Opinion
March Term, 1868
Asher P. Nichols, for the appellant.
Sherman S. Rogers, for the respondent.
It is declared, by 1 Revised Statutes, 728 (§ 51), that "where a grant for a valuable consideration shall be made by one person, and the consideration therefor shall be paid by another, no use or trust shall result in favor of the person by whom such payment shall be made; but the title shall vest in the person as named the alienee in such conveyance, subject only to the provisions of the next section." The next section (§ 52) provides that "every such conveyance shall be presumed fraudulent as against creditors at the time of the person paying the consideration; and where a fraudulent intent is not disproved, a trust shall result in favor of such creditors to the extent that may be necessary to satisfy their just demands." A subsequent section (§ 54) contains a saving clause in favor of purchasers for a valuable consideration without notice of the trust.
The premises in question in this case were purchased by Joseph A. Bliss, and the purchase-money mainly paid by him prior to the conveyance to his wife. After the conveyance was made to the husband, the deed to him was destroyed, and another deed executed by the grantor, by the direction of the husband, to the wife. Under this state of facts there can be no question that the conveyance to Mrs. Bliss was fraudulent as against the creditors of her husband, to whom he was indebted at the time, and that they were entitled to the benefits arising from the property, to the extent of their demands, except as against a bona fide purchaser. The defendant Pinner paid a valuable consideration for the purchase of the property, and whether he was or was not a purchaser for value depends upon the fact whether he had actual notice of the facts existing in reference to the title, or what, in law, is equivalent to such notice, such knowledge as to put him upon inquiry. There is no evidence to show that Pinner had actual knowledge of the facts, and his own evidence establishes that he did not have such knowledge. The referee has also found, that, at the time Pinner paid for and received the conveyance, he had no actual notice or knowledge of the facts which rendered the conveyance fraudulent and void as against creditors, or created a resulting trust in their favor, but that he had sufficient knowledge to put him upon inquiry, and that such knowledge was equivalent to notice, and in law amounted to constructive notice, and entitled the plaintiff to judgment. The question then arises, whether the facts presented upon the trial sustain the conclusion of the referee, that there was sufficient evidence to put Pinner upon inquiry. Before discussing the legitimate effect resulting from the facts proved, it may be well to refer to the principles which govern and control cases of this character. In Williamson v. Brown ( 15 N.Y. 362), SELDEN, J., lays down the rule, that, "when a purchaser has knowledge of any fact sufficient to put him on inquiry as to the existence of some right or title in conflict with that he is about to purchase, he 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 fatal to the claim to be considered a bona fide purchaser." (See also 4 Kent's Com. 179; Hind v. Vattier, 1 McLean, 110; Nantz v. McPherson, 7 Mon. 599; Colton v. Hart, 1 A.K. Marshall, 41, 56; Woodpour v. Blount, 3 Hey. 147; Harris v. Carter, 3 Stewart, 233; Benzein v. Le Noir, 1 Dev. Ch. 225; Hawley v. Cramer, 4 Cow. 718.) To charge a party with notice, the circumstances known by him must be such as ought reasonably to have excited his suspicion, and to have led him to inquire. It appears to me that in the case at bar there were many facts within the knowledge of Pinner which were calculated to arouse his suspicion and to put him upon inquiry. He was a creditor of Bliss, and his debt had been due since about the first day of July, 1859, and he had made ineffectual efforts to secure or collect it by negotiations with Bliss for security by mortgage upon the property finally conveyed to Pinner. He had been informed that the firm of which Bliss was a member had failed, and, after July, 1859, he refused to trust Bliss. He also had notice that Bliss had paid a portion of the purchase-money for the land, and that he still was indebted for the remainder. He knew that a suit had been brought to collect the unpaid purchase-money out of the property, and injunction issued restraining its sale, and that it was removed by his paying a portion of the consideration money he had agreed to pay for the premises to liquidate the surrender. He also was acquainted with the fact that Bliss owed other debts and demands, and that the conveyance had been made to his wife on the 19th of May, previous to the time when Bliss had failed to meet Pinner's note. It is very evident to my mind that the facts to which I have adverted were quite enough to excite suspicion and to put Pinner upon his guard; and in the exercise of that caution and diligence which men are accustomed to exercise in making purchases of property, he had strong reasons to suppose and believe that the premises belonged actually to the husband, and that the conveyance was made to the wife for the purpose of placing the property beyond the reach of his creditors. He was, therefore, I think, clearly bound to make inquiry as to the facts existing in regard to the title, and the grounds upon which the suit had been commenced and the injunction issued. Had he merely procured an examination of the papers in the injunction case, it would have disclosed the fact that the purchase-money of the property had been paid by Bliss, if not already known, and that the property was liable for the payment of his debts. This would also have led to the further development of the existence of the judgment against Bliss, and the examination of the record would, no doubt, have disclosed the fact that the indebtedness had accrued prior to the conveyance to Mrs. Bliss. With the negotiations made with Bliss himself, to secure Pinner's demand against him, out of real estate, the title of which was in his wife's name, and the suspicious circumstances which pervaded the whole transaction, it is difficult to conceive how Pinner could have failed to discover the fraudulent character of the transaction; at least, with the information and knowledge which he had, how he could have neglected to make a further examination, which must inevitably have led to a revelation of the fact that the husband, and not the wife, was the actual owner of the property. Although the question involved is one of good faith, yet in judgment of law a want of caution and diligence, such as an honest man would ordinarily exercise, is a want of good faith ( Pringle v. Philips, 5 Sand. S.C. 157; Danforth v. Dart, 4 Duer, 101); and, Pinner having failed to exercise that caution and diligence, the referee was entirely justified in the conclusion at which he arrived upon the question presented to him.
It is said, that the fact, that the referee finds that Bliss was insolvent at the time of the delivery of the deed to his wife, is unimportant, as Pinner did not know it. The referee has found certain facts from which he has drawn the conclusion, that Pinner ought to have made inquiry; and, even if we assume that Pinner did not know that Bliss was insolvent at the time of the conveyance to his wife, Pinner's want of knowledge of that fact is not entirely conclusive, provided he had sufficient knowledge of the facts to call into exercise his caution and prudence, and to cause him to make inquiry. As is already apparent, there were many circumstances which indicate that he ought to have made inquiry. He had been informed that the firm of which Bliss was a member had failed; he knew that Bliss himself, a few weeks after the deed to his wife, had failed to meet his engagement; and again, very soon afterward, had not paid his renewed note, and was considered irresponsible after this. These facts transpired some time before the conveyance to Pinner, and, in connection with what he had learned prior to this time, as to the existence of the injunction, and of debts against Bliss, with other circumstances not necessary to be stated, tended to prove that Bliss' insolvency must have dated back anterior to the time when the property was conveyed to his wife. If the facts did not satisfy Pinner upon that question, certainly they were enough to induce him to investigate and ascertain what the actual condition of Bliss was in a pecuniary point of view. The existence of insolvency at any time, of itself, would naturally lead to an inquiry as to how far back it extended as to time. Especially would this be the case, when it was proposed to secure the debt of the insolvent by a lien on the real estate held in the name of the wife, as was done here. And it cannot be fairly and reasonably claimed, I think, that the pecuniary circumstances of Bliss, as known to Pinner when he took the deed, were not of such a character as to attract his attention. The period of time during which the facts relating to the transaction occurred, was not very extended, and the case before us bears no analogy to Frazer v. Western (1 Barb. Ch. 220), to which we have been referred by the counsel for the defendant, where the insolvency of the husband existed, and the conveyance was made to the wife five years prior to the transfer by the wife to another party, and that party had no acquaintance with the husband or his circumstances, so as to make it his duty to inquire whether the deed was fraudulent. In this case, independent of the fact that Pinner knew that the deed was not founded upon a pecuniary consideration, as is manifest, there were other circumstances which stamped the conveyance of the property to the wife as a fraud upon creditors, which should have awakened inquiry. The fact that Pinner advised with counsel does not, I think, relieve him from the consequence of his failure to make inquiry. The judgment must be affirmed.
In this case it is found not only that Joseph A. Bliss, the judgment debtor, purchased and paid for the lands whereof the conveyance was made to his wife, so that a resulting trust arose in favor of his then existing creditors, upon the presumed fraudulent intent, which was not disproved (1 R.S. 728, §§ 51, 52), but he has found further, that Bliss procured such conveyance to be made to his wife with the actual purpose and intent of hindering, delaying and defrauding his creditors, being himself at the time insolvent.
Under these circumstances, it is not claimed that the title of Mary A. Bliss was of any validity as against the respondent, or that the judgment appealed from was not in all respects proper, if her grantee, the defendant Pinner, stands in no better position than herself.
The rights of Pinner are to be tested by two inquiries:
1. Had he notice of the trust?
2. Had he notice that the conveyance to his grantor was procured to be made with actual purpose and intent to hinder, delay and defraud the creditors of her husband?
These two questions need not be confounded. A bona fide purchaser for value from the grantee, in a fraudulent conveyance, without notice of the fraud, obtains good title. And by the express terms of our statute, above referred to, where the consideration is paid by one, and the conveyance is made to another (§ 54), no implied or resulting trust shall be alleged or established to defeat or prejudice the title of a purchaser for a valuable consideration, and without notice of such trust. Pinner undoubtedly paid a valuable consideration. So the referee finds.
The referee also finds that he had no actual notice of the intent to defraud, or of the legal presumption of fraud, or that there was a resulting trust in favor of the creditors of Bliss; "nor had he actual knowledge or notice of the facts which rendered said deed fraudulent and void as against creditors, or created a resulting trust in their favor."
But the referee does find facts which he concludes, as matter of law, were equivalent to notice or constructive notice of the fraudulent intent and purpose and of such resulting trust, and sufficient to put him on inquiry, and which, therefore, do in law amount to constructive notice thereof.
These facts and this conclusion are the subject of review by the appellants on this appeal.
As to the facts found, which the referee holds amount to constructive notice of the resulting trust, because sufficient to put the defendant to inquiry.
On that subject, he knew, before he bought from Mrs. Bliss, that the premises had been purchased from Hill and wife, and that S.G. Johnson, residing in the same village with himself, acted as the attorney of Hill and wife in the sale.
He had heard conflicting reports in regard to the question who was the purchaser, i.e., he had heard that Joseph A. Bliss purchased them of Hill and wife, and he had heard that Mrs. Bliss (the wife) had purchased them.
He had made inquiry for the purpose of seeing whether a debt then due from Bliss to himself could be collected out of the property, but believing that it was generally understood that Mrs. Bliss owned or had title to the property, he took no proceedings.
He had heard that it was claimed and supposed that Joseph A. Bliss had paid part of the consideration money on the purchase from Hill and wife.
He knew that Bliss owed debts. He was himself a creditor. He had heard that the firm of which Bliss was or had been a member had failed. And, finally, he made no inquiries of S.G. Johnson in respect to the payment of the consideration money.
Here was plainly enough to put him on inquiry into the facts attending the purchase. He had heard that it was claimed and supposed that Bliss, the debtor, had paid a part of the consideration of the purchase, and he knew that the conveyance was made to the wife, for he took his deed from her.
This was of itself enough to put him to inquire whether the fact was as he had heard it was claimed and supposed to be; for if the fact was as he knew it was claimed and supposed to be, then there was a trust for the creditors of Bliss, and he knew there were such creditors.
On this subject Pinner made no inquiries. Going to Buffalo and examining the records would throw no light on this point. His counsel there were not advised of any doubt growing out of the information that Bliss paid the consideration for the conveyance to his wife. A word of inquiry made at home of the agent of the vendor would have informed him fully.
Upon this ground alone I think it was very properly held that he had constructive notice, and was affected by the resulting trust. On the other point also I think the conclusion of the referee was correct.
This is perhaps not very material, unless, perhaps, it could be claimed that although he was chargeable with notice that, by force of the statute, Mrs. Bliss held in trust for creditors, he, being a creditor, had a right, by purchasing from her, to obtain payment of his own debt.
If the conveyance to the wife was fraudulent as against creditors upon either ground, then I apprehend, that, although it might be competent for any creditor to secure himself by claiming and obtaining the application thereof, the payment or security of his debt, and might do so, if he could, without first obtaining judgment and execution, he could not, by taking an absolute deed from the fraudulent grantee or trustee, and paying her the balance due, obtain a valid title.
So that, without enlarging on the facts, which I deem sufficient to amount to actual fraud, it must suffice to say, that, in addition to those already enumerated, he knew that one judgment creditor had already filed a bill, and obtained an injunction to prevent Mrs. Bliss from selling or conveying the property. He knew that Bliss was embarrassed — owed debts not paid — had failed — and that he himself had failed in his endeavors to procure payment of what was due to himself.
I have no hesitation in saying, moreover, that notice of the pendency of an action to restrain Mrs. Bliss from selling the property, in which an injunction imposing such restraint had issued, was, of itself, sufficient to induce a man of ordinary prudence, to inquire into the grounds of such action.
Such inquiry would have fully disclosed to him, that it was charged that the said Bliss was largely in debt, and unable to pay his debts when the deed to his wife was made; that Bliss paid the whole consideration for the land purchased; and that Bliss procured the deed to be made to his wife in order to defraud his creditors.
With knowledge of these charges, he could not buy in good faith or otherwise, except at the hazard of the truth as it might appear in future, and as it did in fact appear on the trial of this action, and subject to all the legal consequences of the facts when proved.
The judgment must be affirmed.
Judgment affirmed.