O'Connor v. Docen

Hirsghberg, J.:

The plaintiffs sue as creditors of the defendant Docen, and have secured a judgment setting aside as fraudulent a conveyance of real estate made by him to the defendant Herman H. Kipp on October 2, 1897. This result is based on a finding that the deed was executed and accepted with the intent of defrauding Docen’s creditors. We find no evidence justifying this finding.

At the time of the execution of the deed Kipp was a creditor of Docen in the sum of $1,500 for money loaned, and the latter was anxious to pay or to secure him. Kipp learned that Docen was in financial straits, and called on him with a view of ascertaining whether his claim could be collected, and Docen then proposed to give him the property in question for that purpose. After some demur Kipp agreed to take the property, and the deed was accord^ ingly executed and delivered. The property was then incumbered with mortgages amounting to $12,500, and there was unpaid interest, taxes and water rents, amounting to $545.50, so that with his claim the real estate then represented to Kipp the sum of $14,545.50. It is proper to add that at that time Docen was threatened by creditors with legal proceedings, his real estate in New Jersey had been attached, and a transfer of his business, made to another creditor, on the same day as the deed to Kipp, is assailed as fraudulent. The dona fides of Kipp’s debt, however, is not disputed, and if its payment by a transfer of the real estate was made in good faith, that transfer is not affected by these contemporaneous transactions with which it is not claimed that Kipp had any connection.

There was no inadequacy of consideration, certainly none which would serve to suggest fraud. The plaintiffs did indeed give evidence tending to show that the property was worth about $16,000, and this was met by evidence on the part of the defendants that it was worth less than the amount at which it had been taken by Kipp. But it was undisputed that the house was very old and in poor condition, and that prior to the conveyance it had been offered in the market for sale at $12,500, but that no purchaser could be secured at that price. The property had been purchased by Docen for less than the sum at which he transferred it to Kipp, and under all the circumstances it cannot be said that the debtor parted with it for anything less than its fair and reasonable value.

On the trial, Docen, who since the transfer had become hostile or at least unfriendly to Kipp, testified that at the time of the conveyance it was agreed between them that when Kipp sold the property he would pay to Docen whatever he received over and above his claim, in order that Docen might use such surplus in paying his other creditors. This Kipp positively denied. He testified in effect that he took the real estate in payment of his claims, and that nothing was said about his selling the property and accounting for the proceeds or turning over the surplus to Docen, or for the benefit of liis creditors in any way. Some months after Iiipp acquired the property, he advanced or loaned for the use and benefit of Docen the sum of $250, taking the promissory note of Docen’s wife as security, and this money had not been repaid in December, 1898. Meanwhile Kipp had been repeatedly examined in supplementary-- proceedings at the instance of a creditor of Docen named Klatzl, and he had also been sued in relation to the property by Sonn Brothers, the precise object of which action is not disclosed, but which action was subsequently discontinued. Kipp’s attorney testified that the legal services rendered by him to Kipp, in relation to the property-subsequent to the purchase, including the action of Sonn Brothers and the supplementary proceedings, were worth $750, and this evidence was wholly undisputed. It was the conduct of Kipp in refence to these two items, viz., the $250 loan on Mrs. Docen’s credit, and the charge of $750 for legal services, on the occasion of a proposition made by Klatzl in December, 1898, on which the learned trial justice chiefly, if not solely, founds his conclusion that the original sale or transfer to Kipp was fraudulent.

It appears that in the month of- December, 1898, Klatzl made a proposition to Kipp to take a deed of the property at a valuation of about $15,000, such sum to cover the incumbrances and Kipp’s claims and his expenditures in relation to the property. Kipp was entirely willing to dispose of the property on those terms, desiring only to be made whole in the transaction, and Klatzl was accordingly referred by him to his lawyer for the items in question. In response to Klatzl’s application, the lawyer wrote him a letter stating in detail the amount of the claims, incumbrances, interest, taxes and arrearages for water rents, then amounting in all to the sum of $15,632, including the money loaned on Mrs. Docen’s note and the charge for legal services. Klatzl objected to the last two items, and the property was accordingly not conveyed to him. In the opinion of the learned trial justice it clearly- appears that he was largely influenced, if not controlled, in his determination of the case by this refusal of Kipp to transfer the property to Klatzl on the latter’s terms. He says : “ There is very strong proof of bad faith, where a fortunate creditor has secured property of the insolvent debtor, and then refuses to surrender it to another creditor, unless such other creditor will pay his attorney- a large sum, and, besides that, reimburse him for a loan he has made to the wife of the debtor. Such conduct plainly shows (1) that the original claim was an inadequate consideration for the property received; (2) that the creditor in possession is not willing to deal fairly by other creditors and be satisfied with receiving his own demand in full; and (3) that he seeks by the transaction to secure to the debtor or his family an unwarranted benefit out of the property at the expense of the other creditors.”

We do not regard this statement of the learned court as a correct view of the law or as a legitimate deduction from the undisputed facts. There is no pretense that the debt which Docen owed Kipp was not genuine, and it cannot be successfully claimed that Docen could not lawfully pay it by a deed of the property tendered and received in good faith. As has been shown, the case is bare of evidence of bad faith in the original transaction, and if such be found it must be found solely in the price which more than a year afterwards Kipp demanded as a condition of transferring the property to Klatzl. While it may be true that the intent of parties in a given transaction may be gathered in part from their subsequent conduct, so far as such conduct tends to throw light upon it, it seems clear to us that the mere fact that a creditor, who has been secured or paid by a legitimate transfer of property, requires that he be fully reimbursed for all expenses and advances incident to the transfer as a condition of selling such property long afterwards to another creditor, in no degree tends to indicate the existence of a fraudulent intent in the original transaction. Even if it be assumed that Kipp’s behavior was illiberal and ungenerous, which, of course, we do not assert, yen the proposition is without authority in law that a conveyance of real estate, valid in its inception, may be successfully impeached because of a subsequently exhibited manifestation of rapacity on the part of the grantee.

As a new trial will be granted, we deem it proper to call attention to the fact that it is at least very questionable whether on the proof furnished by the record the plaintiffs have established such a status as creditors as entitles them to maintain this action. They obtained a judgment against Docen by confession on the 15th day of November, 1898. Although Docen testified on the trial that at the time of the transfer in question he was indebted to “ O’Connor ” in the smn of over §1,800, there is no proof that the plaintiffs were the parties referred to and no proof that the judgment obtained by the plaintiffs by confession was for such indebtedness. In other words, there is no proof in the case, aside from the confession of judgment itself, that the indebtedness alleged in such confession was genuine. It would seem that for the purposes of this action such a confession would have no greater force than an admission made by the grantor (Docen) after the grant, and which, of course, would not be binding upon 'his grantee. We think that, in order to legally establish the plaintiffs’ position as creditors entitled to maintain an action to set aside the transfer as fraudulent, there should be some evidence tending to prove that the defendant Docen was indebted to them, other than his admission or confession made after the execution of the deed.

The judgment must be reversed.

All concurred, except Goodrich, P. J., who read for affirmance.