In Williams v. Haddock (145 N.Y. 144) Judge PECKHAM considers the question as to whether the rule of equitable conversion holds good after the vendee has made default in his payments, although the question was not involved in that case as there had been no such default; but he seems to hold that after default the rule is different than before, especially when time of payment is made of the essence of the contract.Summary of this case from Matter of Boshart
Argued February 4, 1895
Decided February 26, 1895
J. Edward Swanstrom for appellant.
Charles A. Jackson for respondents. Manley A. Raymond for executors, respondents.
The question in this case arises upon the true interpretation of the contract for the sale of the brewery entered into on the 18th of March, 1886. The general rule in regard to contracts for the sale of land is that the owner of the real estate from the time of the execution of a valid contract for such sale is to be treated as the owner of the purchase money, and the purchaser of the land is treated as the equitable owner thereof. The vendor is deemed in equity to stand seized in the land for the benefit of the purchaser, and the latter, even before the conveyance to him, can devise the same and it descends to his heir and the land which was agreed to be sold has been turned into money belonging to the vendor. Courts of equity regard that as done which ought to be done; they look at the substance of things and not at the mere form of agreements, to which they give the precise effect which the parties intended. It is presumed that the vendor in agreeing to sell his land intends that his property shall assume the character of the property into which it is to be converted, and it cannot be denied that it is competent for the owner of land thus to make such land into money at his sole will and pleasure. If the vendor die prior to the completion of the bargain, provided there have been no default, the heir of the vendor may be compelled to convey and the proceeds of the land will go to the executors as personal property. (Story's Eq. Jur. §§ 790, 791, 1212; Sug. on Vend. [8th Am. ed.] pp. 270, 273, ch. 5; Baden v. Pembroke, 2 Vern. Ch. 213; Fletcher v. Ashburner, 1 Brown's Ch. 497; Eaton v. Sanxter, 6 Simons, 517; Farrar v. Earl of Winterton, 5 Beav. 1; Livingston v. Newkirk, 3 Jo. Ch. 312; Champion v. Brown, 6 id. 398; Craig v. Leslie, 3 Wheat. 563.)
The learned counsel for the infant defendant does not deny the existence of the general rule above stated, but he says this equitable conversion is not invariable and that it cannot apply when the intention of the parties is clearly adverse to such a result. (Citing the case of Bostwick v. Frankfield, 74 N.Y. 215. ) It may be assumed that the rule does not obtain under circumstances which show clearly that the parties never intended that it should, but in this case we think no such exception to the rule can properly be deduced from the contract itself. The argument of the learned counsel proceeds further, and he claims that if the performance of the conditions which the vendees were to perform were by the clear terms of the contract a condition precedent to any conveyance of the real estate by the vendor, that then the rule does not obtain and no estate, legal or equitable, vests in the vendees until the actual performance on their part of such conditions. He says further that the stipulation making time of the essence of the contract is considered by the courts as a condition precedent, and that this contract does make time of its very essence by virtue of the clause to that effect set forth in the foregoing statement of facts. The counsel also maintains that the vendees did not perform their contract on the due day, March 18, 1887, but made default, and the executors had no power to excuse it, hence there was no performance of a condition precedent and the estate never vested in the purchasers until the deed to them, at which time there had been no conversion, and the proceeds have, therefore, come to the executors in the form of real estate which descends to the heir.
It may be said that in most contracts for the sale of real estate, the performance of some act on the part of the vendee is to precede the conveyance by the vendor, and hence such performance might be a condition precedent to such conveyance. These contracts generally provide for the payment of the purchase money, or some portion thereof, and the giving of a mortgage or some security for the portion which is not to be paid in cash, and that upon the payment of the money and the execution of the security the vendor is then to make the conveyance. But we think provisions of that nature found in contracts for the sale of real estate do not, prior to any default, alter this general rule in regard to the equitable conversion of the real into personalty so far as to prevent the ordinary results flowing from such conversion. After the happening of a default in the performance of conditions precedent, a very different case is made. We think there was an equitable conversion at the time of the execution of this contract, and that there has never been any default. The cases cited by the counsel are those generally which have arisen after a default has occurred on the part of the vendees in fulfilling their contract at the time mentioned in the agreement, where time has been made of the essence of the contract. In those cases the right of the vendee, upon tender of performance after the due day, to have a deed of the premises executed and delivered to him has been denied by the courts on the ground that the parties had by their agreement made the performance of a certain act a condition precedent to the right to enforce specific performance of the contract. Where there was a default and a failure to perform such act within the time agreed upon (time being of the essence of the contract), it has been held that courts have no power to make any other or different contract for the parties, and that they would do so by enforcing specific performance where such default existed. It is stated that such a case is not within the principle which allows courts of equity to relieve against failures or forfeitures, such as would arise where time had not been made of the essence of the contract, and the party, within a reasonable time after the day designated for its performance, had tendered performance with compensation for delay, in which case the court would relieve upon providing for such compensation.
Counsel for defendant cites the case of Harvey v. Aston, decided in the Court of Chancery in 1737 (1 Atkyns, 361) as an illustration of his contention that no estate vests in the case of a condition precedent until the performance of the condition. The case is not an apt illustration of the principle involved here. There was a default and the case was one of a settlement under a trust term for the benefit of the daughters of the testator to pay to each of them the sum of £ 2,000, if she should marry with the consent of her mother, if living, and a widow; if not then with the consent of the trustees or the survivor of them, his executor, administrator or assigns. The plaintiff Harvey married one of the daughters without this consent and claimed the payment of the legacy. The court (HARDWICKE, Lord Chancellor) held that the plaintiff was not entitled to the portion because of the non-fulfillment of the condition precedent and its violation by the daughter marrying without the requisite consent. In the report a long argument is given of counsel on either side upon the question of the validity of such a condition as being in restraint of marriage, but the court held that it was a valid condition and must be performed before the party was entitled to receive the money. As it had been violated the court could not relieve against the non-performance of the condition.
In Attorney-General v. Day (1 Ves. Sr. 218 at 220), cited by counsel, the following language was used by the lord chancellor (HARDWICKE) in his opinion:
"There is no case where the representative of the personal estate is entitled to claim the money arising by sale of the lands as personal estate, except where one or other of the contracting parties in the purchase is entitled to carry it into execution in a court of equity; for, where the court holds it ought not to be executed, there is no conversion of real into personal, in consideration of the court, upon which that right of the executor depends; for, if not effectually converted into money, it must be considered, according to its original nature, as real, and the heir at law must have the benefit. Whether there is any such conversion depends upon there being an effectual agreement binding upon all the parties so as under all the circumstances it ought to be carried into execution upon this general principle of equity; that what is contracted for valuable consideration to be done will, by the court, be considered as done; all the consequences arising as if it had been so, and as if a conveyance had been made of the land at the time to the vendee. But if the circumstances are such that it cannot now or ought not to be carried into execution, though once it might, these consequences cannot follow, for the court must consider it as land and the money as the parties' own who was to be the purchaser."
This language was used, in 1748, in a case where though specific performance might once have been decreed against original parties holding as tenants in common, yet an alteration in the circumstances had taken place before suit brought which prevented a decree as to one moiety, and the court would not direct a performance as to the other, the contract being entire and the execution of half of it inadequate to the prime subject. In such a case as the court was then speaking of it regarded the alteration of parties and circumstances as furnishing good cause for refusing specific performance, and as the parties refused to perform, it is clear that the land remained with the original owner and the purchase money in the pockets of the would-be purchasers. In its results it was like the case of a default in the performance of a condition precedent. It was not a case for the continuation of the doctrine of equitable conversion, and from the time when the court would refuse to enforce the contract the conversion would cease and the land would regain its original character in the hands of its owner.
The case of Scott v. Tyler (2 Brown Chy. 431) is another case of a condition annexed to a legacy. It was argued at very great length by counsel and decided by Lord Ch. THURLOW, in 1788, in the same way as Harvey v. Aston ( supra).
The case of Wells v. Smith (2 Edw. Ch. 78) is the case of a contract to sell lands where time was of the essence thereof, and the vendee failed to perform the condition at the time mentioned in the contract. In other words, he had defaulted, and the court held by reason of such default, under the terms of the contract which the parties had entered into, it had no power to decree the performance upon tender or payment of the purchase money. But that case is not inconsistent with the principle contended for herein, that even in a contract where time is of the essence there is upon its execution and prior to a default on the part of the vendee, an equitable conversion of the land within the rule contended for. When default is made this equitable conversion falls with the contract and the vendor is re-vested with his original right unimpaired. The vice-chancellor (McCOUN) said, in Wells v. Smith, that that was a case of a condition precedent where no estate vested in law until the condition was performed. As the legal title did not pass the vice-chancellor said he was not at liberty to suppose the parties intended it should have passed or that any effect was to be given to the contract beyond the plain import of its terms or inconsistent with the rules of law. No one, of course, contends that any legal title passes upon the execution of a contract of this kind, but it is claimed that even in a case where time is of the essence of the contract there is an equitable conversion prior to the default, subject to being re-converted upon the default happening.
The case of Teneick v. Flagg ( 29 N.J. Law, 25) is also cited.
Mr. Justice HAINES in that case, replying to the contention of the defendant's counsel, that by the contract of sale the estate was converted into personalty, and hence that the purchase money went to the administrators to be disposed of in due course of administration, said that "such was undoubtedly the general rule in equity, but that it was not the rule at law. In equity the contract may be specifically exposed and the land regarded as that of the purchaser, and held by the vendor in trust for him, while the consideration money is deemed to belong to the vendor, and held in trust for him by the purchaser, and equity enforces these several notional trusts. But at law it is otherwise. The purchaser is there left to his action for damages for the breach of the contract, and must take his relief in money, while the title of the land continues in the vendor or his heirs or assigns. The doctrine of equitable conversion is not applicable to estates at law or to courts of law." And as the action in question was an action at law the court held that that equitable doctrine did not prevail. That was a case where land was sold and a part of the purchase money paid, and the deed was executed and placed in the hands of a third person to be delivered to the grantee, and the balance of the purchase money to be paid on the happening of a certain event. The grantee died before the event happened, and it was held that the title to the land did not vest in the purchaser, but descended to the heirs of the vendor, subject to the equitable rights of the purchaser.
That is a different case from the one at bar.
The provision in this contract, that the vendees should also agree thereafter with the vendor for the purchase of the materials and fixtures, etc., in the brewery, with liberty to the vendor to refuse to consummate the sale of the real estate if the other contract were not performed, does not alter the rule above stated. We cannot see in this any intention of the parties that they should not be bound by the general rule in regard to a contract for the sale of land. There is nothing which leads us to suppose that they intended by these provisions to change that rule, but, on the contrary, the whole meaning of the two contracts, taken together, clearly shows, as we think, an intention on the part of the vendor to change that land into money, and on the vendees' part to change their purchase money into land. If the conditions are not performed then the ordinary rule comes into force, and the equitable conversion which existed during the running of the contract ceases, and the parties return to their original positions.
The case of Bostwick v. Frankfield (74 N.Y. supra) is one which shows beyond any doubt that the intention of those parties was that this conversion should not take place. There was a leasehold term outstanding at the time of the execution of the contract of sale, and it appears clearly from the terms used and from the opinion of the court in that case that it was never the intention that that leasehold interest should be merged in the contract for the sale of the land, but that, on the contrary, it should exist as a valid outstanding estate during the time of the running of the contract for the sale of the land, and until its performance according to the terms thereof.
Holding then as we do, that in this case the general rule obtains, it follows that at the execution of this contract the equitable conversion took place. Such was the condition of affairs at the time of the death of Mrs. McCoskry. There had been no default. On the contrary, up to her death all the terms of the contract which the vendees were to perform had been by them performed, and the contract to purchase the materials had also been entered into, and upon her death the rule still obtained as to an equitable conversion of this land. Upon the performance, without default, of the terms of the contract the purchase money would come to the executors as personalty to be distributed by them as such and not to descend to the heirs at law. Under the circumstances we hold with the learned General Term that the executors acting in good faith, of which there is no question, had the right prior to the default to extend the time for the performance of the conditions by the vendees, and when within the time extended, these conditions were performed the equitable conversion which originally took place remained in being and these moneys should go to the next of kin as personal property, to the exclusion of those who are only heirs at law.
For these reasons the judgment should be affirmed, with costs to the respondents and to the guardian ad litem for the infant heir at law, to be paid by the executors out of the estate of Mrs. McCoskry in their hands.