Case ID: ad_134/html/0422-01.html
Source: Caselaw Access Project
Author: {"author": "Laughlin, J.: Ingraham, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Abraham J. Ronginsky, Respondent, v. Hugo Freudenthal and Others, as Executors, etc., of Henry Meyer, Deceased, Appellants.
    First Department,
    November 12, 1909.
    Mortgage — suit to have deed declared a mortgage — evidence — paroi agreement to account for surplus after sale — weight of evidence.
    A mortgagor being unable to pay interest, taxes, etc., and fearing foreclosure, conveyed the premises to an attorney in fact, who was authorized to transact all the business of the mortgagee, the conveyance being subject to the mortgage, taxes, etc., which the grantee assumed and agreed to pay, and indemnify the mortgagor-grantor from all liability on his bond, and to tenants who had advanced money to him. The attorney in fact, although taking the conveyance in his own name and without any express declaration of trust, asserted no individual right to the property, but, apparently acting under his power of attorney, deposited the rents to his principal’s credit. Thereafter the attorney in fact entered into a contract to sell the premises on certain conditions, and after the execution of the contract of sale, but before the time set for the conveyance, the principal revoked the power of attorney, and at his request the ■ attorney conveyed the premises to his principal, who undertook to carry out the contract of sale, which he did, giving to his former attorney one-half the brokerage commissions. Thereafter the original owner assigned his claim to all profits in the premises conveyed, stating that they were held in trust for himself and the mortgagee by the attorney in fact. Although the assignor went into bankruptcy, no right to the property was asserted by his trustee. In an action by the assignee of the mortgagor against the estate of the original mortgagee to recover surplus moneys received on the sale above the sum due on the mortgage,
    
      Held, that it was not error to refuse to strike out evidence offered by the plaintiff tending to show a paroi agreement by the attorney in fact to account for the surplus on a sale of the premises, although such evidence would be inadmissible if the suit were brought against the attorney, as in the latter case the paroi agreement would have been merged in the writing and would tend to contradict it;
    That, although, had the conveyance been made directly to the mortgagee, paroi evidence would not be admissible to show an agreement on his part to account for the surplus after a sale, it was nevertheless competent for the mortgagee to make a valid paroi agreement with his mortgagor to account for the surplus in order to induce the latter to execute the conveyance to his attorney in fact, and evidence thereof was not inadmissible on the theory that it was merged in or contradicted the conveyance to the agent, as' the latter did not purport to embody the agreement between the mortgagor and the mortgagee;
    That as the conveyance to and agreement with the agent were under seal and did not purport to be an agreement by the principal, neither he nor the grantor could sue each other on any covenants made therein, and hence the executors oí the principal cannot exclude paroi' evidence showing a separate and independent agreement on his part.
    Evidence in the action aforesaid examined, and held, that a verdict for the plaintiff should be set aside as against the weight of evidence.
    Ingraham, J., dissented in part, with memorandum.
    Appeal by the defendants, Hugo Freudenthal and others, as executors, etc., from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Hew York on the 29th day of March, 1909, upon the verdict of a jury, and also from an order entered in said clerk’s office on the 15th day of March, 1909, denying the defendants’ motion for a new trial made upon the minutes.
    
      Jacob Manheim [Harry A. Gordon with him on the brief], for the appellants.
    
      John B. Stanchfield, for the respondent.
   Laughlin, J.:

This is an action against the executors of Henry Meyer, deceased, on a claim against the decedent which has been assigned to the plaintiff, to recover the surplus of moneys received by the decedent on a sale and conveyance of premises Hos. 62 and 64 Forsyth street, borough of Manhattan, Hew York, over and above the amount of certain incumbrances thereon and disbursements made on account thereof. The plaintiff’s assignor was his father, Pincus Bonginslcy, who on the 1st day of June, 1905, was indebted to the decedent in the sum of $43,000 on his bond, secured by a mortgage on said premises. The bond and mortgage had been given on the 3d day of June, 1904, to secure the payment of moneys loaned, and the indebtedness, by the terms thereof, was payable on demand and bore interest at the rate of six per cent per annum. We do not deem it necessary to consider how the indebtedness arose. The plaintiff’s assignor failed to apply the rents received from the premises and the payment of current charges to an extent sufficient to pay them all, and at the end of May, 1905, the taxes for 1904 and water rates for 1905, which had become a lien and aggregated nearly $1,500, remained unpaid, and there was to fall due on the 1st day of June, 1905, $2,000 for interest on the first mortgage on the premises. The plaintiff’s assignor, realizing that he would be unable to pay the interest on the mortgages and that either or both of them might be foreclosed, applied to decedent about this time for a further loan of $2,000 with which to pay the interest on the first mortgage. The decedent, who was then in ill health and had become totally blind as the result of an operation in June, 1904, and had given to one Michael, his son-in-law, who had married his only child, a general power of attorney to transact his business, including power to convey real property, to execute assignments of and to satisfy mortgages, to contract for the purchase and sale of real estate and rent and manage real estate and to make promissory notes and other negotiable instruments and draw checks and “ to take full charge of and manage” his “affairs of every kind and nature whatsoever,” was unwilling to make the loan and complained on account of the failure of the mortgagor to apply the rents to the payment of the current charges, and insisted that he must be protected. Further negotiations between the parties resulted in the execution and delivery by the mortgagor of a warranty deed of the premises to Michael on the 31st day of May, 1905, subject to the two mortgages and accrued interest thereon and to the taxes for the year 1904 and water rates for the year 1905, all of which the grantee assumed and agreed to pay, and subject also to existing leases and tenancies. The consideration recited in the deed is $100 “ and other valuable considerations.” It does not expressly appear that the consideration recited was not paid, but it is to be fairly inferred from the evidence that it was not. Simultaneously with the execution of the conveyance of the premises, the grantor and grantee executed a contract in writing under seal bearing date the 29th day of May, 1905, reciting, among other things, the mortgages on the premises, and the taxes and water rates which were unpaid; that the grantor had received from tenants of the premises various sums of money as security for their leases, aggregating the sum of $950 and was desirous of selling and conveying the premises to Michael, subject to the mortgages, the grantee to assume the same and indemnify him against any and all liability under and by virtue of the bonds executed by him accompanying the mortgages, and to agree to repay to the tenants the amount so advanced by them when they should become entitled thereto ; that the grantor agreed to sell and convey the premises subject to the mortgages, taxes, water rates and assessments, and leases, and to execute and deliver a .deed thereof to Michael upon the execution" of the agreement; and following these recitals the agreement contained mutual covenants of the parties to the effect as recited and plaintiff’s assignor therein agreed to pay the bills for repairs, gas and coal to the date of the agreement. Michael at no time asserted any individual right by virtue of the conveyance to him, other than as hereinafter stated, but assumed to manage the property under his power of attorney from Meyer and collected the rents and deposited the same to Meyer’s credit in the German Exchange Bank, and from time to time drew checks thereon as Meyer’s attorney in fact; but neither the deed nor the agreement in writing to which reference has been made either in any recital or provision or in the form of execution showed that Michael was acting otherwise than for himself. On the 8th day of June, 1906, Michael entered into a contract for a sale of the premises with one Goldfeiii for the consideration of $137,000, payable $80,000 by taking the premises subject to and assuming the first mortgage thereon for that amount, $37,000 by taking the premises subject to the second mortgage of $43,000 which, by agreement between Michael as owner and Meyer as mortgagee, was to be reduced to $37,000, and $2,000 on the execution of the contract, and $18,000 on the closing of the title. The second mortgage, thus reduced to $37,000, was also modified by the same agreement from being payable on demand to being payable in installments of $1,500 every six months, and the final payment at the end of five years. Meyer had been living with Michael down to this time, but between the date of the contract and the time for closing it, they became estranged and the power of attorney was revoked June 12, 1906. At Meyer’s request, Michael conveyed the premises to him on the 13th day of June, 1906. At the same time Meyer executed an agreement in writing to Michael, by which he undertook to carry out the contract for the sale of the premises to Goldfein, and it is recited therein that Michael held the premises for Meyer and had no personal interest therein. This was delivered and accepted by Michael who received one-lialf of the brokerage commissions on a sale of the premises to Goldfein. Testimony was given tending to show that Michael at first refused to convey the premises to Meyer without a division of profits, but this is denied. On the first day of August thereafter Meyer performed the contract and received in cash on account of the cash payment then due the sum of $16,769.41. On the 13th day of April, 1906, plaintiff’s assignor signed and delivered to him a memorandum in the handwriting of the former reciting that in consideration of moneys loaned he assigned to the plaintiff “ all the profits I may have in the house situated on northeast corner of Hester & Forsyth Sts., which is now held in trust by Mr. Charles Michael for Mr. Henry Meyer and myself.” In January thereafter plaintiff’s assignor, according to his own testimony, “ went into bankruptcy.” The plaintiff and his assignor were examined concerning this claim on the proceedings in bankruptcy; but no right thereto appears to have been asserted by the trustee. Meyer died on March 4,1907. The plaintiff filed his claim with the executors on the 8th day of April, 1908.

The plaintiff’s theory of his action, according to the allegations of his complaint and according to the brief of his counsel on the appeal, is that the conveyance by the mortgagor to the son-in-law of the mortgagee was for the purpose of further securing the indebtedness represented by the bond and mortgage, and that it was made on the express agreement that Michael was to collect the rents for Meyer, who was to receive the same and to meet and defray all arrears of taxes and water rates and all other disbursements and expenditures incident to conveying and managing the property until an advantageous sale could be effected, at which time he was to account to the plaintiff’s assignor for any surplus remaining after reimbursing himself and deducting the remaining indebtedness secured by'the bond and mortgage. At the close of the evidence certain proceedings were had upon the trial which counsel for appellant contends changed this theory of plaintiff’s case. They arose on a motion made by counsel for defendants as follows: “ I have a preliminary motion, and that is that the plaintiff be compelled to elect, whether he desires to proceed upon the theory that the transfer of this property by Ronginsky to Michael on May 31st, 1905, was in trust, or as security or by way of security or by way of sale ? ” Thereupon counsel for plaintiff said : “ I do now elect pursuant to their motion, and I move therefore to conform the pleadings to the proof. In pursuance of their reguest we now elect and rely solel/y and absolutely upon the sale and upon the agreement to repay us the su/rplus, whatever was realized over what was paid to Meyer P Counsel for defendants then said : “ I object to any conforming of the pleadings to the proof, and the Court of Appeals and the Appellate Division has lately decided that there can be no such thing as conforming pleadings to proof when proof was admitted under objection.” Whereupon the court said: “I do not think this proof was admitted under objection. I will grant the motion and you may take an exception.” 1 am of opinion that this did not materially change the complaint. Upon the trial paroi evidence was offered tending to support the plaintiff’s claim, which under the original complaint and under it as amended was on an agreement to account for the surplus on a sale of the premises, and when it thereafter appeared that the contract in writing, to which reference has been made, was executed by and between the plaintiff’s assignor and Michael at the time of the execution of the deed, counsel for defendants moved to strike out the evidence resting in paroi, on the ground that all negotiations were merged in the contract. The court denied the motion and an exception was duly taken. It is contended by counsel for the appellants that this was error. He presents two theories in support of this contention. His first claim is that the undisputed evidence shows that Michael was acting for Meyer; that Meyer was his alter ego ; that the deed was in effect a deed to Meyer and that the agreement was in effect an agreement on the part of Meyer, executed by Michael under the power of attorney ; and his other claim is that according to the paroi evidence upon which the plaintiff relies, this is what the parties intended, and that if instead of deeding the premises to Michael for Meyer, plaintiff’s assignor contracted with Meyer personally, then even though it was understood that Meyer-would account to plaintiff’s assignor for the surplus arising on a sale of the premises, that agreement on his part would not be binding on him or against his estate if the condition upon which it was made was not complied with, namely, that the premises be conveyed to Michael for him. The question of law presented by the exception to the refusal of the court to strike out this evidence presents difficulties. The objection was timely taken (Mahaney v. Carr, 175 N. Y. 454), but I think it was not good. It is very clear that the action could not be maintained against Michael. If it were brought against him, the paroi agreement in question would not only be deemed to have been merged in the writing, but the evidence to establish it would tend to contradict and be inconsistent with the agreement containing mutual covenants, executed by him and his grantor at the time of the execution of the deed and would, therefore, be clearly inadmissible. (Sturmdorf v. Saunders, 117 App. Div. 762; Middleworth v. Ordway, 191 N. Y. 415; Case v. P. B. Co., 134 id. 78, 81; Thomas v. Scutt, 127 id. 133; Marsh v. McNair, 99 id. 174; Lossing v. Cushman, 195 id. 386; Lese v. Lamprecht, 196 id. 32.) I am of' opinion that the second claim of counsel for the plaintiff with respect to the inadmissibility of the evidence is not tenable. The conveyance was made in accordance with Meyer’s direction and whether or not,.as matter of law, it became a conveyance to Michael individually or to him as trustee or attorney in fact for Meyer, would not affect Meyer’s liability on the point now under consideration, namely, that the conveyance was not made to Michael for Meyer. The attorneys who drew the papers represented all of the parties and it is uncontroverted that the papers were drafted according to their directions. Therefore, neither Meyer nor his estate could escape liability on that theory alone. I am of opinion that it was competent for Meyer, as mortgagee, to make a valid paroi agreement with his mortgagor to induce the latter to execute a conveyance of the premises to the effect as claimed from the pai’ol evidence. It is perfectly clear that if the conveyance had been made to himself, and he and the mortgagor had executed the agreement that was executed by his son-in-law to the mortgagor, paroi evidence would not be admissible to show an agreement on his pai't to account "for any surplus on a sale of the premises; but that is not the case as presented by this paroi evidence. The evidence, if credible, is to the ■ effect that the mortgagee, for the pxxrpose of inducing the mortgagor to convey the premises to his son-in-law, in whom he had trust and confidence and on whom he apparently relied, without taking any writing to show that the title, was to be held for him, made an agreemeixt resting in paroi. to account to the mortgagor for the surplus on a subsequent sale of the premises. That evidence, I think, was not rendered inadmissible by the agreement between the mortgagor and the grantee. That agreement does not purport to recite in whole or in part any agreement between the mortgagor and the mortgagee, and I think it cannot be successfully contended that every agreement resting in paroi between the mortgagor and the mortgagee must be deemed, as matter of law, to be merged in the agreement executed between the mortgagor and the grantee. I concede that if the deed ‘and contract showed that the conveyance was made to Michael for Meyer, and that Michael, in executing the contract, was acting as attorney in fact for Meyer, then all paroi negotiations on the subject between the mortgagor and the mortgagee would be deemed merged therein, but that is not this case. The agreement being under seal, the law is perfectly well settled that the mortgagor could not sue Meyer on the covenants and agreements made by his son-in-law therein; on the other hand, could Meyer sue the mortgagor on any covenants he made therein ? (Spencer v. Huntington, 100 App. Div. 463; affd., 183 N. Y. 506; Schaefer v. Henkel, 75 id. 378; Henricus v. Englert, 137 id. 488; Briggs v. Partridge, 64 id. 357; Farrar v. Lee, 10 App. Div. 130; Whitehouse v. Drisler, 37 id. 525; Williams v. Magee, 76 id. 512; affd., 177 N. Y. 534; Stanton v. Granger, 125 App. Div. 177; Van Allen v. Peabody, 112 id. 57.) Since, as has been seen, Meyer could not have sued on the agreement, I am of opinion that neither he nor his executors can interpose it as an objection to the admissibility of paroi evidence to show a separate and independent agreement on his part. We are not now concerned with the question as to whether or not Meyer or his estate would be liable if neither he nor his executors received .the surplus on the sale of the premises, and we express no opinion thereon, for here whether the transaction be regarded as a conveyance of the property in trust, the agreement resting in paroi, or on the contract by which the mortgagor was induced to convey the property, the conditions upon which the plaintiff’s assignor was to become entitled to the surplus have transpired. (See Bork v. Martin, 132 N. Y. 280.)

I am of opinion, however, that the verdict should be set aside as against the weight of the evidence. Notwithstanding the fact that the agreement in writing was not in law the agreement of Meyer, it was executed pursuant to the negotiations between all of the parties, and was drawn and signed by their attorneys with full knowl-. edge thereof on the part of Meyer, as well as the parties who executed it. If, as indicated by some of the testimony, the mortgagee was desirous of continuing the mortgage on the premises and of not having it merge in the conveyance, it would be natural to expect that, even though the plaintiff’s assignor was to receive any surplus on a sale of the premises, he would desire to be relieved from liability on his bond accompanying the second mortgage, and perhaps from liability to repay the moneys held as security for the leases, since he was financially embarrassed at the time; but it is not probable that he would have exacted as a condition, that he be indemnified also against liability on the bond accompanying the first mortgage, nor is it likely that Michael, who was considered responsible, would have so obligated himself if his grantor was not parting with all interest, and it is highly probable that the agreement by which he was to receive the surplus would have been incorporated in the formal contract, for it was not intended that it should be recorded, and in fact it was not so executed as to entitle it to be recorded, and it was merely intended as a private agreement between the parties. We have not overlooked the testimony tending to show that Meyer was requested by the mortgagor to execute an agreement, and that he insisted that the parties had had a similar transaction before without an agreement in writing. It is possible to account for the omission of any recital from the agreement between grantor and grantee on that ground, but we do not regard it as a satisfactory explanation for such omission. The attorney who drew the pajiers and supervised their execution testified, in Substance, that when the parties came to him, the mortgagor stated that he desired to turn over the projierty to Meyer, but that he wanted an agreement to protect him against liability on the bonds and on account of the moneys advanced by tenants as security for the rents, and that the agreement to which reference has been made was drafted for that purpose. The evidence tends to show that Michael is not friendly to the estate of his deceased father-in-law and has an action pending against the executors for a very large amount of money. His testimony tends to sustain the claim of the plaintiff, but lie repeatedly denied that any agreement from him was requested by the mortgagor, or that he executed any agreement to or with

the mortgagor, and when the agreement was produced and proved by the attorney, he was not called to the stand to attempt any explanation of this testimony or to contradict the testimony of the attorney with respect to what occurred at the time the papers were drafted and executed. Other testimony in support of the plaintiff’s claim was given by one Harris, who was Ins son-in-law. Harris testified to an interview between the plaintiff’s assignor, Michael and Meyer the night before the parties went to the attorneys to have the deed and contract prepared. His testimony tends to support the plaintiff’s claim that there was an understanding to the effect that on a sale of the premises Meyer was to give the surplus to plaintiff’s assignor. Plaintiff’s assignor, being disqualified from testifying by virtue" of the provisions of section 829 of the Code of Civil Procedure, only testified in contradiction of part of the testimony of the attorney who drew the papers. Other testimony was given by Goldfein, his son and the janitor of the premises in question, who shared in the commissions on the sale, with respect to interviews between them and Michael, tending to show that Michael reported conversations between him and Meyer to them, indicating that Meyer claimed, after the execution of the deed and agreement, that on a sale of the premises to Goldfein he would be obliged to account to plaintiff’s assignor for any surplus left after reimbursing himself and deducting the amount of his claim. It also appears by the testimony of the attorney who represented the parties that the second mortgage at this time was not worth more than eighty per cent of its face value, and his testimony in this regard is not controverted. The attorneys who represented the parties had been the attorneys for both Meyer and plaintiff’s assignor for many years, and there is nothing to indicate that the members of the firm, who consulted with the parties and drafted the papers, had any object other than to draft the papers according to the paroi agreement of the parties communicated to him in the presence of all of them. We, therefore, regard the formal agreement, signed and executed by. the mortgagor and Michael, as convincing evidence that plaintiff’s assignor intended to relinquish all interest in the property and that he reserved no claim against the mortgagee. We are of opinion, therefore, that the verdict is against the weight of the evidence.

It follows that the judgment and order should he reversed and a new trial granted, with costs to the appellant to abide the event.

Clarke and Houghton, JJ., concurred ; Scott, J., concurred in result.

Ingraham, J.

(concurring):

I concur with Mr. Justice Laughlin that the verdict was against the evidence, but I am also of the opinion that the evidence of the oral agreement was incompetent as it was merged in the written agreements under which the property was conveyed.

Judgment and order reversed, new trial ordered, costs to appellant to abide event. 
      
      
         Sic.