Peck v. Peck — 16 N.Y. St. Rep. 638

Majority

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Julia Blanche Peck, Resp’t, v. Theodore G. Peck et al., App’lts.

(Court of Appeals,

Filed June 5, 1888.)

Headnote

1. Trustee—What circumstance Will make one trustee ex maleficio.

In 1881, John Peck died intestate, leaving considerable real and personal property subject to mortgages and other liens. His affairs were left in considerable confusion and there was great difficulty in closing them up. His son, Ernest, who is the husband and assignor of the plaintiff, was insolvent, and had judgments to a large amount entered up against him. There were difficulties and disputes in regard to the settlement of the estate between Ernest and the other sons. In January, 1882, while the difficulties still existed and the estate was unsettled, the whole interest 'of Ernest was sold on an execution issued upon a judgment against him obtained by one Schundtz for $244. Morrell, the father-in-law of Ernest, bid in the property for that sum under an agreement with him that he might at any time thereafter redeem his interest and receive it back by paying the above amount and interest. The differences between the brothers having been left to their counsel, they had agreed on most of the matters at issue on February 21, 1883, which fact was known by the brothers Ernest, Theodore and Gordon, and by Morrell soon thereafter. It was understood that Ernest and Morrell, as part of the settlement, should take up and pay the judgments against Ernest, Soon thereafter Ernest consented to give a confession of judgment to Gordon to secure him for the debt Ernest owed him of about $1U0, provided it was to be used only as a lien and not to be enforced in any event before May first following. On April 3, 1883, Gordon docketed this judgment and went to the sheriff’s office, and by virtue thereof redeemed the interest of Ernest from the ¡-ale under the Schundtz judgment, and paid to the sheriff the amount of Morrell’s bid and interest, and on the fourth of April the sheriff conveyed to Gordon all the interest of Ernest in the homestead by deed which Gordon had recorded. Ernest relied on Gordon’s promise not to enforce the judgment, and believing that all matters had been settled, took no steps to secure or protect his interests against the judgment of Gordon or the other judgments against him. Gordon claimed that by this redemption he succeeded in obtaining all the interest of Ernest in the homestead, and that he is now the absolute owner. Held, that Gordon could not maintain his claim. That a court of equity would treat Gordon as a trustee ex maleficio, and as in that capacity holding title to the interest of Ernest in the homestead in trust for Ernest or his'

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assigns subject to the repayment of the amount paid by Gordon when he redeemed from the Schundtz judgment, and also to the payment of the amount of his own judgment with interest. That that character of trustee ex maleficio is imposed upon him because of the peculiar relations which these men sustained to each other at that time.

3. Same—Equity will not allow one to take advantage op his POSITION TO THE INJURY OF ANOTHER TRUSTING HIM.

Theodore G. Peck on the 3d of April, 1883, having the same knowledge in regard to the situation as his brother Gordon purchased a judgment in favor of one S, against his brother Ernest amounting with interest to about $6,000 for the sum of $3,000 and claimed that he was entitled to be paid the full amount of that judgment which he still held. In addition to his knowledge of said circumstances Theodore had stated to Ernest that he would protect his interest in the estate and had written him a letter in which he reiterated’ the promise. He had also acted as agent of Ernest in regard to the estate. Held, that under the circumstances he should not be permitted to take advantage of his position for the purpose of making money out of his brother. That their relations were fiduciary in their nature and that he should be permitted to hold the judgment for the amount only that he paid for it with interest.

3. Same—Co-tenant buying incumbrance or paying mortgage—When BECOMES EQUITABLE ASSIGNEE FOR BENEFIT OF TENANTS.

There was a mortgage upon a portion of the premises owned by John Peck at the time of his death, which in the fall of 1881 amounted principal and interest to over $16,000. There were no threats of foreclosure and not any pressing necessity to take care of it. In the latter part of 1881 Theodore purchased the mortgage for $10,000 and took an assignment of it to himself and claimed to hold it for its full amount. Held, that he was not entitled to do so.« That if an incumbrance be bought in by a co-tenant or paid under such circumstances as existed in this case the payment would operate as an equitable assignment from the mortgagee to himself, and his right under such equitable assignment would be to exact contribution from his co-tenants for the amount he had paid to redeem the mortgage. That under the circumstances of this case Ernest was not bound to tender contribution of his share under penalty of a right on the art of Theodore to enforce the mortgage for the full amount. Streeter v. Schultz, 10 ÍT. Y. State Rep., 115, distinguished.

Appeal from a judgment of the supreme court, general term, second department, affirming an interlocutory judgment in favor of plaintiff entered at the trial of the case at the Rockland county special term.

Calvin Frost, for appl’ts; L. E. Chittenden, for resp’t

The learned counsel for the appellants has, with a most commendable desire to bring to an early termination this unfortunate litigation, waived all his exceptions taken upon the trial which do not directly bear upon the merits of the important matters in dispute between the parties, and both counsel have united in submitting for our determination the three main subjects of dispute upon which the parties are wholly unable to agree.

The first question that arises is in regard to what rights Gordon Peck obtained by the redemption under the judgment confessed by Ernest, the plaintiff’s assignor, to him in March, 1883. A brief statement of the more important facts. upon which the question arises is necessary here.

In 1881, John Peck, of Haverstraw, died intestate, leaving

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considerable real and personal property, subject to mortgages and other liens. His affairs were'left in considerable confusion, and great difficulty was necessarily experienced in closing them up. His son, Ernest, who is the husband and assignor of the plaintiff, was insolvent, and had judgments to a large amount entered up against him. Immediately upon the father’s death, Ernest and the other sons got into difficulties and disputes in regard to the settlement of the estate, and as the other heirs remained on the homestead, and Ernest with his wife and children lived away, the difficulties and disputes did not terminate.

On January 4, 1882 while the difficulties still existed, and the estate was unsettled, the whole interest of Ernest was sold on an execution issued upon a judgment against Ernest obtained by one Schundtz for $244. Thomas Morrell, the father-in-law of Ernest, bid in the property for that sum under an agreement with him that he might at any time thereafter redeem his interest and receive it back by paying the above amount and interest. The differences continued between the brothers in regard to the settlement of the estate and the various claims made by them in regard thereto, when in the fall of 1882 the counsel for the respective parties consulted together, and it was finally understood between them, and ratified by their respective clients, that all matters of difference should be settled by an agreement between the counsel which should be carried out by their clients.

Numerous meetings of counsel were had; and on February 21, 1883, an agreement had substantially been come to between them on most of the matters at issue. The fact of the counsel having substantially arrived at an agreement at a meeting between them on or about February 21, 1883, was known by the brothers Ernest, Theodore and Gordon, almost immediately, and soon thereafter by Morrell, and it was fully understood that Ernest and Morrell, as part of the settlement, should take up and pay the judgments against Ernest which were thus to form no obstacle to the immediate com-

ÍJetion of the settlement, and, of course, neither of the two atter had any suspicion that any effort would be made in the mean time, or at all, to enforce such judgments, or to obtain control of them by the brothers for any purpose whatever; and this must have been understood by the brothers.

Immediately after this meeting on February 21, Gordon met and had a conversation with Ernest, and asked him for a confession of judgment to secure him for the debt Ernest owed him of about $100, for something wholly disconnected with the estate. Ernest told him he had no money, and could not pay his debts, until he got his dues from the estate, and he would not confess any judgment if it was to be enforced against him before such settlement. Finally Ernest consented to give such a judgment, provided it was to be used only as a lien, and not to be enforced in any event before May first, following, and under such positive agreement

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on the part of Gordon, Ernest subsequently and on the nineteenth of March, sent the confession of judgment to a lawyer at Haverstraw, who delivered it to Gordon. On the 3d of April, 1883, Gordon docketed this judgment, and with his brother Theodore went to the sheriff’s office, and by virtue of this judgment redeemed the interest of Ernest from the sale under the Schundtz judgment, and paid to the sheriff the amount of Morrell’s bid and interest, and on the fourth of April the sheriff conveyed to Gordon all the interest of Ernest in the homestead, by deed duly delivered which Gordon had recorded. Theodore was present at the time of the redemption, and had full knowledge of it and of the delivery and receipt of the deed. Ernest relied on Gordon’s promise not to enforce the judgment, and both he and Morrell, in good faith, believed, that all the matters between the heirs had been settled; and by reason thereof neither took any steps or made any arrangements to secure or protect Ernest’s interests against the judgment of Gordon or the other judgments against Ernest.

I do not pretend to have stated all the facts in this case relating to this special subject, but only those which I think are sufficient to make the question to be decided intelligible. That question is can Gordon maintain his claim that by this redemption he has succeeded in obtaining all the interest of Ernest in the homestead, and that he is now the absolute owner thereof ? We do not think he can. We think it would be a fraud upon Ernest to permit it, and we do not know of any rule of law or equity which prevents a court from so declaring.

We think the meaning of the evidence upon which the finding of the court is based as to the terms upon which the judgment was confessed, is that the defendant Gordon was to have his judgment as a security for his debt, and it was not to be enforced in any event until May first, and that if anything occurred in the meantime rendering it necessary for Gordon to act in order to keep his judgment alive, he should do no more than the occasion called for, and the effect should be nothing more than to keep it alive as a security. We think the redemption under it and the claim to thereby retain the whole interest of Ernest in the estate operates with great injustice upon Ernest, and is in effect a gross fraud upon him. It is true, as stated by appellant’s counsel, that at the time of the redemption the right of Ernest to redeem under the statute from the sale on the Schundtz judgment had terminated with the expiration of the year from January 4, 1882, but he still had an interest in the premises, and the title thereto remained in him until the expiration of the fifteen months from the time of sale. During this three months he could still confess a judgment

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which would be a lien upon his interest, or he could mortgage it, and the judgment creditor or mortgagee could redeem. See cases cited in opinion of Andrews, J., in Wood v. Rabe, 96 N. Y., 414 , 423, 424. In addition to this, however, Ernest had his right to redeem under his agreement with Morrell, which was valid. Ryan v. Dox, 34 N. Y., 307 . As he had an interest in the estate which was sold under the Schundtz judgment, the agreement can be upheld under the authority of the above case, which, although distinguished and limited in the subsequent case of Levy v. Brush ( 45 N. Y., 589 ), has not been shaken as an authority upon this proposition. The redemption therefore, by Gordon, if it should stand, would be a great damage to Ernest, and it is of great practical importance to him and to plaintiff, as his assignee, to decide it, even though the time has now passed in which Ernest could, by confessing a judgment or mortgaging his former interest, give a right to such judgment creditor or mortgagee to redeem, as stated above.

It is also stated that Ernest was not injured because Theodore was present at this time and was ready to redeem under and by virtue of his ownership of other judgments against Ernest, in case Gordon had not done so.. We can not decide this question upon a possibility as to what some one else would have done if Gordon had not redeemed, and also for the reasons hereinafter given, when that question will be discussed as to the right of Theodore to act adversely to Ernest in regard to any judgments purchased by Theodore. We hold that Theodore had no right to thus use those judgments any more than Gordon had to use the one under discussion, and then claim the full title to the interest of Ernest.

We fail to see any reason why the agreement between Gordon and Ernest, was not a valid one. It was on good consideration, for by getting the judgment Gordon obtained what he wanted, an acknowledgement of the existence of the debt, the amount thereof and security for it.

He made the agreement that he would not enforce it for a certain time, and thereby he obtained the judgment. He has violated his agreement, and while clinging to the results of it he denies its efficacy in law. He says the effect of what the plaintiff asks is to make him a trustee and to create a trust by parol in lands, under circumstances not permitted by law. We do not think so. The effect of his conduct is that a court of equity treats him as a trustee ex maleficio, and as in that capacity holding title to the interest of Ernest in the homestead, in trust for Ernest or his assigns, subject to the re-payment of the amount paid by Gordon when he redeemed from the Schundtz judgment,

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with interest on the amount he paid upon such redemption from the time of such payment, and interest on the amount of his judgment from the time of the docketing thereof. The defendant Gordon is held to occupy such a position, not because he commits a fraud by refusing to perform a com tract void by the Statute of Frauds.

The contract he made was not void. It was one simply not to enforce a judgment for a certain time. " He violates the real substance of this agreement, not by redeeming the interest of Ernest, but by thereafter claiming to own it all under the redemption. Instead of being merely liable in. damages for this breach, the character of a trustee ex maleficio is imposed upon' him because of the peculiar relations which the facts show these men, who were brothers, sustained to each other at that time. The negotiations for a settlement of all differences were substantially concluded, and a settlement effected, one of the terms being that Ernest or Morrell was to pay, or take care of, all the judgments against Ernest, and all parties knew this; and Ernest and Morrell relied on this fact as a reason for taking no steps to secure or protect the interest of Ernest, no one supposing that any hostile use would be made of any judgment when, because of the supposed settlement, all reasons for it had ceased.

Under such circumstances there was a relationship exists ing between Gordon and Ernest upon the question of the use of this judgment by confession, grounded not only upon the specific agreement already spoken of, but also upon the faith placed in the settlement of all differences, which made such relationship fiduciary in its character, and which naturally led Ernest to suppose that no advantage would be taken of him by his brother by a fraudulent and unfair use of the judgment which he' confessed for a security only; And it is seen that the judgment was itself confessed only upon the assumption that this agreement settling all controversies was about to be carried out, and the inference is fairly to be drawn from the evidence that it was precisely .because such agreement had been arrived at, and all subjects of difference were about to be disposed of, that Gordon takes the opportunity to present his claim and to ask for the security of a judgment.

Under all the facts we think the case of Wood v. Rabe (supra) is authority for the statement that Gordon is placed in the position of trustee of Ernest with reference to his title to the interest of Ernest, which he claims to owii under his redemption by virtue of his judgment by confession, subject to the payments to Gordon as above described.

Second. Theodore G. Peck on the 2d of April, 1883, hav

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ing the same knowledge in regard to the situation as his brother Gordon, purchased a judgment in favor of one Billings against his brother Ernest amounting with interest to about $6,600, for the sum of $3,000, and now claims that he is entitled to be paid the full amount of that judgment which he still holds.

We think .he has no-such right. In addition to his knowledge of the circumstances which have been stated in regard to Gordon, Theodore had stated to Ernest at the Hoffman House in 1882, that he would protect his interest in the estate and had written him a letter dated March, 1882, in which he reiterated the promise. He had been substantially the agent of Ernest in regard to the estate and was under express obligations to look after and preserve his interest in it. It is true the authority of Theodore, to collect rents and make leases, etc., of the estate, had been annulled by Ernest under the contract entered into between the four brothers, and tho power of attorney therein referred to had been by him revoked. Yet Theodore was still to some extent in possession of the estate, attending to all the business in regard to it, and received all the rents, income and profits thereof and Ernest might well have supposed from his conversation with Theodore and the letter referred to, that he would fulfill his obligations and not seek to take advantage of him.

Notwithstanding the revocation of the power of attorney and the annulling of the contract, their relations in regard to this matter continued to be fiduciary in their nature; and it cannot be tolerated that Theodore under such circumstances should be permitted to take advantage of his position for the purpose of making money out of his brother.

He should be permitted to hold the judgment for the amount only that he paid for it with interest.

Third. There was a mortgage upon a portion of the premises owned by John Peck at the time of his death, which in the fall of 1881, amounted, principal and interest, to between $16,000 and $17,000. So far as appears there were no threats on the part of the mortgagee to foreclose, nor was there at the time of the purchase by Theodore any immediate and pressing necessity to forthwith take care of that mortgage.

In the latter part of 1881, Theodore purchased the mortgage for $10,000, and took an assignment of it to himself, and now claims to hold it for its full amount. We think he is not entitled to do this. One of the leading cases upon the subject of the right of one tenant in common to bid in an outstanding title or encumbrance on the estate is Van Horne v. Fonda ( 5 Johns. Ch., 388 , at 407). The learned chan

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cellor there says that, although he would not deny that one tenant in common might not in any possible case bid in an outstanding title for his exclusive benefit, yet (continuing), he says: “When two devisees are in possession under an imperfect title, derived from their common ancestor, there would seem, naturally and equitably, to arise an obligation between them, resulting from their joint claim and community of interests, that one of them should not affect the claim to the prejudice of the other. It is like an expense laid out upon a common object by one of the owners, in which case all are entitled to the common benefit, on bearing a due proportion of the expense. Community of interest produces a community of duty, and there is no real difference on the ground of policy and justice, whether one co-tenant buys up an outstanding encumbrance, or an adverse title to disseize and expel his co-tenant. It cannot be tolerated when applied to a common subject in which the parties had equal concern, and which created a mutual obligation to deal candidly and benevolently with each other, and to cause no harm to their joint interest.”

In this case, if the mortgage were due, and the defendant Theodore desired to redeem, he must of course have redeemed by paying the whole mortgage, or whatever amount the mortgagee was willing to take. He could not redeem his share of the estate from the lien of the mortgage by paying simply what would amount to his share of the mortgage. If an encumbrance be bought in by a co-tenant or paid under such circumstances as exist in this case, the payment would operate as an equitable assignment from’ the mortgagee to himself, and his right under such equitable assignment would be to exact contribution from his co-tenants for the amount he had paid to redeem the mortgage. Pomeroy, in his excellent work on Equity Jurisprudence, § 1221, states this doctrine fully. The same principle is decided in Rothwell v. Dewees (2 Black [U. S], 613); see, also, Weaver v. Wible ( 25 Penn., 270 , and Lloyd v. Lynch (28 id., 419 , at 424).

The case of Streeter v. Shultz (10 N. Y. State Rep., 115), is in no way adverse to this principle. In that case a mort gage upon the property was foreclosed. Shultz was a tenant in common with the plaintiff by virtue of a conveyance of an undivided half of the premises from the plaintiff to him, subject to a mortgage given by the plaintiff to secure the purchase money. At the foreclosure sale of that mortgage Shultz bid in the property for himself. He was also the owner of a subsequent mortgage given by the plaintiff to him on the plaintiff’s undivided part of the premises; and the court held that under such circumstances, it being a public sale, judicial in its nature, and the relations between the parties being at arms length, the case was taken out of the ordinary rule, and that the defendant upon bid •

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ding in the property obtained a good title thereto. In this case, on the contrary, at the very time when Theodore purchased the mortgage (which was at private sale) he was residing in the family mansion, where he had continued to reside since his father’s death and for a long time before it, and he knew that Ernest was in greatly embarrassed circumstances with judgments entered up against him, and that he was wholly dependent upon what he would realize as his share of his father’s estate for the means of extricating himself from his difficulties. At the same time Theodore was managing the estate, and was receiving all the rents, income and profits therefrom, the result being that Ernest was kept wholly unable to buy any mortgage himself or to contribute towards the purchase of any such.

Upon these facts a court which permitted Theodore to buy in a mortgage for much less than its face and to insist upon payment to him at the same rate as if he had paid all that was due thereon, would administer, in my opinion, neither law or equity.

The counsel for the defendant, Theodore, claims, however, that even if he would not have the right at first to hold the mortgage for the full amount, yet when informed of the -purchase, the plaintiff’s assignor, Ernest, should have offered to contribute his share of the purchase price of the mortgage; that such offer should have been made within a reasonable time after knowledge of the purchase, and the failure of Ernest to make it entitled the defendant to enforce the mortgage for its fuE amount.

• We do not think that the defendant places himself within any rule permitting such a result. A11 that appears in the evidence on the subject is, that the defendant Theodore, purchased this mortgage in December, 1881, and that on the 9th of February, 1882, when a question arose as to leasing a. rolling mill on his father’s premises, Ernest was present and heard that Theodore had purchased the mortgage. It is not found as a fact, but Theodore says in his evidence, that the price he gave for it was • mentioned, and that he then said that he should hold it for the full amount of principal and interest. Ernest says he does not think the amount paid by Theodore was mentioned. It was not a conversation addressed to him, and no demand for contribution and no intimation to that effect was made by Theodore. At that time the contract had been made by which Theodore was constituted the agent of the estate to attend to its business, and a salary agreed to be paid him therefor, and he was receiving aE the income and rents therefrom. Under these circumstances, we think it cannot be plausibly contended that even if Ernest heard the price paid by Theodore for the mortgage and his claim to hold it for the full

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amount due thereon, that Ernest was bound to tender contribution of his share under penalty of a right on the part of Theodore to enforce the mortgage for such full amount. This is entirely different from the case cited by the counsel, of Mandeville v. Solomon, 39 Cal., 125 .

In that case one tenant in common discovered what he feared was a flaw in the title to some portion of the property, and bethought it best to purchase the outstanding title if it could be done for the sum named, and he asked his co-tenant to make contribution for that purpose. His co-tenant refused. He subsequently purchased the outstanding title, paying the sum stated for it, and immediately wrote to his co-tenant all the particulars and asked him to contribute his share, and he made no answer but entirely neglected to contribute anything. Long subsequent to that time the co-tenant desired to avail himself of the purchase, and the court held that he was too late.

The case of Lee v. Fox (6 Dana Ken., 171, 176) is substantially an authority for the proposition announced here, although there is a mere statement contained in the opinion that the election should be made within a reasonable -time.

We think that in this case there was no such presentation of the subject to Ernest as to call upon him to make an election, even if it could be assumed that such a purchase under the circumstances, if a demand had been made, called for contribution at the peril of an enforcement of the mortgage for the full amount.

The above are all the questions submitted to this court, and in regard to each of them we think the decision of the general term was correct.

Its order denying anew trial should, therefore, be affirmed with costs.

All concur.