Frazer v. Western

1 How. App. Cas. 448

• Court: New York Court of Appeals
• Decided: January 15, 1848
• Status: Published

Opinion

The following opinion was delivered for affirmance :—

Jewett, Ch. J.

I am of opinion that the decree of the chancellor should be affirmed. Western shows that he is a bona fide purchaser for a valuable consideration, without actual notice of the insolvency of I. G. Collins at the time he conweyed the premises to E. K. Collins in 1828 in trust for his wife and children, and to be conveyed by him according to her appointment. There is no ground to subject Western to the consequences of a constructive notice of the insolvency of I. G. Collins in August, 1828, although he saw the trust deed, and could see that it was voluntary, made upon a nominal consideration—that fact alone would not necessarily or naturally lead him to the inquiry or ascertainment of the fact of the insolvency of Collins at the time of executing the deed.

There is no evidence that Western had any acquaintance with the person of I. G.. Collins, or of his pecuniary circumstances, or that their situation was such as would probably lead Western to ascertain them.

The following opinion was delivered for reversal.

Bronson, J.

This case has been fully considered in the court of .chancery; (1 Barb. R. 220;) and as the chancellor and assistant vice-chancellor have only differed upon a single point, I shall do little more in relation to the other questions in the cause than to state the conclusions at which I have arrived.

1. This is a bill with a double aspect; but as one of the grounds on which the complainants proceeded was denied by the answers, and has not been supported by proof, it is only necessary to consider the case in the remaining aspect of a bill to set aside a conveyance as being a fraud upon creditors.

2. The complainant Gibbs, the master in equity, to whom the bond of Collins was executed in 1818, or Freeman, the successor in office of the obligee, who is also party complainant, must be regarded a creditor of Collins to the amount secured by the bond. It is unnecessary, therefore, to inquire whether the bill could be maintained by the other complainant, Frazer, who was'the surety for Collins.

3. I have been unable to read the evidence without coming to the conclusion that Collins was insolvent at the time he executed the trust deeds to his son in 1828, and that he continued to be insolvent until the time of his death in 1831. There was no attempt to answer the proofs of the complainants upon that point.

4. The trust deeds were not made in pursuance of an ante-nuptial agreement, nor upon any valuable consideration; but were voluntary conveyances, made for the benefit of the grantor and his family, and were clearly fraudulent and void as against those who were then creditors of the grantor.

5. As Collins was dead, it. is quite obvious that the creditors who filed this bill could not reach the property in the usual way of a judgment and execution against the fraudulent grantor; and they were consequently at liberty to go into chancery for the purpose 'of setting aside the fraudulent conveyance, and having their debt paid out of the property.

6. The bill should have been filed on behalf of the complainants and all the other creditors of Collins who might come in and prove their debts and contribute to the expenses of the suit. But this is an objection of mere form, and not of substance, which might be cured by amendment; and as the amendment would not make a new case, or one to which there could be any different answer on the part of the defendants, I see no reason why it might not be allowed at the hearing.

7. If the legal estate under the trust deeds still continued in the trustee, it follows that Mrs. Collins, the cestui que trust, only conveyed an equitable interest in the Staten Island property to Western; and then, as the complainants have the prior, and consequently the better equity, their claim must prevail. Western cannot protect himself on the ground of bona fide purchase for a valuable consideration without notice.

But as it is not material in the view which I entertain of the case to examine that question, I shall assume that by virtue of our statute of uses and trusts the equitable interest which Mrs. Collins had at the first in the property, was turned into a legal estate on the death of her husband in 1831; and, consequently, that Western, who purchased from her in 1833, is in a condition to set up the defence on which he relies; and if, in truth, he is a bona fide purchaser without notice, in the legal sense of those terms, the defence must prevail.

8. That Western paid a valuable consideration for the land is admitted ; and there is no proof that he had actual notice of any defect in the title of his grantor. This brings us to the principal question in the cause, which is, whether Western had constructive notice that the trust deed through which he claims title was fraudulent and void as against the creditors of Collins.

On this point I am unable to agree with the chancellor. It should ever be borne in mind that the plea or defence of a bona fide purchase without notice is only resorted to where the vendee is under the necessity of claiming a better right than his grantor had to convey; and where, if the defence succeeds, some innocent person must suffer damage. For this reason the defence, though a very good one in a proper case, should always be received with great caution. It is not enough that the purchaser may be wholly free from the charge of actual fraud, although he may not have had express notice of any latent equity or defect of title, still if any matter came to his knowledge pending the negotiation which was calculated to awaken attention, and put an honest man of ordinary caution upon inquiry, the law charges him with notice of every fact which the inquiry would probably have elicited. It is the settled doctrine of courts of equity, that whatever is sufficient to put a party upon inquiry, is constructive notice to such party, and will as effectually deprive him of the character and standing of a bona fide purchaser as though he had express notice. And especially is he bound to inquire when the facts are such as to point him to the proper source for obtaining information. Whenever such a case arises before the sale is consummated, the purchaser is bound by a just regard for the rights of others to stop and seek information; and if he neglect to do so, it is, and should be at the ,peril of being charged with the knowledge of those facts which, in the exercise of reasonable and proper diligence, he might have ascertained.

The doctrine of implied notice was laid down by baron Alderson, in Whitbread v. Jordan, (1 Younge & Collyer, 303, 328,) in these terms :—“ I apprehend that when a party, having knowledge of such facts as would lead an honest man, using ordinary caution, to make further inquiries, does not make, but, on the contrary, studiously avoids making such obvious inquiries, he must be taken to have notice of those facts which, if he had used such ordinary diligence, he would readily have ascertained.” And in Kennedy v. Green (1 Mylne & Keene, 609) the rule was thus stated by lord Brougham :—“ Whatever is notice enough to excite attention, and put the party on his guard, and call for inquiry, is also notice of every thing to which it is afterward found that such inquiry might have led, although all was unknown for want of the investigation.” It is upon this principle that when one purchases an estate which is in the occupation of a tenant of the vendor, he is deemed to have notice not only of the lease and its contents, if there be one, but of all the interest which the tenant may have in the property, though it be of a character which does not at all belong to the relation of landlord and tenant. Knowing that there is a tenant in possession of the land, it is the duty of-the purchaser to seek him and make inquiry; and if he neglect to do so; it will be at the hazard of being held cognizant of all the facts which the inquiry would have revealed. (Taylor v. Stibbert, 2 Ves. 437; Daniels v. Davison, 16 Ves. 249; 17 id. 433, S. C.; Crofton v. Ormsby, 2 Scho. & Lef. 583, 599; Powell v. Dillon, 2 Ball & Beatty, 416; Chesterman v. Gardner, 5 John. Ch. 29; Meax v. Maltby, 2 Swanst. 281; Allen v. Anthony, 1 Merivale, 282.) This rule is subject to some qualifications; but they are not such as affect the present question.

In Moore v. Bennett, (2 Chan. Cas. 246; 1 Eq. Cas. ab. 331, pl. 7, S. C. ; and see 2 Vern. 385, note 4,) the purchase was made from one who held under a deed containing a power of revocation by will, which power had been executed by devising the property to a third person; and although the purchaser under the deed knew nothing of the will, he was intended to have notice of it as well as the power to revoke. As he knew of the power to revoke, it was his duty to inquire whether it had been executed. And the court laid it down as a principle, that where the purchaser can not make out a title but by a deed, which leads him to another fact, he shall be presumed cognizant of that fact; for it is crassa neglegentia that he sought not after it. This doctrine was approved and followed by lord Hardwicke in Mertins v. Jolliffe, (Amb. 311,) and I am not aware that it has ever been questioned.

In Ferrars v. Cherry, (2 Vern. 383; 1 Eq. Cas. Ab. 331; pl. 5,) the vendor had previously made a post-nuptial settlement, under which he had only a life estate; his wife had a jointure, and his son the remainder in fee. The settlement was in truth supported by an ante-nuptial agreement; but as that fact was not recited in the deed, and the vendee had no knowledge of it, he acted upon the assumption that the settlement would be void against him as a purchaser, as it would have been without an agreement for the settlement prior to the marriage. But the court held that the vendee had constructive notice that the settlement was supported by ante-nuptial articles; and said, “ He ought to have inquired of the wife’s relations, who were parties to the deed, whether it was voluntary, or made pursuant to an agreement before marriage.” The authority of this case was denied by lord Hardwicke in Senhouse v. Earle, (Amb. 285, 289,) but that seems not to have been a well considered remark; for the case was afterward cited by the same learned judge, without questioning its authority, in Mertins v. Jolliffe, (Amb. 311, 314,) and has ever since been regarded as good law in England. (Hiern v. Mill, 13 Ves. 121; Jones v. Smith, 1 Hare, 56; 3 Sugd. Vend. 211, ed. of 1843.)

Let us now apply these principles to the case in hand. The settlement or trust deed under which the defendant, Western, claims title was, as we have already seen, fraudulent and void against the complainants, or one of them, as creditors of Collins, the grantor; and the question is, whether the creditors shall have the property, or whether the defendant shall hold it as a bona fide purchaser without any such notice as should have put him upon inquiry. Let us see how much he knew. He not only claims under the trust deed, but he admits in the answer that it was produced to him pending the negotiation for the purchase; and the certificate or conveyance which he took was annexed to the deed. From the deed itself he learned that it was a conveyance in trust, which did not originally vest any legal interest in Mrs. Collins; and he seems to have supposed that she still had nothing more than an equity. This may be inferred from the form of the certificate or conveyance which he took; and from the fact stated in his answer, that for the purpose of perfecting his title, he presented the certificate to the trustee, and requested him to execute a release in pursuance of the trust created by the deed. He also proved a declaration by Mrs. Collins, that he had “ bought the land of her at her repeated request, and when no other person would take the title she could give.” Although these facts alone would not deprive him of the character of a bona fide purchaser, they prove it strange that he should have concluded the purchase without first seeking the trustee, from whom he might expect to learn more about the matter. But this is not all. He saw -that this family settlement did not purport to be made in pursuance of any ante-nuptial agreement, but was a mere voluntary conveyance for the benefit of the grantor and his family. The deed was so contrived, under the law of uses and trusts as it then stood, that the legal estate was put beyond the reach of creditors; and at the same time the rents and profits, or beneficial enjoyment of the land, were secured to the grantor-during his life time ; and after his decease the property was to go to his wife and her heirs or appointees. No one could read the deed—especially no eminent counsellor at law, like Mr. Western—without having his suspicion aroused that it was a device to defraud the creditors of the grantor. If we follow the authorities on this subject, there was enough to put the' defendant upon inquiry in relation to the pecuniary affairs of Collins at the time the settlement was made. He should have gone to the trustee, who was the son of Collins, and to whom he was plainly pointed by the deed ; and if he could not obtain the requisite information there, he should have gone to others. I can not doubt that a single half hour’s inquiry in the city of New-York would have satisfied him that Collins wras insolvent when he made the deed, and was soon afterward dependent on his son for support. In omitting to make the inquiry, I do not suppose that Mr. Western actually intended to do a wrong to creditors; for I take him to be incapable of such an action. But he must have intended to take the hazard, whatever it. might be, of purchasing with his eyes shut; and he must abide the consequences. Had it turned out that there were no creditors, or they had not appealed to the laws for the purpose of reaching the property, the defendant would have secured his debt of six hundred dollars against Mrs. Collins, besides getting the land at a moderate price. But in the events which have happened, he has made a bad bargain; for I think the defence can not be supported.

I am of opinion that the decree of the chancellor should be reversed, and that the decree of the assistant vice-chancellor should be affirmed.

BSr° Rugóles and Gray concurred in this opinion.

The other five judges were in favor of affirming the decree of the chancellor; but were not agreed on the grounds.

There was no written opinion by the five judges.

Jones, Wright and Johnson, thought there was not sufficient proof of the insolvency of I. G. Collins at the time he made the trust deed.

Jewett, Gardiner and Jones, thought that Western was not chargeable with notice of the insolvency of I. G. Collins.

January 14, 1848. Decree affirmed. Five to three.

And so it seems that the case settles no principle. No five, nor even four, of the judges agreed with the chancellor. "FlFk

Decision.—Decree affirmed. For affirmance : Jewett, Gar-diner, Jones, Johnson and Wright. For reversal: Bronson, Ruggles and Gray.

Note.—It seems that the law of this case stands as given in the opinion of the chancellor, (1 Barb, Ch. JR. 235,) a majority of the judges of this court not being able to agree upon the ground or grounds of affirmance. (It may be useful to refer to the law of constructive notice, as contained in the dissenting opinion of Bronson, J.)

The chancellor held, that the law sanctions a conveyance founded upon the consideration of blood or marriage merely. The legal presumption therefore is, that such a conveyance is valid, and not a fraud upon the rights of any one. The mere fact that the purchaser from the holder of such a title, has notice that it was not founded upon a pecuniary consideration, is not sufficient to make it his duty, at his peril, to inquire whether the title of the grantor was not fraudulent. On the contrary, he has a right to act upon the legal presumption that such a deed of gift, or voluntary settlement was honestly made, until some other fact is brought to his knowledge to raise a suspicion in his mind that the conveyance was intended to defraud some person.

Also held, that although there was some evidence in this case which rendered it probable that I, G. Collins was unable to pay his debts in August, 1528, when the trust deed was executed; yet there was no evidence that Western, who purchased of Mrs. Collins five years afterward, was acquainted with her husband in his life time, or with his circumstances in 1828, so as to make it his duty to inquire as to the intent of the parties to the trust deed, to commit a fraud upon creditors.

Also held, that the legal title of the premises in 1828, under the law then in force, was vested in E. K. Collins, the trustee; and the cestui que trust, or her grantee, previous to 1830, had only an equitable interest in the property. But under the provisions of the revised statutes, (1 JR. 8. 727, § 47,) this equitable interest was turned into a legal estate in the premises in fee, especially after the death of her husband, and Western acquired the legal title to the premises, under the conveyance from Mrs. Collins in May, 1833.

And that since the reversal of Chancellor Kent’s decision in the case of Roberts v. Anderson, by the court of dernier resort, (3 John. Ch. R. 372; 18 John. Rep. 515, S. C.,) it is no longer an open question in this state, that a bonafide purchaser of property from a previous grantee, to whom it had been conveyed for the purpose of defrauding creditors, is entitled to protection against the claims of the creditors, who were intended to be defrauded by the first conveyance.