Anderson v. Blood

The opinion of the learned judge at special term, so well presents the questions involved that we would not be justified in a further discussion, were in not that the appellant cites authorities which, it is claimed, establish a different rule than that of Williamson v. Brown, 15 N. Y. 354 , upon which the court relied as authority for the foundation proposition.

On the 29th day of November, 1887, the defendant Juan Ramon Martinez Hernandez (known also as John R. M. Hernz), acting as trustee of the estate of his father, Ramon Martinez Hernandez, deceased, exposed the premises No. 11 Bast Twenty-Ninth street, in the city of New York for sale at public auction at the exchange, and the same were struck down to Lloyd D. Waddell, on a bid of $32,500. The terms of sale were signed for Waddell by Alexander Melhado, attorney. Waddell paid nothing upon his purchase and never received any deed. He was a friend and business associate of the defendants Hernz and Melhado, and lived with Melhado on said premises, 11 East Twenty-Ninth street. On the day after the said auction sale November 30,1887, said premises were advertised by Melhado, in the New York Herald, for sale “ at a bargain, to a quick purchaser.” Melhado and Hernz were both lawyers; were then, and had been for many years previously, intimate friends and associates; bad had business transactions with each other; occupied the same suite of rooms for offices, to which one and the same door afforded a common entrance; Melhado had acted as attorney for beneficiaries of the estate of which Hernz was trustee, and also for the defendant Hernz, and at one time prior to the auction sale they had been associated in the active practice of law. Melhado was not required to pay anything, and paid nothing, te the trustee, until he himself had sold the property for $40,000, and himself received part payment from the defendant Blood on the 6th day of January, 1888. At the time of the auction sale, Melhado’s wife held a lease of the premises, which had nearly three years yet to run, and the existence of which, not unlikely, had a depressing effect upon the price of the property at the auction sale. At that time, also, she and her husmand, Alexander Melhado, lived in the house as tenants of Hernz. Before the sale

“There was something more apparent to her than a mere sale at an advanced price by one who had himself purchased at public auction. She knew that the property had been owned by Hernz only as a trustee for others, and that, notwithstanding the public sale, he still held the title. It was apparent from the way the business was transacted with her that, although Waddell had bid off the property, neither he nor Melhado had made any payment on such purchase; that he expected to obtain the amount of the price so bid from the sale to herself; aud that the trustee was holding the title, and waiting for his pay until a resale could be made. She knew that as soon as the property was bid off the purchaser at once put it on the market for a resale, with the offer to sell at a bargain to a quick buyer, and that the price that it had been bid off for was but $32,500. She knew, therefore, that Wad-dell or Melhado would take $7,500 out of the property without advancing any money whatever. And she also knew that the trustee was not only aware of that fact, but was actually assisting them to do so. Morever, she knew that both Melhado and Wad-dell were personal friends of the trustee; that the property, when sold at public sale, was subject to an outstanding lease that was clearly calculated to lessen the price for which it could be so sold, and that such lease was promptly canceled in order to make a sale to her ; and that the property was really worth more than the sum she was giving for it. How concede that she did not know that

Melhado was the attorney for trustee or beneficiaries, or that he and the trustee had agreed before the public sale that the property-should, if possible, be bid off by a friend of theirs • at a low bargain, and resold at an advanced price for their mutual benefit, and that Melhado acquired his title only in pursuance of, and for the purpose" of carrying out, such plan. Nevertheless the facts of which she did have knowledge suggest just such a scheme. A trustee does not ordinarily allow his friend to bid off trust property at $7,500 less than its value, and wait for the first payment until he can advertise and negotiate a resale at an advanced price. The sale to Waddell, and the conveyance subsequently to Melhado simultaneously with his conveyance to her, could not have appeared to Mrs. Blood and her agents as an ordinary business transaction, and certainly not one in which a trustee, acting in good faith, would be likely to join. It certainly suggests the query, for what reason does the trustee force upon the market, at a public sale, this property, upon which there is an outstanding lease for three years ? And why does he allow those interested in the lease to bid it in at so indadequate a price ? And why, instead of compelling them to perform their contract and close their bargain by December 30th, as, under his bid, Waddell was obliged to do, does he wait for him to make a resale at an advanced price? What are the necessities that require the trustee to sell the trust property in such a manner, and at such a sacrifice ? She made no inquiry whatever, but took the title offered her, and under such circumstances, in my judgment, she does not stand in the position of a purchaser in good, faith. ”

It seems to be apparent from this statement that the court was justified in holding that she had knowledge of such facts as to put her on inquiry as to the existence of some right or title in conflict with she was about to purchase. That being so Williamson v. Brown is authority for his further holding that she is presumed either to have made the inquiry, and ascertained the extent of such prior right, or to have been guilty of a degree of negligence equally fatal to her claim to be considered a bona fide purchaser. The appellant, however, insists that, as Mrs. Blood was a purchaser for value, her title can only be affected by proof of actual notice of an intent by Hernz and Melhado to defraud the trust estate,—in other words, that the numerous authorities when prior to and since Williamson v. Brown have asserted that presumptive notice will operate to deprive the grantee of a fraudulent vendor of his purchase have no application to a purchaser for value; that in such a case actual knowledge will alone suffice. The decisions, as we read them, with certain exceptions to which we shall advert, establish, on the contrary, the general rule that the application of the doctrine of presumptive notice is not prevented by a valuable consideration. The fact that a valuable consideration has been paid i's merely a circumstance tending to show that the purchaser did not have notice of the fraudulent intent of his grantor. And it constitutes a circumstance to which much weight should be given in considering all of the facts and circumstances surrounding an allegal fraudulent transaction, because it is difficult to

“ This plainly means that actual notice shall be given of the fraudulent intent, or knowledge of circumstances which are equivalent to such notice. Circumstances to put the purchaser on inquiry, when full value has been paid, are not sufficient.”

This decision seems to have been induced by the wording of the statute, but, however that may be, it created an exception to the general rule asserted by Williamson v. Brown. That it was not intended to do more appears not only from the fact of the citation of the rule of Williamson v. Brown in the opinion, but, later on, that court, speaking through Judge Rapadlo, in Parker v. Conner, 93 N. Y. 118 , discussed both cases. After citing the rule stated in Williamson v. Brown, and that case, among others, as authority for it, the court continued:

“ The questions in such cases are—First, whether the facts were sufficient to put the party on inquiry; and, second, did he fail to exercise due diligence in making the inquiry? An affirmative answer to these two questions charges the party with notice, as matter of law; but the notice, in all such cases, to be found in the books, relates to some actual outstanding title, lien, or equitable interest. Such outstanding rights of third parties, though prior in point of time to the title acquired by a purchaser, are often cut off by the operation of the recording acts; and the doc

trine of constructive notice has been most frequently applied to that class of cases, so as to deprive the purchaser of the protection which those acts afford to purchasers in good faith and without, notice. We have not referred to any case where the doctrine of constructive notice has been applied so as to charge a purchaser of land, who has paid a valuable consideration, and was in fact innocent of any guilty knowledge, with notice that his grantor made the conveyance with intent to defraud creditors at large, having no special lien or equity.”

Thus the court distinctly marked out the limitations of Stearns v. Gage, and recognized Williamson v. Brown as authority for the general rule which includes cases like this, where an equitable interest is affected by the conveyance. Farley v. Carpenter, 27 Hun, 359 , was within the exception, and therefore governed by Stearns v. Gage. Jacobs v. Morrison, 136 N. Y. 101 ; 49 St. Rep. 83 , was an action to recover a deposit of purchase money, on the ground that the proposed vendor’s title was affected by fraud against the general creditors of his vendor. Naturally, therefore, Stearns v. Gage was invoked as authority for the legal proposition involved, with its' assertion that notice of fraud, to be effectual to avoid the title, must be actual. But the learned judge who delivered the opinion of the court was careful to make clear that he intended it to be understood that the term “actual notice” was used in a sense broad enough to include presumptive notice, for he said :

“As well under the statute as at common law, circumstances to put the purchaser on inquiry, who pays full value, are sufficient to affect the title unless they are equivalent to a notice of fraudulent intent.”

Bush v. Roberts, 111 N. Y. 278 ; 19 St. Rep. 122 , is the only' other case cited by appellant where the controversy related to real property, and, as it was an action by a creditor to set aside a conveyance on the ground that it was made with intent to defraud the creditors, it was within the exception created by Stearns v. Gage. It follows that the special term did not err in invoking the rule of Williamson v. Brown.

It is suggested, rather than insisted upon, that the proceedings had on the compulsory accounting of the trustee are res judicata of the matter involved in the present issue. There are several reasons why that adjudication is not a bar to this action. It is true that objections were made on the accounting that Hernz, in violation of his duties as trustee, had permitted this property to be sold at much less than its actual value, and that they were subsequently, but after evidence had been taken, withdrawn. But the remaindermen were not represented on the accounting. -Neither of the defendants Blood or Koss was a party to the proceeding, nor in any way in privity, as to the matters therein adjudicated, with any of those who were, parties; and necessarily the effect of the alleged fraud upon the title of Mrs. Blood and her vendee was not adjudicated. Fannie K. Koss, the present holder of the legal title, is a daughter of Mrs. Blood; and as she did not pay any money for the property the court held that her title was no> better than that of her grantor, because not a purchaser for value.

“It is admitted that Mrs. Koss has the title by gift for a good consideration, she being the daughter, and the consideration one of blood instead of money.”

By this admission the element of marriage was entirely elininated from the question of consideration, and it was conceded that the only consideration was one of blood. This admission the plaintiff had a right to rely upon, and he did, offering no further evidence upon the subject. The defendants apparently had no thought of changing their position during the progress of the trial for we find no request to change the form of the admission which they had formally made in open court, nor do we find from the oral testimony of witnesses that any open effort- was made to inject into the record a further element of consideration. Under such circumstances the party making the admission is bound by it, and cannot thereafter contest it in the action. An appeal to findings of fact by the court which seem to contradict, qualify or limit the admission made will not avail him. Oliver v. Bennett, 65 N. Y. 559 . As the judgment requires the plaintiff to reimburse the defendants Blood and Koss for the moneys invested by them, and to place them in statu quo, they have no just ground of complaint. I advise an affirmance of the judgment.

I cannot concur in the conclusion arrived at by Mr. Justice Parker in this case. Conceding the law as

It further appears that the learned trial justice found the value of this property at the time of this purchase by Mrs. Blood to have been the sum of $45,000; and that was considered a suspicious circumstance, in that it was bought below the market price, and should have induced inquiry and excited suspicion. I have examined the record in vain to find any proof of any such value. It is true that a witness by the name of Youman swore this property to be of the value of $52,500. But it is evident that- this witness was perfectly willing to fulfill his contract of swearing to the value Phis property with or without any information on the subject, and with or without any foundation for his opinion. He shows upon his cross-examination that he was ignorant of any transaction in respect to property in that neighborhood. He then testifies that he makes up his mind in regard to- the value of the- property because of his knowledge of the rental of the property and the taxes which were paid thereon,—not the taxes which were paid in 1887 and 1888, but the taxes which were paid at the time at which he was testifying. He testifies that he was- told that this property ■ was rented for $4,000 or $4,500, and that the taxes at the present • time were about $500, and that it was upon this basis that he made ■. Up his valuation. But when he ascertains that the rental of $4,000 , ov $4,500 was of a furnished house, and not of a house unfur.nished, he is entirely equal to the occasion. He says: “I was not -p-overned by the fact of the rental at all I made my valuation independent of that; not governed by anything that was told to me .in regard to the rent,”—exactly contrary to- that which he- had previously testified. And this witness, prevaricating as he evidently did, is considered to have established a foundation of value of this property, not of $52,500, but of $45,000,—a sortof halfway house between his estimate and that of a witness examined on the part of the defendant who had great experience- in the sale of real estate, as an auctioneer and real estate agent, and he testified that

But it is said by the learned judge in the court below that it is evident that the purchasers at the auction sale never intended to take the title, and that they never did until they got a purchaser. As it has been held by the court of appeals in Frace v. Railroad Co., 143 N. Y. 182 ; 62 St. Rep. 166 ; that we may take judicial notice of the fact that certain spark arresters are in common use upon engines or locomotives, I think the court may also take judicial notice that it is not an uncommon occurrence, by any means, for a party to make a contract for the purchase of real estate, expecting to resell the same at a profit before he is compelled to complete under his contract. If such a circumstance, is to invalidate transactions in real estate by means of suits brought years thereafter, there will not be much speculating in real estate in the city of New York. The evidence shows that a reputable and careful attorney (Mr. Waddell), in the examination of this title, saw nothing suspicious in regard to'the circumstances attending it to call for special inquiry : and it should take no slight evidence to impeach the title of a purchaser who has paid a fair consideration for the property bought.

There is another feature in this case which seems to have been lost sight of. These suspicious circumstances, if any existed, in

It seems to me also, that Mr. Justice Parker is in error in holding that, because of the stipulation contained in the case, the question as to whether the conveyance by Mrs. Blood to Mrs. Koss, her daughter, on her approaching marriage, was for a good consideration, was eliminated from the case. The learned judge below found that the consideration for said conveyance was the consideration of blood relationship, and the approaching marriage of her said daughter to Charles E. Koss. The stipulation did not impeach this statement contained in the deed. The learned trial judge, in making his findings, did not so think. All that the stipulation amounted to was that Mrs. Koss did not pay any money for the property. It in no way affected the question presented as to a marriage settlement. But it is not necessary to discuss this proposition, because the plaintiff entirely failed to make out a case. Indeed, the-whole ground for this action rests upon the fact that a purchaser desirious of procuring this property for a particular purpose was willing to pay an exorbitant price for the same, beyond all question far above its ordinary value. I do not .think that this should justify the impeaching of this title years after it has been taken. The judgment should be reversed, and a new trial granted, with costs to the appellants, to abide the event.

While, in the proper action, the evidence might justify a recovery against the trustee or the purchaser at the auction sale for the profits realized upon the sale to Mrs. Blood, it is insufficient to warrant the conclusions that Mrs. Blood was not a purchaser in good faith, for value, or that the title of Mrs. Koss, her daughter, was invalid as against the beneficiaries. I therefore concur with the presiding justice for a reversal of the judgment.