Argued March 4, 1897
Decided March 23, 1897
Alfred G. Reeves and Francis Wellman for appellant.
John E. Parsons for respondents.
The position taken by the appellant is, first, that the transactions between Hernz, Melhado and Waddell, and the consequent conveyance from Hernz, as executor and trustee, to Melhado, constituted a fraud upon the estate in Hernz's hands; and, second, that Mrs. Blood was not a bona fide purchaser, without notice of the fraud. I think it would be difficult to deny some degree of justification to the conclusion reached by the trial judge, that the transaction as conducted between Hernz, Waddell and Melhado, whereby the real estate in question was acquired and reconveyed at a profit to the latter, amounted to a fraud upon the beneficiaries of the trust. The evidence was of a character to justify an inference that there was a guilty combination, or a collusion, between these parties to benefit one, if not more, of them at the expense of the trust estate. It is true that the sale at auction is unimpeached and that it is not proved that Hernz shared in the profit; but there is room for strong inferences adverse to him. Considering the fact of a sale by the trustee, subject to the somewhat depressing influence of a lease at a low rental, with most of the term unexpired; that the property was bid in by Melhado, whose wife was the lessee; that Melhado and Hernz had been intimate friends and business associates; that, instead of requiring Melhado to complete his purchase at the time fixed by the terms of the auction sale, Hernz allowed the matter to be postponed, until Melhado could find a purchaser at a profit and a party willing to loan $30,000 upon the property, and that no money was required to be paid upon the sale at auction, nor until the requisite amount was obtained through the deposit by Mrs. Blood upon her subsequent purchase — these and other facts, bearing upon the relations subsisting between Hernz and Melhado and Hernz's assistance in procuring for Melhado a resale at an advanced price, might well be deemed to constitute such badges of fraud as would vitiate the transaction, if it stood there, at the instance of the beneficiaries of the trust, or their representative, the plaintiff. But, in the view which I take of Mrs. Blood's relation to the matter, it becomes unnecessary to pass upon the question of the validity of the transaction as between Hernz and Melhado. I think we must agree with the prevailing opinion at the General Term, that Mrs. Blood was not only a purchaser for value, but in good faith, and that the evidence does not warrant the conclusion that she either had actual notice of any fraudulent motive on the part of Hernz to defraud the estate, or any knowledge of facts or circumstances equivalent to such notice. The rule, as it was early laid down in the case of Williamson v. Brown ( 15 N.Y. 354), has not been departed from in any subsequent case, of which I am aware. That was that, where a purchaser of land has knowledge of any facts sufficient to put him upon inquiry as to the existence of some right, or some title, in conflict with that he is about to acquire, 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 equally fatal to his claim to be considered a bona fide purchaser. Many subsequent cases in this court have rested upon the rule in Williamson v. Brown. But all are to the point that a purchaser for a valuable consideration is entitled to be protected in his title and, in the absence of actual notice of fraud, it is necessary that the facts and circumstances, relied upon to charge him with knowledge of the fraud, should be of a character equivalent to notice. If the facts within the knowledge of the purchaser are of such a nature, as, in reason, to put him upon inquiry, and to excite the suspicion of an ordinarily prudent person and he fails to make some investigation, he will be chargeable with that knowledge which a reasonable inquiry, as suggested by the facts, would have revealed. (See Le Neve v. Le Neve, 2 W. T. Lead. Cas. Eq. 146; Williamson v. Brown, supra; Stearns v. Gage, 79 N.Y. 102; Parker v. Conner, 93 N.Y. 118; Bush v. Roberts, 111 N.Y. 278; Jacobs v. Morrison, 136 N.Y. 101.) I will assume in the present case, for the purpose of the discussion, that the beneficiaries of this estate might be regarded as having such equitable interests in the property as to impose a stricter duty of vigilance in the case of an intending purchaser, than would be required where the parties interested were the general creditors of the grantor, and with that assumption, which perhaps is barely justified in this case, I still am unable to perceive in what way Mrs. Blood was chargeable with the neglect of any duty of inquiry resting upon her by reason of the circumstances. Her relations commenced with Hernz, and his alleged confederates in the transaction, at the time of the execution of the contract of sale to her by Melhado. Intermediate that time and the closing of the title, she was in fact represented only by the lawyer, whom she had employed to look after her interest, Mr. Lobenthal, and by Mr. Wandell, the lawyer for the mortgagee, Moller, whose examination of the title she had agreed to pay for and was willing to rely upon. So far as her brother-in-law, Blood, was concerned, it does not appear that he had any knowledge of facts which would excite a suspicion as to the motives of Hernz; but, even if he had, his agency in the matter practically ceased with the termination of the negotiations for the purchase of the property through the real estate agent, Sloan. When Mrs. Blood appeared again upon the scene, it was at the time of the closing of her purchase; when, undoubtedly, she came into personal communication with Hernz and Melhado. At that time, of course, several facts must be deemed to have come under her observation; such as the fact that Melhado was willing to cancel the lease of the property, subject to which it had been sold at auction; the fact that he availed himself of the payments by her of the purchase moneys, in order to complete his own purchase from the trustee, and the fact that Melhado was making a profit of $7,500 in the transaction, to the knowledge of the trustee. But there was nothing in these facts, which, in reason, should have excited her suspicions as to the good faith of these parties, with whom she was dealing, and have suggested some inquiry into their relations and dealings. It was not unnatural that Melhado, being the lessee of the premises, should have attended and have bid them in upon the auction sale and if the purchase was so advantageous in price, as to enable him to make a quick profit upon a resale, that, upon its face, simply exhibited keenness in business and would hardly have justified Mrs. Blood in suspecting the transaction and the good faith of the actors in it. That he was willing to cancel the lease upon the premises was a natural act on his part, in order to gain the profit upon a resale. She was entitled to take the matter as it then appeared to her, in the absence of any definite information upon which she could act. She was not called upon to exercise that same cool and reflective judgment, which, perhaps, when turning over all the facts in her mind deliberately, might have given rise to some doubts as to their significance and their bearing upon those interested in the result of the trustee's sale. It did not appear then, nor does the evidence show, that the profit, which Melhado made upon his resale to her, was any gain to Hernz, personally; and if the evidence does not reveal that fact, how can we assume that investigation would have been useful? The question is not whether Mrs. Blood could have discovered the existence of any fraud by an inquiry; but it is whether, acting as an ordinarily prudent person would have done, she was called upon, under the circumstances, to make inquiry. Were the circumstances such as to necessitate the making of some inquiry, at the peril of being charged with the knowledge of some then unperceived fact? However strong the circumstances may have seemed to militate against the good faith of Hernz and Melhado in the transaction, I do not think they would have warranted Mrs. Blood in then declaring that some collusion existed to defraud the beneficiaries of the trust estate.
But it is argued, on behalf of the appellant, that Mrs. Blood was chargeable with knowledge gained by her attorneys, Wandell and Lobenthal. Wandell's agency for Mrs. Blood did not extend beyond the examination of the title which she was to acquire, and while notice of any facts coming to him in relation to the title, and affecting it with liens or equities, would have been constructive notice to her, it does not appear that there were any such. Hernz sold under the power of sale in the will and there is no complaint that it was insufficient for that purpose, or that it was inadequately executed. Both he and Lobenthal were aware of the advantageous purchase made by Melhado of the trust property; but, in view of the authorized and fairly conducted public sale, what was there to suggest collusion with respect to the resale? So far as the evidence shows, an inquiry could not have resulted in the discovery of anything upon which to rest an objection to the title. They might have regarded the trustee as having acted improvidently; but that is not enough. Wandell could hardly be assumed to have had any doubt with respect to the validity of Melhado's title, when he was passing it upon the large loan made by Mr. Moller, his client. He was a lawyer of standing and of respectability, recommended to Mrs. Blood as being competent upon such questions, and it does not appear in the evidence that he gained any knowledge of facts, other than what the records would give to him, or than what came under his observation upon the closing of the title. It does not appear that he knew any more than she did about the relations of Hernz and Melhado and, moreover, his duty towards her ended with his report, at the time of the closing of the title, that he approved of it. So far as Mr. Lobenthal is concerned, I find nothing in the evidence, which charges him with any knowledge of an intent on the part of Hernz to defraud the estate, or of any collusion between Melhado and Hernz, or of any other facts than were apparent upon the face of the matter. He did not know Hernz. He had only seen him once or twice and his testimony does not tend to show any knowledge in him of any facts which, being chargeable to his client, imperilled her title for failure of further inquiry. A careful consideration of the record fails to find any support for the contention of the appellant that Mrs. Blood was not a bona fide purchaser.
The conclusion reached renders it unnecessary to consider the questions relating to the defendant Mrs. Koss; to whom, as her daughter, and for love and affection, Mrs. Blood subsequently conveyed the premises.
The order of the General Term should be affirmed and, under the stipulation of the appellant, final judgment should be ordered in favor of the respondents, with costs.
All concur, except BARTLETT, MARTIN and VANN, JJ., dissenting.
Order affirmed and judgment accordingly.