are mistaken as to their lien on the mortgage property, by virtue of the legal rights which Williamson had therein, then they insist, that the assignment to Molyneaux being fraudulent, they have, by virtue of the statute, a right to a discovery from Williamson, and to receive from the assignee, out of the moneys due from the assignee to Williamson on his mortgage, sufficient to satify their judgment execution.
Philip J. Gray, the assignee, filed his answer to the bill He admits all the allegations of the bill, except that he denies having any knowledge of the mortgage at the time of the assignment to him ; and he also denies knowledge of any fraud in the assignment, and submits bis rights as assignee bo the decision of the court.
James Molyneaux also filed bis answer. He alleges that the bond and mortgage were assigned to him on the 17th day of December, 1853 ; that the consideration of the assignment was the sum of $175, for money before that time lent and advanced by him to Williamson, and also the sum of $764.10, paid by him to Williamson in cash; that the purchase of the said bond and mortgage was tona fide; that at the time be bad no knowledge of the judgment of the complainants, or any suspicion of it: be particularly and fully denies any fraud, or that the assignment was made to him except in good faith and for any other than the consideration stated.

Opinion:
The Chancellor.
The first question to be determined is, whether the bond and mortgage made by McMurtrie and King to Peter Williamson are bona fide securities, and entitled to priority of payment out of the funds in the bands of the assignee, Philip J. Gray.
The bill does not question the bona fides of the bond and mortgage. On the contrary, the equity of the complainant is founded on the validity of these securities. Nor does the assignee question their validity. We must assume, therefore, that the dissolution of the partnership existing between McMurtrie, King and Williamson was in good faith, and that the bond and mortgage were executed honestly, and as a fair consideration to Williamson for bis interest in the concern; and that the withdrawal of Williamson from the firm, and the assumption by Benjamin McMurtrie and Julius King of the partnership debts, was made honestly and without any intention to defraud either the complainants or any other creditor of the firm. From the character of these pleadings, we are relieved from considering to what extent subsequent tona fide creditors are affected by a chattel mortgage such as this, when the property is suffered to remain in the custody and use of the mortgagor. When the assignment was made to Gray, the mortgage was a valid and subsisting lien upon the property assigned. The assignee having sold the property, and converted it into money, the person who can legally claim under the mortgage has an equitable lien upon the funds in the assignee's hands for the payment of this security.
The next question is, who is entitled to the mortgage fund ? James Molyneaux claims it by virtue of his assignment. The complainants claim it on two grounds: first, by virtue of a legal and equitable lien, which they insist is superior to the right of the assignee, admitting his assignment to be valid; and secondly, they contend that the assignment is fraudulent, and under that aspect of the case insist, that as judgment creditors of Williamson, they have a right to a discovery of his assets in the hands of the assignee of the mortgage, and to have the-mortgage money appropriated to the payment of their debt.
The complainants recovered a judgment against Mc-Murtrie, King & Go., as late partners, of which Peter Williamson was one. He had retired from the firm, and the business was continued by McMurtrie and King. On Williamson's retiring from the firm, he had taken the mortgage in question, covering all the machinery which was used in carrying on the business of the copartnership. The judgment was recovered on the 5th of December, 1853, and on that day a levy was made by the sheriff on all the mortgaged property. On the seventeenth day of December following the levy, the bond and mortgage were assigned to the defendant, James Molyneaux.
The complainants contend, that by virtue of the mortgage, the legal title to the mortgaged property was in Peter Williamson ; that they had a right to levy upon, and sell his interest in the property under their judgment and execution, and that the assignment of the mortgage to Molyneanx, being subsequent to their levy, the assignee can take only subject to their judgment and execution.
The question is, whether the interest of a mortgagee in personal property, when the possession remains with the mortgagor, and before condition broken, can be taken in execution as the property of the mortgage ?
Hilliard, in his Treatise on Mortgages, vol. 2, p. 270, has collected the authorities in the different states upon this subject. Whatever may be the weight of authority, I have no doubt as to the law in New Jersey. A mortgagor's interest in personal property is the subject of execution and sale, a mortgagee's interest is not. It is useless to talk about the mere form of the conveyance, and of its conveying all the legal title to the mortgagee, leaving only a mere equity of redemption in the mortgagor. We must look at the real character of the instrument, and of the rights of the parties under it. The intention of the parties is, that the conveyance shall be a mere security for a debt. If the debt is paid, the mortgage deed is a dead letter, and no reconveyance is necessary to change the title to the property. The mortgagor is in possession, and his title is a perfect one, subject only to the payment of the debt. He is the real and substantial owner of the property for every valuable purpose. He may sell it, subject, of course, to the mortgage. • The mortgagee has no control over the property until his debt is due, and then he can take it only for the purpose of making his debt out of it.
In New Jersey, the same doctrine prevails as to the respective rights of mortgagor and mortgagee of personal property, and as to the character of their respective interests, as governs mortgages of real property. The estate of a mortgagee of real property cannot be sold in New Jersey for the mortgagee's debt, even after a default and a forfeiture of the condition of the mortgage, unless the mortgagee is actually in possession under his mortgage. An equity of redemption has always been, in New Jersey, the subject of sale, and not by virtue of any statute either, as was supposed by counsel in the argument, bnt because our courts of law followed the good sense of courts of equity in this respect, in spite of mere technicalities, and considered the mortgagor, as he actually is, the real, owner of the property.
To say that the person who holds an estate, as the mortgagee does, which at his death passes to his personal representative, and not to his heirs at law, is superior to one w'hieh descends by inheritance, which is subject to dower, and which in fact possesses all the qualities of a legal estate, and that the former may be sold by judgment at law because it is a legal estate, while the latter cannot, is sacrificing too much principle and good sense to mere technical rules.
I am of opinion, therefore, that the estate which Williamson held in the mortgage property was not subject to an execution at law, and that the levy of the sheriff constituted no lien upon the property.
But the complainants further insist, that the assignment of the mortgage is void for fraud, and that the fund in the hands of the assignee belongs to Williamson, and that they, as judgment creditors, under this bill of discovery, have a right to the fund, as discovered assets of their debtor, to pay their debt.
If the assignment is fraudulent, the complainants are entitled to have the fund appropriated to pay their judgment. Whatever may be considered the settled doctrine as to the right of a judgment and execution creditor to have a conveyance declared void by a court of equity, when the property transferred is of a character not subject to be taken in execution for the payment of debts, our statute obviates all difficulty upon this ground by affording a creditor adequate relief, by giving him a specific remedy by his bill of discovery.
Is the assignment fraudulent ? The want of consideration, together with the time and circumstances under which the assignment was made, are charged as the evidences of fraud. Molyneaux, by his answer, very fully denies the fraud. He alleges and proves, that the consideration paid by him was $939. It was paid in this wise An old debt of $175, which Williamson owed Molyneaux, was given up and cancelled, and the balance, being $764.10, was paid in cash, as follows; $370 on the 17th of December, the date of the assignment, $200 on the 19th of December, and the residue, $194.10 on the 20th of the same month. It thus appears that the consideration paid was little less than fifty per cent, of the amount due on the mortgage. But although the assignee gave a valuable consideration, the assignment may nevertheless be fraudulent. If the purchase was not bona, fide, but was made to defraud creditors, the conveyance is not valid, although the consideration was a valuable, and even an adequate consideration. Tuyne's case 3 Co. R. 81. It is said the price was inadequate. This of itself will not defeat the assignment, unless the price- is so grossly inadequate as to be of itself evidence of fraud. Such is not the case here. The security was an uncertain one in some respects. The mortgagors were insolvent, and the mortgage property had been assigned for the general benefit of their creditors. It had been sold, and it was uncertain whether the assignee would recognize the validity of the mortgage. The time of the assignment raises some suspicion as to the bonafides of the transaction. Williamson was insolvent. The complainants had judgment against him, and had taken steps to enforce their judgment against the mortgaged property. It is true the defendant, Molyneaux, denies that he had knowledge of the complainant's judgment ; but there are circumstances and facts proved inconsistent with the truth of this allegation. A proper inquiry made would have put him in possession of all the facts.
After a careful investigation of all the facts of the case, I am not willing to declare the assignment absolutely void for fraud. But I do not think, considering the circumstances under which the assignment was made, that the assignee should be permitted to hold it for anything more than to reimburse himself the advances he made upon it. I shall direct an account to be taken of the principal and interest due upon the bond and mortgage.
Let the costs of all the parties to this suit be first paid out of this fund, and then Molyneux be reimbursed the advances made by him upon the particular mortgage. The residue must go to' the assignee, to be distributed according to law.
Cited in Smithurst v. Edmunds, 1 McCar. 418; Chapman v. Hunt, 2 Beas. 371; Freeman v. Freeman, 2 C. E. Gr. 47; Miller ads. Pancoast, 5 Dutch. 255.