Summary
In Ten Eyck v. Craig (supra, at p. 419) we said: "The rule is inflexible, that he shall not place himself in a position where his interest is or may be in conflict with his duty.
Summary of this case from Matter of RyanOpinion
Argued April 5, 1875
Decided September 21, 1875
J.P. Whittemore and H.R. Selden for the appellant.
Geo. F. Danforth for the respondents.
Sanger, the grantee of Stewart, had the legal title to the Congress Hall property, December 17, 1860, when it was sold on the judgment in favor of the Madison County Bank against Stewart. That judgment was for $2,675.24, and was rendered October 25, 1859, before Stewart conveyed to Sanger, and was a lien upon the property. John Craig, the defendant's testator, became the purchaser, on the sale, for the sum of five dollars, and received the sheriff's certificate. The property at the time was incumbered by three mortgages, to the amount of about $19,000, owned by Craig, and by the Dehon judgment, for $10,184.83, which were prior liens to the Madison County Bank judgment on which the sale was made; and the property was proved, by witnesses on the trial, to have been worth at the time of the sale from $20,000 to $25,000.
On the 17th day of March, 1862, one Daniel W. Powers presented to the sheriff who made the sale a transcript of a judgment in his favor, against Stewart, for $1,481.78, perfected January 26, 1860, and other papers, and claimed the right to redeem from the sale by virtue of the judgment. Among the papers was a copy of an assignment of the judgment from Powers to O.M. Benedict, dated April 10, 1860, and of a re-assignment from Benedict to Powers, dated March 17th, 1862, and an affidavit of Powers that $1,703 was due on the judgment. Powers paid to the sheriff the amount required to make a redemption, who received it and paid it to Craig; and thereafter, on the 21st of March, 1862, in completion of the sale, executed a deed to Powers. Subsequently, on the 7th day of May, 1864, Powers, in consideration of $1,753.33, quit-claimed the premises to Craig.
It will be convenient in examining the questions which arise in the case to leave out of view for the present the facts relied upon as establishing a trust relation between Craig and Stewart, which disabled Craig from acquiring a title to the property hostile or adverse to Stewart or his grantee, and to consider the position of Sanger and his relation to the property after the sale and conveyance by the sheriff, upon the assumption that Craig as purchaser on the sale and the grantee of the redemption title was unaffected by any special disability, and acquired the same rights through the sale and the subsequent proceedings as if at the time of the purchase he had been a stranger to Stewart and Sanger, owing them no duty and bound by no obligation to protect the equity of redemption. It is not claimed that there was any fraud or irregularity in the sale on the bank judgment. The judgment was unpaid; the sale was open and fair, and so far as appears was not procured by the intervention of Craig. The sum bid, so far as appears, was at the time the full value of the interest of Sanger in the property. There is nothing which in any manner tends to impeach the bona fides of the sale. It is claimed, however, that the redemption was void, on the ground that the judgment under which it was made had been paid by Stewart, the judgment debtor, before the redemption, and was not at the time a lien upon the land.
The learned judge at Special Term, found that Benedict, to whom Powers assigned the judgment, March 10th, 1860, acted as the agent of Stewart in procuring the assignment, and took it in his own name at Stewart's request, and that Stewart either furnished Benedict the money which he paid Powers for the judgment, or if Benedict advanced it it was immediately replaced by Stewart, in pursuance of an arrangement between him and Benedict before the money was advanced; and the further fact is found that the re-assignment by Benedict to Powers was without consideration and without the knowledge or authority of Stewart. The learned counsel for the plaintiff, while claiming that the redemption was under the circumstances absolutely void, presents the alternative proposition, that if it was not void it was a redemption in trust for Stewart's grantee, Sanger, and that Craig took Power's title subject to the same trust which affected it in the hands of his grantor. Upon the facts found, the Powers judgment on being assigned to Benedict was, in law, satisfied. Payment by a debtor to his creditor of his debt extinguishes it; and when Stewart through his agent paid the judgment it was gone. It could not be kept alive by taking an assignment in the name of a third person for his benefit. ( Harbeck v. Vanderbilt, 20 N.Y., 395.) This is certainly the general rule; and if under special circumstances this result would not follow, there is nothing in the circumstances under which the assignment to Benedict was made which, in law or equity, prevents the operation of the principle stated. Stewart was the owner of the Congress Hall property when the judgment was assigned to Benedict, and no reason (upon the findings) can be suggested for his keeping the judgment outstanding in the name of a third person unsatisfied of record, unless it was for the purpose of overreaching or embarrassing his creditors.
I am inclined to agree with the plaintiff's counsel in the proposition, that under this judgment no valid redemption could be made, and that the deed to Powers on the assumed redemption by him was void.
The statute only authorizes a redemption by creditors who have judgments which are liens on the premises. The sheriff in selling land on execution and in allowing redemptions, and conveying the premises pursuant to the sale or any redemption therefrom, acts under a statutory power, and the power must be pursued. If he fails to comply with the statute, or assumes to act without authority, his acts (except as to bona fide purchasers whose rights in certain cases are saved by the statute), are void. ( Wood v. Colvin, 2 Hill, 566; Croft v. Merrill, 14 N.Y., 456.) And when a creditor claiming to redeem under a judgment which in fact has been satisfied, induces the sheriff to allow the redemption, and he obtains a deed, the deed is I think void. If there is in fact no judgment, there is no creditor and no right of redemption.
Craig, by the conveyance from Powers, took his right only. It is found by the judge that Craig when he took his deed had notice of the circumstance under which the assignment to Benedict was made. It is unnecessary to consider whether if he had been a bona fide purchaser from Powers without notice his position would have been changed. Assuming therefore, that Craig took nothing by the deed from Powers and cannot stand upon that title, yet the title of Sanger was not thereby relieved from the effect of the sale on execution and his omission to redeem within twelve months thereafter, that being the time to which the right of the judgment debtor or his grantee to make redemption is limited. This time had expired three months before the redemption by Powers. Sanger had lost his right to retain the title to the property, and Craig was entitled to a conveyance at the end of the fifteen months, subject only to the contingency of a redemption by creditors. If there had been no redemption by Powers, and no conveyance by the sheriff, Sanger could not have maintained an action to redeem, for the reason that Craig as purchaser on the execution sale would have been entitled to a conveyance of the land. The equitable title in the case supposed would have been in him and not in Stewart or Sanger, and the circumstance that Craig took a void title under Powers did not operate as a waiver or release in favor of Stewart or Sanger of the rights of Craig as purchaser on the execution sale. It was clearly not so intended between Powers and Craig as the consideration paid by Craig to Powers for the conveyance by the latter shows. Stewart and Sanger were not parties to that transaction; it was res inter alios acta. Nor had Stewart, or Sanger through him, any equity to claim that this was the effect of that conveyance. Stewart had by his own act kept the Powers judgment outstanding as an apparent lien on the property after it had been paid. It does not lie with him to say that the redemption was void to defeat the deed from Powers to Craig, and then to claim that Craig by taking it lost his rights as purchaser on the sheriff's sale. Sanger as the grantee of Stewart stands in no better position than his grantor. He claims under and through him. For the reasons stated I am of opinion, leaving out of view the alleged trust relation between the parties, that Craig as purchaser on the execution sale has become the equitable owner of the property and that no right of redemption remains in Stewart or his grantees.
The next and principal question to be considered is, whether Craig, at the time of the sale, occupied such a relation to the property, or to Stewart or Sanger, that he was disabled from purchasing for his own benefit, and claiming the title adversely to them. If he occupied that relation, he cannot set up any right acquired as purchaser on the sheriff's sale in bar of their right to redeem. Purchases by trustees, or persons occupying fiduciary positions, in contravention of their trust or duty, are held in equity to be made for the benefit of the cestui que trust, at his election. No irredeemable title can be acquired upon such a purchase. And if the purchase by Craig was within the principle which prohibits a purchase by a trustee, it is an immaterial circumstance that the time within which a statutory redemption might have been made has expired. The right of redemption exists in favor of the cestui que trust, and those in privity with him, independently of the statute, upon general principles of equity, and may be enforced at any time within the period allowed by the statute of limitations, or the rule of courts of equity regulating the jurisdiction.
The rule which prohibits a trustee from purchasing the property of a cestui que trust stands upon the proposition stated by the chancellor in Whichcote v. Lawrence (3 Ves., 740), that one who undertakes to act for another in any matter, shall not in the same matter act for himself. It applies in all cases where the duty which the trustee has to perform in respect to the property is inconsistent with his becoming a purchaser for his own use. And the purchase will not be allowed to stand, although the court may not be able to discover any wrong intention on the part of the trustee, or that he has gained any advantage in the transaction. The rule is inflexible, that he shall not place himself in a position where his interest is or may be in conflict with his duty. The reason of the rule, as remarked by KENT, J., in Bergen v. Bennett (1 Cai. Cas., 19), is to bar the more effectually every avenue to fraud. Such a purchase, though it may not originate in any purpose to defraud, is a constructive fraud, because the natural tendency is mischievous and harmful. The rule is founded in the highest wisdom. It recognizes the infirmity of human nature, and interposes a barrier against the operation of selfishness and greed. It discourages fraud by taking away motive for its perpetration. It tends to insure fidelity on the part of the trustee, and operates as a protection to a large class of persons whose estates, by reason of infancy, infirmity, or other causes, are intrusted to the management of others. The rule is not limited in its application to those who are trustees strictly, holding the legal title to the thing purchased. ( Van Epps v. Van Epps, 9 Paige, 237.) It applies to agents and persons standing in relations of trust and confidence to others, which involve duties inconsistent with their dealing with the property as their own. The books are full of cases illustrating its application, and it will be sufficient to refer to a few of them. ( Fox v. Mackreth, 2 Bro. C.C., 400; Oliver v. Court, 8 Price, 127; Van Horne v. Fonda, 5 J. Ch., 388; Van Epps v. Van Epps, supra; Moore v. Moore, 5 N.Y., 256; Gardner v. Ogden, 22 id., 327; Michoud v. Girod, 4 How. [U.S.], 506.)
It is claimed that Craig was disabled from purchasing the Congress Hall property at the sheriff's sale, and holding it adversely to Stewart and Sanger, under the rule just adverted to. There are two grounds upon which this claim is based: First, that Craig at the time was mortgagee in possession; and, second, that the relation of trustee and cestui que trust, in respect to the property, was created between Craig and Stewart by the instrument of April 24, 1860, which precluded him from purchasing for himself, or otherwise than as a trustee for Stewart, or his grantee. Assuming that the learned counsel for the plaintiff is correct in the position that Craig, at the time of the sheriff's sale, stood, in relation to the premises, in the character of mortgagee in possession, the question arises, whether a mortgagee in possession can buy the mortgagor's title on an execution sale, upon a judgment in favor of a third person against the mortgagor, and set up a title under the sale, as a defence to an action by the mortgagor to redeem. Another mode of stating the question is: Is a mortgagee in possession a trustee for the mortgagor, so that he will not be allowed to buy in the equity of redemption on a sale upon an independent lien held by a third person?
Unless the mortgagee in possession is a trustee for the mortgagor, there is no ground upon which he can be precluded from purchasing. It is clear that no trust relation between the mortgagor and mortgagee is created by the execution of the mortgage, unaccompanied by possession. The mortgage under our law is a security merely. The mortgagee has, by virtue of his mortgage, no estate in or title to the land, or the right of possession, before or after the mortgage debt becomes due. He owes the mortgagor no duty to protect the equity of redemption. The power of sale which usually accompanies a mortgage is given to enable him, by an adverse proceeding, to sell the equity of redemption for the payment of the mortgage debt. The objection that he could not become the purchaser at his own sale under the power, has been removed by the statute when the foreclosure is by advertisement (2 R.S., 546, § 7); and a provision is inserted in every decree for the sale of mortgaged premises, unless otherwise specially ordered, that the plaintiff may become the purchaser. (Rule 73.) And he may buy in any outstanding title and hold it against the mortgagor. ( Cameron v. Irwin, 5 Hill, 280; Williams v. Townsend, 31 N.Y., 415; Shaw v. Bunny, 13 Week. R., 374; S.C., 2 De G., J. S., 468.)
There is, in truth, no relation analogous to that of trustee and cestui que trust between the mortgagor and mortgagee created by the execution of the mortgage. The mortgagee is not a trustee of the legal title, because, under our law, he has no title whatever. ( Kortright v. Cady, 21 N.Y., 342, and cases cited.) He may deal with the mortgagor, in respect to the mortgaged estate, upon the same footing as any other person; he may buy in incumbrances for less than their face, and hold them against the mortgagor for the full amount; he may do what any other person may do, and his acts are not subject to impeachment, simply because he is mortgagee. ( Darcy v. Hall, 1 Vern., 48; Knight v. Majoribanks, 2 MacN. G., 10; Chambers v. Waters, 3 Sim., 42; 3 Sug. on V. and P., 227.)
Nor is the mortgagee converted into a trustee by taking possession as mortgagee of the mortgaged property, so as, in general, to prevent his purchasing an outstanding title, or under another lien. Under the English law he has the right to the possession, because he has the legal title to the land. Under our law he cannot obtain possession until foreclosure, except by the consent of the mortgagor, because until that time he has no title. A mortgagee is often called a trustee, and in a very limited sense this character may be attributed to him. There may be a duty resting upon a mortgagee in possession to discharge a particular claim against the land. If in such a case he omits to do it, and allows the land to be sold on such a claim, and becomes the purchaser, he would hold the title in trust for the mortgagor. A mortgagee in possession is allowed, and it may be his duty, to pay taxes on the land out of the rents and profits. If he suffers the land to be sold for taxes in violation of his duty, and purchases on the sale, he would upon general principles be deemed to hold the title as trustee. So, if a mortgagee is allowed to take possession and undertakes to pay the interest on other liens out of the rents and profits and fails to do so, he could not purchase the land for his own benefit in hostility to the mortgagor on a foreclosure of an incumbrance for non-payment of interest which he was bound to pay. A mortgagee in possession is bound to account for the rents and profits; and in that respect, as was said by SHAW, C.J., in King v. Insurance Co. (7 Cush., 7), he may be denominated a trustee. But, except in some special sense, that is not the relation he bears to the mortgagor. The relation of mortgagor and mortgagee is explained in the admirable judgment of Sir THOMAS PLUMER, in the leading case of Cholmondelly v. Lord Clinton (2 Jac. Walk., 183). He says: "It is only in a secondary point of view and under certain circumstances, and for a particular purpose that the character of a trustee constructively belongs to a mortgagee. No trust is expressed in the contract, it is only raised by implication in subordination to the main purpose of it, and after that is fully satisfied its primary character is not fiduciary." And again: "The mortgagee when he takes possession is not acting as a trustee, but independently and adversely for his own benefit." A mortgagee in possession may purchase from a prior mortgagee and get an irredeemable title. ( Kirkwood v. Thompson, 2 De G., J. S., 613, and cases cited; Parkinson v. Hanbury, 2 D. S., 143; S.C., 2 De G. S., 450; see also, Shaw v. Bunny, supra; Knight v. Majoribanks, supra.) Lord CRANWORTH, in Kirkwood v. Thompson, referring to the fact that the mortgagee at the time of the purchase was in possession, says: "That makes no difference; being in possession could only make a difference if it created an obligation between the mortgagee and mortgagor, which would not have existed if he had not been in possession. Nothing of this sort is suggested; no duty arises on being in possession except to account in a way onerous to the mortgagee."
A mortgagee in possession is sometimes spoken of as a tenant and as having the legal rights of a tenant. ( 2 Wn., 150.) The analogy is not very close between the two relations; but it is difficult to see any reason for denying the right of a mortgagee to purchase and hold adversely to the mortgagor in a case when a tenant in possession would be allowed to purchase and hold against the landlord; and yet a tenant may purchase the demised premises on a sale on execution against the landlord, and when his title is perfected, may set it up in bar of a recovery for rent thereafter accruing on the lease. ( Nellis v. Lathrop, 22 Wend., 121.)
The first ground stated upon which it is claimed that Craig was disabled from purchasing on the sheriff's sale, viz., that he was the mortgagee in possession, cannot, I think, be supported; and it remains to consider whether such disability existed by reason of the agreement of April 24, 1860. The purpose of that agreement was to secure Craig for becoming surety for Stewart on the undertaking on the appeal from the Dehon judgment. This purpose is recited in the instrument. The object was the protection of Craig; and if any trust in favor of Stewart resulted from the provisions of the instrument it was incidental and collateral to its primary intent.
The condition of the property at the time was this: Stewart was the owner in fee subject to mortgages held by Craig and Sprague, and to the indemnity mortgage also held by Craig, executed before the agreement of April 24, 1860, but given for the same purpose. The land was also subject to the Dehon, the Madison County Bank and the Powers judgments. Stewart had leased the premises to Cook for five years from May 1, 1860, at an annual rent of $3,600, payable monthly, with a covenant of renewal. The legal estate was therefore divided as follows: Cook had a term of years in the land and Stewart a reversion in fee expectant thereon. Stewart then, by the instrument of April 24, 1860, assigned to Craig the Cook lease, and authorized him to demand and receive the rents for the term thereof, or until he should be relieved from his liability on the undertaking; and Craig was also authorized, for his more ample protection (as the instrument recites), in case Cook should fail to pay the rent, or perform his covenants, or Stewart should be entitled to the possession, to take actual possession of the premises, and relet them in Stewart's name, and hold the lease and rents, so long as his liability on the undertaking continued. Craig was to pay out of the rent interest on the mortgages, and insurance, and hold the balance to meet any liability on the undertaking, and when discharged therefrom was to render an account, and pay over to Stewart the accumulated rents and interest. A question was made, on the argument, whether Craig by the assignment acquired any legal estate or interest in the demised premises. The assignment was of the lease and rent to accrue thereon. The ultimate reversion in fee undoubtedly remained in Stewart; but a lessor may grant a part of his reversion; and the legal effect of an assignment by the lessor of the lease and rents is to give to the assignee an interest in the reversion coextensive with the term assigned. ( Burton v. Barclay, 7 Bing., 745; Hughes v. Robotham, Cro. Eliz., 302; Bac. Abr., Leases, N. 186.) In Burton v. Barclay, Wilde, sergeant, arguendo, said: "That according to the definition given by Plowden, 160 a, the word reversion has two intendments; one, the estate left in the lessor, during the continuance of the particular estate demised; the other, the returning of the land after the expiration of the term," and this view was substantially adopted by the court in deciding the case.
In the case at bar, such an interest in the land passed to Craig, by the assignment, as was necessary to give him all the remedies of the lessor against the lessee. This was essential to his security. ( Childs v. Clark, 3 Barb. Ch., 58.) The interest, however, which he took in the land, whatever it was, was uncertain and incidental merely, and even if the assignment had been absolute, was not the subject of sale on execution. ( Payn v. Beal, 4 Denio, 405.)
If Craig was incapacitated from purchasing on the sheriff's sale by reason of the agreement of April 24, 1860, it is because it established a relation between the parties, or imposed a duty on Craig, which was inconsistent with his becoming a purchaser for his own use. The agreement did not make it his duty to discharge the land from the lien of the bank judgment. On the contrary this duty was expressly assumed by Stewart by his bond of June 1, 1860, given to induce Craig to justify as surety on the undertaking on appeal. Craig did undertake, by the agreement, to pay out of the rents the interest on the mortgages, and if the land had been sold for non-payment of interest, and he had purchased on the foreclosure, a different question would have been presented. The existence of an estate held under another does not ipso facto preclude the occupant from buying and holding to himself an adverse title. A tenant may bring title adverse to his landlord, although from reasons peculiar to that relation, he is precluded from asserting it until after he has surrendered the possession. (1 Wn. on Real Prop., 492.) So, as has been shown, a tenant may buy in the reversion, or a mortgagee in or out of possession may buy in the equity of redemption, on a compulsory sale on a distinct lien against the owner. It may have been the interest of Stewart and those in privity with him, to retain the title, and the beneficial enjoyment of the property which was defeated by the sale on execution, and the lapse of the statutory period of redemption, but the sale alone did not divest the title of Stewart or Sanger. They, or either of them, had twelve months in which to redeem, and the right of redemption was lost by their laches.
I am unable to discover any duty arising out of the contract of April 24, 1860, or the circumstances resting upon Craig which debarred him from purchasing, on his own account, on the execution sale. He was, in some sense, a trustee of the rents received under the arrangement, and was bound to dispose of them as required by the agreement, and this was the extent of his duty. He was not bound to protect Stewart against the loss of the rents through a sale of the land on the bank judgment. If a mortgagee in possession may purchase for himself on a foreclosure of another mortgage, or buy in an outstanding title, then a fortiori could a person in the position of Craig. The mortgagee under the English law has the entire legal title, and so far as he is regarded as trustee, the trust is the whole interest of the mortgagor. Craig at most was a trustee of the rents for a term only. He had by the agreement no interest as trustee or otherwise in the fee which he purchased on the execution sale.
The conclusion which I have reached is adverse to the existence either in Stewart or Sanger of a right to redeem, and it becomes unnecessary to consider whether, assuming such right to exist, the plaintiff, as grantee of Mrs. Sanger, succeeded to it. The rule which avoids purchases made in violation of his duty at the election of the cestui que trust, is a valuable one and ought not to be impaired by engrafting upon it exceptions, or indulging in subtle refinements and distinctions to withdraw a particular case out of its influence. But after careful consideration, I am unable to perceive that the facts of this case bring it within the rule, and am therefore of opinion that the order should be affirmed, and judgment absolute given for defendants, pursuant to stipulation, with costs.
All concur; except CHURCH, Ch. J., not voting. FOLGER, J., not sitting.
Order affirmed, and judgment accordingly.