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Newton v. Kruse

161 A.D. 811 Court Fourth Department, Decision date 1914-03-11 English

Delivered by Foote, J.:

Contents

Majority

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George M. Newton, as Administrator, etc., of Elizabeth Newton, Deceased, Respondent, v. John Henry Kruse, Individually and as Administrator, etc., of Helene Kruse, Deceased, and Julia E. Ferguson, Appellants, Impleaded with Jesse Evers and Others, Defendants.
Fourth Department,
March 11, 1914.

Headnote

Mortgage — foreclosure — purchase of lands by incompetent person— reconveyance by committee without leave of court—when grantees not estopped from questioning title of predecessors — obligation of incompetent person and his grantee after restoration to sanity — when mortgage is lien upon lands held under subsequent conveyances —jury trial — liability of grantor for deficiency judgment — equitable mortgage.
Suit to foreclose a mortgage upon real property. The lands were originally owned by W., who conveyed them to B. at a time when the latter was a lunatic, that fact being subsequently judicially determined, the consideration being §500 in cash and a pinchas e-money mortgage for §1,000. V., who was appointed committee of the person and estate of the lunatic, rescinded the transaction with the consent of W., and reconveyed the lands without an order of the court. W. on his part discharged the purchase-money mortgage, giving back to the committee a mortgage for $500, which sum had been paid by the lunatic in cash. Thereafter W. subsequently paid the amount of this mortgage to the committee.
W., being in possession, conveyed the premises to L. K., who in her turn conveyed to E., who gave back to L. K. a purchase-money mortgage for §1,500, which, by mesne assignments, became the property of the plaintiff’s testator. It is this latter mortgage which it is sought to foreclose.
E., owning the equity of redemption, conveyed to McK. by warranty deed, the grantee covenanting to assume and pay the purchase-money mortgage aforesaid. Thereafter McK. entered into a contract with H. to sell the premises for a sum to be paid in monthly installments until $500 should be paid, the balance to be secured by a purchase-money mortgage. The contract recited the existence of the mortgage in suit as a hen upon the premises, and McK. agreed that he would “take care of it ” and see that it was not foreclosed. H. entered into possession under the contract aforesaid.
McK. subsequently conveyed to the defendants Kruse by warranty deed, subject to the said contract with H., which agreement Kruse assumed and agreed to carry out, the deed further providing that the conveyance was subject to the $1,500 mortgage given by E. to L. K., which the party of the second part assumed and agreed to pay. Subsequently Kruse
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conveyed to D. by warranty deed containing no reference to any mortgages, or to the contract with H. and D., and D. being informed that title was invalid, because the unauthorized deed by the committee of the lunatic was a nullity, thereupon quitclaimed to the defendant F. without consideration. It was subsequently ascertained that B., the lunatic, who had removed to a foreign State, had regained his sanity, whereupon the committee was discharged and paid the $500 held by him to B., who thereupon quitclaimed to the defendant F. There was no proof that the consideration was other than nominal.
Held, that as the conveyance from Kruse to D. contained no covenants of warranty and no covenant on his part to assume or pay the plaintiff’s mortgage, D. was not estopped from questioning the title of Kruse or W.;
That as the deed from D. to the defendant F. was a quitclaim, with covenants only against the acts of the grantor, and contained no reference to the plaintiff’s mortgage or to the contract with -H., the acceptance of the deed did not estop F. from questioning the title of her grantors, or that of W., or the lien of the plaintiff’s mortgage, she not having gone into possession under the deed;
That B., having received back the entire consideration paid for the land, and having regained his sanity, was in equity bound to make good the title by a conveyance to W., and that the defendant F., taking title from B., was under a similar obligation in respect to the title received from B. with knowledge of all the facts, and hence in equity she held title as trustee subject to the lien of the plaintiff’s mortgage.
As the defendant F. was not shown to have paid any consideration for the conveyance from B. and had not made any valuable improvements upon the premises since the conveyance, she, having knowledge of all the facts, had no rights or equities against the plaintiff’s mortgage superior to those which B. would have had had he retained title.
The defendant F. was not entitled to a jury trial as to her rights under the deed from B., for she herself put the deed in evidence to defeat the plaintiff’s suit to foreclose the mortgage.
The deed from B. to the defendant F. was void only as to H. and those claiming under her; as between the parties and as to others not deriving their rights from H. the conveyance was good.
As the defendant Kruse accepted the conveyance from McK. subject to the plaintiff’s mortgage and assumed and agreed to pay the same, and also accepted the lands subject to the contract with H., the provisions of which he assumed and agreed to carry out, H. being then in possession of the lands, the defendant Kruse is liable for any deficiency which may arise upon a sale on foreclosure. It was competent for McK. to contract with the defendant Kruse, to whom he conveyed his interest, to take his place as principal debtor for the mortgage debt, leaving McK. thereafter in the position of a surety.
As it has been judicially decided that Kruse received an equitable title from McK., he cannot escape personal liability upon the theory that the deed to McK. did not convey a good title.
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As the purchase of the lands by Kruse constituted in effect an equitable mortgage, the only possession he was entitled to receive would be the possession of the contract itself, and he cannot escape liability on the ground that neither he nor MeK. had actual possession of the land.
Separate appeals by the defendant Julia E. Ferguson and the defendant John Henry Kruse, individually and as administrator, etc., from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Erie on the 18th day of November, 1912, upon the decision of the court after a trial at the Erie Special Term.
This action is brought for the foreclosure of a mortgage upon real property, being about twenty-seven acres in the town of Evans, Erie county. On September IT, 1884, Nelson Woodward, being the owner of this tract of land, conveyed it on that day to William H. Blakely for a consideration of $1,500, Blakely paying $500 in cash and giving his purchase-money mortgage for $1,000. About one year thereafter Blakely was adjudged a lunatic and to have been such for more than two years prior to the purchase of these lands, and one Vellum was appointed committee of his person and estate. It was claimed by Blakely’s friends that the property was not worth more than one-half what he agreed to pay for it, and that he had been imposed upon in the transaction. Vellum at once undertook to rescind the transaction, and Woodward being willing, Vellum, as committee, made a deed of the land back to Woodward without procuring the order of any court to authorize it. Woodward discharged the $1,000 mortgage, and gave back to Vellum, as committee, his mortgage for $500, the amount which Blakely had paid him in cash, and this mortgage Woodward subsequently paid to Vellum. Woodward took possession of the premises as owner. On September 16, 1886, Woodward sold and conveyed the premises to Louisa J. Kinner. August 5, 188Y, said Kinner conveyed the premises to the defendant Jesse Evers, who gave back to Kinner a purchase-money mortgage for $1,500, which before her death became the property of plaintiff’s testator, Elizabeth Newton, by virtue of several mesne assignments, which is the mortgage this action is brought to foreclose. April 5, 1888, Evers conveyed the premises to the defendant Cecil W. McKenzie by
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warranty deed containing a covenant on the part of McKenzie to assume and agree to pay said Evers mortgage as part of the purchase price. On April 17, 1888, said McKenzie entered into a written contract with defendant Mary E. Hartman to sell the premises to her for the sum of $2,500, to be paid in monthly payments of $20.84 per month until $500 was so paid, when McKenzie was to give a deed of the premises to Mrs. Hartman, and take back a purchase-money mortgage payable at the same rate, $20.84 per month, with the privilege to Mrs. Hartman to pay in larger amounts. The contract recited the existence of the $1,500 Evers mortgage, then a lien on the premises, and contained an agreement on the. part of McKenzie that he would “take care of and provide for and see to it, that it is not foreclosed and keep the party of the second part protected in all things herein.” The payments to be made by Mrs. Hartman were not sufficient in amount to meet the payments on the $1,500 mortgage as they matured. Mrs. Hartman at once entered into possession under her contract, and she, or tenants under her, continued in possession until at least November, 1891.
On July 21, 1888, defendant McKenzie made and delivered to defendant John Henry Kruse and Helene Kruse, his wife, a warranty deed of said premises, which, in express terms, conveyed the premises subject to the contract between said McKenzie and Mrs. Hartman. Said deed also contained a clause to the effect that it was made subject to the said $1,500 mortgage given by Evers to Kinner, which the party of the second part thereby assumed and agreed to pay. Said deed also recited said contract between McKenzie and Hartman and the time and place of its record in Erie county clerk’s office, and also contained the following in reference thereto: “The condition of said contract the parties of the second part hereby agree to assume and carry out and hereby assuming each and every of the said conditions heretofore assumed by the party of the first part with the said Mary E. Hartman.”
On May 9,1889, the defendants Kruse executed and delivered to Charles A. Drefs and John A. Cook a warranty deed of said premises, in which no reference was made to any mortgage thereon or to the Hartman contract. Drefs and Cook con
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veyed to the Kruses some other property in exchange. Drefs and Cook took their deed to their attorney, Frank C. Ferguson, for his advice as to the validity of their title and they received the advice that they had no title whatever because the deed from Vellum, as committee of Blakely to Woodward, conveyed no title. Thereupon Drefs and Cook proposed to quitclaim the property to Mr. Ferguson, and did on August 17, 1889, give a quitclaim deed to Mr. Ferguson’s wife, the defendant Julia E. Ferguson, without consideration. Mr. Ferguson had procured an abstract of title which he examined and he became acquainted with all the facts which appeared of record in reference to the title, including plaintiff’s mortgage. Mrs. Ferguson never entered into possession of the land under this deed. Her husband, Frank 0. Ferguson, ascertained that Blakely was living in California and entered into correspondence with him there, as a result of which Mr. Ferguson, or his law firm, were employed to procure the discharge of Mr. Blakely’s committee in this State on the ground that he had become sane and to procure the return to him of his property by his committee. Thereupon Mr. Ferguson submitted to the court affidavits showing Blakely’s sanity, and Blakely’s petition verified October 31, 1890, to have restored to him his property, and an order was made on April 28, 1891, directing the committee to be discharged and appointing a referee to take and state the committee’s account. Thereafter said committee did account and there was found in his hands something more than $500, being principally the amount which the committee had received from Woodward as a refund of the amount Mr. Blakely had paid to Woodward upon the purchase of said premises. This fund was paid by the committee to Ferguson as Blakely’s attorney on or about June 3, 1891, and by Ferguson sent to Blakely in California. By correspondence between Mr. Ferguson and Mr. Blakely, Mr. Ferguson procured from Mr. Blakely a quitclaim deed of said premises to his wife, the defendant Julia E. Ferguson, which is dated May 4, 1891, acknowledged in California May 15, 1891, and recorded in Erie county June 26, 1891. Mr. Ferguson testifies that he paid Blakely money for this deed, but he does not state the amount and it does not appear that it was more than a nominal sum. Mrs. Hartman
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was still in possession under her contract at the time this deed was made. She abandoned the premises and her contract in November, 1891.
Both the defendant McKenzie and the defendants Kruse made payments of interest upon plaintiff’s mortgage.
Mr. Blakely died before this action was begun.
This case is reported on a former appeal to this court in Newton v. Evers ( 143 App. Div. 673 ).
J. L. Hurlbert, for the plaintiff.
Philip A. Laing and Alfred L. Becker, for the defendants Kruse.
William J. Magavern, for the defendant Ferguson.

The principal questions presented are whether the title of defendant Julia E¡ Ferguson by deed from Blakely is subordinate to plaintiff’s mortgage and whether the defendants Kruse have been rightly held liable for .the deficiency, if any there be.

While the learned trial court has held the deed from Vellum, as committee, to Woodward to be wholly void in law, it has, nevertheless, held that the title of defendant Ferguson under her deed from Blakely is subordinate to plaintiff’s mortgage. This upon the ground:

First. That Woodward was estopped by his deed to Kinner to say that he had no interest in the land to convey, and that such estoppel binds all the subsequent grantees from Woodward to and including Mrs. Ferguson, who is thus estopped to say that Woodward had no title or that plaintiff’s mortgage is not a lien on the land for that reason. As a proposition of law, we think this goes further than can be supported by the authorities. Doubtless, Woodward and all the subsequent grantors who conveyed with covenants of warranty are so estopped, as are all who accepted conveyances containing covenants on their part to assume and pay plaintiff’s mortgage. But no such covenant was contained in the deed from Kruse and wife to Drefs and Cook, nor did Drefs and Cook take possession of the land under their deed. Under these circumstances, we think

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the weight of authority is to the effect that Drefs and Cook are not estopped from questioning Kruse’s or Woodward’s title. (Sparrow v. Kingman, 1 N. Y. 242 ; Averill v. Wilson, 4 Barb. 180 ; Robertson v. Pickrell, 109 U. S. 608 .)

The deed from Drefs and Cook to Mrs. Ferguson was a quitclaim, with covenants only against the acts of the grantors. Mrs. Ferguson did not take possession under this deed and there was no reference in it to plaintiff’s mortgage or the Hartman contract. We think the acceptance of this deed did not estop Mrs. Ferguson to question the title of her grantors or of Woodward or the lien of plaintiff’s mortgage.

Second. That Blakely, having received back the entire consideration for the land, was under a binding equitable obligation when he became sane to make Woodward’s title good by conveyance to him, and that Mrs. Ferguson is under the same obligation in respect to the title she received from Blakely, and that Blakely being equitably estopped to dispute plaintiff’s mortgage, Mrs. Ferguson is so estopped, having received her title from Blakely with knowledge of all the facts, and that she should be charged in equity, as trustee, to hold her title subject to the lien of plaintiff’s mortgage. We agree with the conclusion so reached by the trial court. After Blakely was restored to sanity and the possession of his property, a court of equity would hold him to be a trustee of the title for the benefit •of those ■ claiming under Woodward, unless he proceeded to disaffirm the acts of his agent and committee, Vellum, and restore and make good to the grantee of Woodward the purchase price of the land. Blakely must be presumed to have had knowledge of the transactions'of his agent, Vellum, in the absence of evidence to the contrary, and he could not equitably retain the land from Woodward and his grantees or convey to others to defeat the Woodward title, at least not until he had restored the $1,500 purchase price returned to him, through his committee, by Woodward.

The question is whether defendant Ferguson has any rights or equities in this property superior to those which Blakely would have had, had he retained the title as against plaintiff’s mortgage ? It is clear that she has not. She is not shown to

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be a. purchaser for value or to have expended any money in improvements on the property since she received the Blakely deed. She, through her husband, who procured the title for her, had knowledge of all the principal facts affecting the equitable rights of the plaintiff. It is true that her husband testified upon this trial that he paid Blakely a money consideration for the deed, but he says he is not able to remember the amount so paid. This statement may be strictly true and still the amount paid may not have been more than the nominal consideration of $1 named in the deed. As against the equities established by plaintiff, it was incumbent upon defendant Ferguson to show herself a purchaser for something more than a nominal consideration, and that she was without knowledge or notice of the plaintiff’s equities at the time she paid the consideration. This, we think, she has not done. Nor does the fact that Blakely’s deed to Mrs. Ferguson bears date before, and, hence, is presumed to have been delivered before Blakely received the $500 purchase money which Woodward had paid to Vellum, as committee, alter the case, for before Blakely received back this $500 he was under an equitable duty to Woodward and his grantees, including the plaintiff, to make good the contract of his committee to transfer the title to Woodward. The committee appears to have acted in entire good faith and for the interest of his ward. The testimony in the lunacy proceedings shows that one of the grounds urged upon the court as showing Blakely’s incompetency and the need of a committee was the fact that Blakely had purchased this land at a price considered to be double its value, and that he had been imposed upon in the transaction.

Defendant Ferguson also contends that it was error for the Special Term to try the question of her rights under the Blakely deed in this action because she was in the attitude of claiming under, .that deed a title superior to the plaintiff’s mortgage, and that she was entitled to a jury trial. This question was raised by defendant Ferguson at the opening of the trial. Her counsel moved for a dismissal of the complaint as against her on the ground “that she claims by an antecedent title * * * arising before the mortgage in suit, and that she objects to having * * * her title tried out in this action,

p. 819
but claims it should be tried out in an action of ejectment, and claims she should have a jury trial.” Clearly, Mrs. Ferguson was not entitled to a dismissal of the complaint for she was in possession of the property and the holder of a deed from Drefs and Cook which was recorded and which, in form at least, conveyed to her the equity of redemption. This motion was renewed at the close of plaintiff’s case and again at the close of all the evidence, but in each case it was a motion to dismiss the complaint as against Mrs. Ferguson. Plaintiff did not put in evidence the deed from Blakely to Mrs. Ferguson. That was done by Mrs. Ferguson herself for the purpose of defeating plaintiff’s mortgage altogether and procuring an adjudication that it was not a lien upon the land. She appears to have thus invited a decision of the question as to whether the title she acquired under the Blakely deed was or was not subordinate to plaintiff’s mortgage. We think the trial court committed no error in denying the motions made on behalf of Mrs. Ferguson to dismiss the complaint as to her or in determining in this action, after she had introduced in evidence her deed from Blakely, that she was estopped from claiming that it conveyed anything more than the equity of redemption. (Griswold v. Atlantic Dock Co., 21 Barb. 225 ; Older v. Russell, 8 App. Div. 518 ; Washington Trust Co. v. Morse IronWorks, 106 id. 195.).

The trial court has also found that Mrs. Ferguson’s deed from Blakely is void under the statute against champerty, because at the time it was made the land was in the actual possession of a tenant of Mrs. Hartman, who then held a.contract for its purchase. (See 1 R. S. 139, § 141.) If this is correct, then the legal title remained in Blakely, and, as he has since died, his heirs at law would be necessary parties to this action, as otherwise they are not bound by the adjudication in their absence, and good title under the decree cannot be given. But we think the deed was void as to Mrs. Hartman only and those claiming under her. As between the parties and as to others not deriving them rights from Mrs. Hartman, it was good. (Poor v. Horton, 15 Barb. 485 ; Livingston v. Proseus, 2 Hill, 526 ; Hamilton v. Wright, 37 N. Y. 502 .)

It appears that Mrs. Hartman abandoned her contract many

p. 820
years ago. She is a party defendant to this action and makes no claim under her contract.

We find no error in the judgment of which defendant Ferguson may complain.

As to the defendants Kruse, it has been adjudged that they are personally liable for any deficiency which may arise upon the sale of the ■ mortgaged premises because of the covenant contained in the deed they accepted from McKenzie, as follows: “This conveyance is made subject to a certain mortgage, given by Jesse Evers to Louisa J. Kinner to secure a certain mortgage, of $1500.00 made Aug. 5,1887, and recorded * * * .on the 6th day of Aug., 1887, in Erie County Clerk’s office, which the said party of the second part hereby assumes and agrees to pay and the covenants of warranty hereinafter contained, shall not be deemed to extend to the said mortgage.” This deed also recited that it was made subject to a certain contract between Cecil W. McKenzie and Mary E. Hartman, bearing date April 17, 1888, for a sale of the premises, which contract was recorded in Erie county clerk’s office. It also contained the following: “ The condition of said contract the parties of the second part hereby agree to assume and carry out and hereby assuming each and every of the said conditions heretofore assumed by the party of the first part with the said Mary E. Hartman.” At the time this deed was made Mary E. Hartman was in possession of the land under the written contract referred to. The contract contained this clause in reference to the mortgage now held by plaintiff: “ That there is a mortgage on the above described premises which the party of the first part [McKenzie] agrees to take care of and provide for and see to it, that it is not foreclosed and keep the party of the second part protected in all things herein. That said mortgage is in the sum of Fifteen Hundred ($1500.00) Dollars.”

It is the contention of the defendants Kruse that after the execution of this contract Mrs. Hartman became the equitable owner of the land and that McKenzie retained the title as security 'for the purchase price; that his relation to the property until such time as Mrs.' Hartman might default in her payments was, in equity, that, or similar to that, of a mortgagee;

p. 821
that the Kruses upon receiving the conveyance from McKenzie became likewise equitable mortgagees, and that their agreement to assume and pay the mortgage was, in legal effect, that of a second mortgagee to pay the first mortgage, and, hence, an agreement which the holder of the first mortgage could not enforce or have the benefit of, as was decided in Garnsey v. Rogers ( 47 N. Y. 233 ) and Pardee v. Treat (82 id. 385).

We aré of opinion that the rule established by those cases is not applicable. Until Mrs. Hartman made default in the payments under her contract she must be considered as the equitable owner of the lands, and McKenzie as holding the title as security for the purchase money. When McKenzie-transferred the title to the Kruses he may be treated in equity as having assigned his mortgage to them, but McKenzie was still the principal debtor in respect of the first mortgage and personally liable for its payment by reason of having assumed such payment in the deed he received. In his contract with Mrs. Hartman he did not provide that she should pay the first mortgage. On the contrary, he himself agreed with her that she should pay to him the whole purchase price and that he would pay the first mortgage. The legal relation, therefore, between McKenzie and the Kruses seems to be this, that McKenzie holds a second mortgage upon the land and being personally liable for the payment of the first mortgage, assigns the second mortgage to the Kruses, and in the assignment provides that the Kruses shall pay the first mortgage, thereby protecting McKenzie against his personal, liability therefor. This the Kruses, by accepting the assignment, agreed to do, depending for their reimbursement upon the payments they expected to receive from Mrs. Hartman under her contract. If such is the nature and legal effect of the agreement, it seems to be a valid and enforcible agreement inuring to the benefit of the holder of the first mortgage within the rule of Lawrence v. Fox ( 20 N. Y. 268 ), and also within the rule of equitable subrogation, as in Halsey v. Reed (9 Paige, 446); King v. Whitely (10 id. 465) and Trotter v. Hughes ( 12 N. Y. 74 ).

In Pardee v. Treat (supra) and Cole v. Cole ( 110 N. Y. 630 ), upon which the learned counsel for the defendants Kruse principally rely, the conveyance containing the clause by which the

p. 822
grantee assumed and agreed to pay a prior mortgage was itself, in fact or in legal effect, a mortgage, and it was held that the grantor, notwithstanding this clause, remained the principal debtor in equity. Even after the grantee had paid the prior mortgage, he (the grantee) was still to hold the land to reimburse himself for the amount so paid, with a remedy to recover the same from the grantor as his debt. The equity of redemption remained in the grantor and the effect of the transaction was that the grantor had procured from the grantee upon the security of the land an advance of money with which to pay his own debt. Such is not the case here. The conveyance from McKenzie to the Kruses was not itself a mortgage, or in the nature of a mortgage. It was an absolute transfer of all McKenzie’s interest in an equitable mortgage which he held against Mrs. Hartman, without reserving to himself any right of redemption or any further interest in the land or purchase ■money. The case is the same in principle as if A, owning a mortgage for $1,000, sells and assigns it to B upon receiving from B $500 and B’s agreement to pay $500 to 0, to whom A is indebted for that amount. The case would be different if Mrs. Hartman had herself agreed with McKenzie to assume and pay plaintiff’s mortgage, but she did not, and between her and McKenzie the latter remained' principal debtor upon this mortgage. We think it was competent for McKenzie to contract with the Kruses that upon receiving a transfer of all of McKenzie’s interest they should take McKenzie’s place as principal debtors for this mortgage debt, leaving McKenzie thereafter in the position of a surety.

It is also contended, in behalf of the Kruses that McKenzie was not personally liable for the payment of plaintiff’s mortgage because the deed to him did not convey good title, and that the Kruses are not liable for the same reason because they did not get a good title from McKenzie, and that there was a failure of consideration under each deed. We think this position is untenable so long as the decision stands in this case to the effect that they did receive an equitable title, which has been made good to them and their grantees by the judgment herein.

It is further contended that McKenzie did not become liable upon the assumption clause • in the deed which he received

p. 823
because he .did not actually take possession of the land, and that the Kruses did not become liable for the same reason. When McKenzie contracted to sell this land to Mrs. Hartman and actually put her in possession as purchaser he thereby, in legal effect, took possession of the land himself. As to the Kruses, if their purchase is to be treated as of a land contract which was an equitable mortgage (which we think it is), then the only possession they would expect to receive or would need to receive to complete the transaction would be the possession of the contract itself.

The conclusion is that the judgment should be affirmed, both as to the defendant Ferguson and the defendants Kruse, with costs.

All concurred.

Judgment affirmed, with costs.

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