Denston v. Morris

| New York Court of Chancery | Apr 10, 1833

The Vice-Chancellor:

If there be any ground upon which the apparent equity of this bill can be supported in favor of the complainants, I shall gladly give them the benefit of it. From the statements in the bill it is manifest that by means of the sale to John Sandford, the assignees of the bankrupt’s estate have received a sum of money which they had no just right to receive. A decree compelling them to refund would work no wrong either to the bankrupt or his creditors. Still, in order to entitle the complainants to come here in relation to this money, they must have a right to the same or to some portion of it and which must be paramount to the claim of the defendants. If this prove not so, then there can be no relief upon the. present bill; and, consequently, the demurrers will have to be allowed.

Supposing the allegations in the bill to contain the truth, I think it very clear, from the face of it, that there was fraud on the part of the assignees in making the contract of sale with John Sandford, as well as in carrying it into effect; and, for all the purposes of the present argument, I am, of course, bound to take these allegations as true.

The alleged fraud, in the first place, consists in the assignees representing their title as valid and indisputable: knowing it to be defective and liable to litigation; while the refusal to give a deed with covenants of title and warranty, after they had induced Mr. Sandford to become the purchaser, to take possession and commence building, upon the promise of such a deed, was a breach of good faith. And, moreover, the species of coercion made use of to induce him to accept the instrument (without covenants) cannot be deemed otherwise than fraudulent.

If the injury which resulted to Mr. Dickey, the subsequent grantee, had fallen upon Mr. Sandford and he had exhibited a bill in this court for relief, there would be no doubt of his right to a return of the purchase money-r-at least, of so much of it as would remunerate him for any expenditure in obtaining a perfect title—even though the deed contained no covenants which rendered the grantors liable at law. It is a well-settled rule of this court that a grantee, to whom possession has been delivered under covenants of title and warranty, can have no relief in equity against his grantor for a return of purchase money or security on account of a defect or failure of title: because he has taken care to secure himself by covenants and, if evicted, can have an adequate remedy at law. If he has taken no covenants, and the title fails, he will be without a remedy in this court, as well as at law, provided the contract were fair and there be no fraud in the case. But, if fraud is shown, either in making the contract of sale or in executing it, and whether there be covenants inserted in the deed to secure the title or not, the purchaser, in case of eviction or disturbance of his possession or whenever it is ascertained that the title is defective, may come into this court to be relieved from his purchase or to obtain indemnity against the consequences of the fraud.

Imposition and fraud upon the purchaser by any wilful misrepresentation or concealment, takes the case out of the general rule and entitles him to be redressed in equity, in addition to and beyond the covenants in the deed. The cases of Bumpus v. Platner, 1. J. C. R. 213., Abbot v. Allen, 2. Ib. 519., Johnson v. Geer, Ib. 546., Chesterman v. Gardner, 5. Ib. 29., and Gouverneur v. Elmendorf, Ib. 79. are authorities upon these points. And see also in Legge v. Croker, 1. Ball & B. 514.

But the difficulty in the present case is this : Sandford is not the party complaining of the fraud; nor, indeed, has he been injured by it. Before any eviction or even claim was ma(je un¿er an adverse title, Mr. Sandford sold and conveyed the property to Mr. Dickey for an adequate consideration and without any fraud on his part; and it does not appear that he entered into covenants of seizin or warranty. So, he is not liable over to his grantee or to the assigns of such grantee. Yet it appears to me there are equitable circumstances arising from some of the statements of the bill which may entitle Mr. Dickey and the complainants, as trustees under him, to stand in the place of Sandford and claim the rights and remedies to a certain extent which he would have been entitled to in case he had remained in possession and the judgment in ejectment has been rendered against him. I allude to the part of the bill which states the giving of the mortgage for four thousand dollars of the purchase money as an inducement to Sandford to accept the deed. The assignees proposed to take the mortgage payable at the expiration of five years and expressly agreed to hold the same and not claim payment until the title should be established or made perfectly satisfactory to Mr. Sandford or his assigns; and on delivery of the mortgage, Mowatt, one of the assignees, further stipulated to return the purchase money in case the title of the assignees should fail or be defective from any cause. According to this statement oí the transaction, the vendors only became trustees of the consideration money (at least, of the part for which the mortgage was given). They were not to hold it as a payment nor as security for the payment absolutely, but only in the event of their title being made good to the purchaser and his assigns. Now, we may lay out of view all intentional fraud; and looking at the transaction in the above light, the whole will appear to be fair and consistent. The assignees, it is alleged, had been notified and were aware of an adverse claim of title. They had, in the first instance, contracted to sell to the purchaser and to give proper assurances of title, but were advised against the latter; and, therefore, they proposed the other method of carrying the sale into eifect. In this way an implied trust, at least, was created of the purchase money; and such an one as this court is bound to protect and preserve. Nor could the assignees divest themselves of the trust by assigning the bond and mortgage in the manner stated in the bill. When Dickey purchased of Sandford, the mortgage which the latter had given, instead of being in the hands of the assignees and subject to the trust upon which it had been given, was found to have been assigned contrary thereto. He was also required to pay it off; and it was satisfied out of the money which Mr. Dickey was to give for the property. Upon the assignment of the mortgage, the trust which originally attached to it must be considered as attaching to the money in the hands of the mortgagees and they may be regarded in equity as trustees of it by substitution. If then there be a trust fund and trustees of it: for whose benefit does it enure ?

It must be remembered that the mortgage was to be held until the title should be made perfectly satisfactory to Mr, Sandford and his assigns. The nature and object of this arrangement appears to embrace all who might become purchasers under him, through the title which the assignees of the bankrupt’s estate undertook to confer. The title failed, A loss resulted; and this has been borne by one who purchased from Sandford upon the faith of the title derived from the assignees, and which the trust was intended to secure. He or those standing in his place and taking his rights, are the persons entitled to the benefit of it.

When we take the allegations in the bill to be true, the present appears to be a case which entitles the complainants to the relief which is sought.

Instances will be found, observes an able writer on equity jurisdiction, to spring from some circumstances attending transactions, as of accident, mistake or fraud, which, in themselves, form grounds of this court’s interference, inducing it to imply a trust upon what it ascertains to be the conscientious duty of a party; and, in accordance with its general principles, to compel him to the performance of that which natural justice demands: Jeremy's Eq. Jur. 94. There is some reason, at least, for supposing the present to be one of the cases falling within this salutary principle. And as I cannot do more, so I think I cannot do less than overrule the demurrers.

A distinction has been attempted to be made, upon the argument, between the original surviving assignee and the two assignees since then associated with him. It is said, that if the bill is properly filed against the former on the ground of fraud, yet it is not so as respects the latter, and their demurrer should be allowed. But, if I am correct in supposing the bill may be sustained upon the ground of a trust, then the circumstance of all the assignees being considered trustees of the fund sought to be reached, rendered them all proper parties to the suit.

Another point was raised upon the argument: that if there ever were a cause of action, it was barred by lapse of time. I cannot listen to this objection upon a demurrer: especially as the bill shows that the commissioners in bankruptcy have directed the assignees to retain a sum of money, in order to satisfy this claim, should it be supported in a court of equity. Besides, if the statute of limitations or the staleness of the demand afi'ords any ground of a defence in a case like the present, I think it should be put forward by a plea or be set up in an answer: and not through a demurrer.

The last objection which I have to examine is this: that it belongs to the commissioners and the district court of the United States, under the authority of the bankrupt law itself, to decide upon this claim; and that the court of Chancery has not jurisdiction. I think it is a sufficient answer to say, it is not a debt claimed to be due or owing from the bankrupt or to be paid out of his estate pro rata with the creditors, but a remedy sought against the assignees in relation to a sum of money which has found its way into their hands, and not belonging to the bankrupt—that it is a trust-fund to which the complainants are equitably entitled, and over which (as well as over those assignees as being trustees) this court has a concurrent, if not an exclusive jurisdiction. Indeed, the bill states that the commissioners entertained doubts of their powers; and referred the parties to a court of equity or other competent tribunal; and I must presume this was done on account of the claims partaking of the nature of a trust and was not a debt or demand against the bankrupt.

I must overrule the demurrers, with costs.