Case ID: ny-super-ct_55/html/0245-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—Freedman, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

LOUISA KRAEMER, Appellant, v. SAMUEL ADELSBERGER, et al., Respondents.
    
      Deed absolute on its face, and subsequent agreement making grantee a trustee as to proceeds of sale of the premises—When do not constitute mortgage.
    
    A., who held title to premises belonging to his firm, conveyed these premises in 1871 to B., a special partner, to whom the firm owed $60,000, the deed being absolute on its face, and reciting that the conveyance was subject to a mortgage of $6,000 which the grantee assumed. The deed was forthwith recorded as a conveyance, and nine days thereafter, B. made an agreement with the members of the firm, reciting the conveyance to him of property, as security for the sum of $30,000, and agreeing, among other things, that whatever he realized above $30,000 from the sale of the premises, which he held as trustee, he would pay over to the others, and if he sold them for less than that sum, without .their consent, he should forfeit his claim on them for the difference. It was also provided that the sale was to be effected in two years. B. died in 1873 and A. in 1880, both leaving wills. In 1882 the agreement was recorded both as a deed and a mortgage. In 1881 the executors of B. assigned all his interest in the agreement to C., who, without malting B.’s heirs parties to the' action, foreclosed the instrument, and on the foreclosure sale conveyed the premises to defendants. Plaintiff contracted to purchase the premises from defendants, but objecting to the title as defective, sued to recover back the money paid and the expenses he incurred on account of the contract.
    
      
      Held, That the deed and agreement together are not a mortgage in form, nor did the parties thereby intend that there should be a mortgage ; that B. became the owner of an absolute title in fee, with absolute power of disposition, and a trustee as to the proceeds only; and that upon his death the legal title to the premises vested in his heirs, who could not be affected by any transfer by the executor, and the title of defendants was therefore not only doubtful, but bad.
    Before Sedgwick, Ch. J., Freedman and Ingraham, JJ.
    
      Decided January 8, 1888.
    Appeal from judgment entered upon the report of a referee dismissing the complaint with costs."
    The facts appear in the opinion.
    
      E. B. Amend, attorney, and E. J. Spink, of counsel, for appellant.
    
      Emanuel Arnstein, attorney, and Sol. Kohl, of counsel for respondents, urged :
    I. The conveyance and agreement of defeasance, taken together, constituted a mortgage, and hence the title thereto vested in the executor and not in the heirs of Andrew Henderson. Any conveyance intended by the parties to be a security for the payment of money is a mortgage. 2 Washb. Real Prop. 43.. The form of the instrument is unimportant so long as the transfer appears to have been only intended as a security. Thomas on Morts. 13.
    The intent that it shall only operate as a mortgage, need not appear on the conveyance itself, 2 R. S. Title V. Ch. III. (Banks 6th ed.) It will be noticed that the defeasance need not be under seal, all that is required being a writing. Decker v. Leonard, 6 Laws 268. And in this state it is well established that in equity a deed absolute on its face may be shown to be a mortgage by parol evidence. Horn v. Keteltas, 46 N. Y. 606; followed 47 N. Y. 238; 68 Ib. 502; 81 Ib. 316. The instruments in question, to wit, the absolute conveyance from Carr to Andrew Henderson, and the copartnership agreement, both when read together or coupled with the other evidence adduced, not onjy justified, but necessitated the finding of the referee, that Carr only mortgaged, and did not absolutely convey the premises in question to Henderson, and it is submitted that a contrary finding would have been against the evidence, and could not have been upheld. It is scarcely possible to conceive of any case where stronger or more conclusive evidence, on such a point could be given than was offered on the trial herein. The agreement recites the indebtedness to Henderson, and expressly states that he takes the conveyance as security for the sum of $30,000, that any sum realized from a sale in excess of the indebtedness, is to be refunded to Carr & Co., and a deficiency to be made good by the latter, that Carr was to continue to exercise the acts of ownership, for he was to collect the rents, discharge taxes and assessments, and pay interest on the first mortgages. Interest was to be paid moreover, to Henderson on this sum of $30,000, at the rate of seven -per cent, per annum, payable quarter yearly, and the agreement further stated, “that this property is only held by Andrew Henderson as trustee for the sum of $30,000.” Although these instruments were drawn by Susemihl, and not by a conveyancer, no lawyer could more clearly express the true nature of the transaction. The interest was paid, not only during the life of Andrew Henderson, but for years thereafter to Matthew Henderson, the executor. This shows clearly that all parties considered the indebtedness to Henderson still outstanding, and not discharged by the conveyance. The mere fact that the deed contains a covenant to assume mortgages does not affect the matter, as the court looks at the entire transaction. Gurnsey v. Rogers, 47 N. Y. 235 ; Pardee v. Treat, 82 Ib. 385. In all doubtful cases a contract will be construed to be a mortgage rather than a conditional sale. Matthews v. Sheehan, 69 N. Y. 585; Glover v. Payn, 19 Wend. 518; Brown v. Dewey, 2 Barb. 28. The cases of Baker v. Thrasher, 4 Den. 49, and McCauley v. Porter, 71 N. Y. 173, are not alone not in conflict with respondents’ views, but strongly support them. The agreement recited indeed that the sale was to be effected in two years, which perhaps indicates when the indebtedness was to be paid, but nothing is stated as to what would be the effect of a non-compliance with this provision, and that it was considered of no importance, and was waived by the act of the parties, is evidenced by the fact that the two years expired in 1873, yet the rents were collected by Carr & Co., and interest paid to Henderson and thereafter to his executor until 1880, Avhen the foreclosure suit was brought.
   By the Court.—Freedman, J.

This action Avas brought to recover the sum of $500, paid by the plaintiff on account of a contract Avitli the defendants for the purchase and sale of certain real estate in the city of Ñbav York, and the sum of $250, incurred by the plaintiff as an expense in the examination of the title. On the day appointed for the performance of the contract, both parties claimed to be ready to perform and to tendí r performance, but the plaintiff objected to the title as defective. The principal defect claimed, and the only one necessary to be considered upon the present appeal, arises out of the following facts and circumstances:

The title of record to the premises was, prior to March 21, 1871, in Wm. S. Carr. He Avas then a member of the firm of Wm. S. Carr & Co., and the premises in question were in fact part of the copartnership assets, and Wm. S. Carr held the title as trustee for said firm. Upon a dissolution of this copartnership in the early part of 1871, it was found that the firm was indebted to Andrew Henderson, the special partner, in the sum of $00,000. On March 21, 1871, Wm. S. Carr conveyed the said premises to Andrew Henderson by a warranty deed with full covenants, which deed was recorded as a deed March 22,1871. The deed is, on its face, absolute, and it recites that the conveyance is made subject to a mortgage of $6,000, which the grantee assumed and agreed to pay. ' On April 4, 1871—nine days after the record of the deed—the several members of the firm entered into an agreement with each other, by which it is recited that Andrew Henderson, the special partner of Wm. S. Carr & Co., receives and takes from Wm. S. Carr, trustee for the firm, deeds of certain premises (including those in question), of an estimated valuation, over incumbrances, amounting in the aggregate to $31,500, “as security for the sum of $30,000, with the understanding that whatever above that sum is realized by the sale, belongs" to Wm. S. Carr & Co., and Andrew Henderson agrees to pay the difference to them whenever received, and Wm. S. Carr and Tli. Susemihl, composing the firm of Wm. S. Carr & Co., agree to make good and pay over any difference to Andrew Henderson, if that amount should not be realized. The sale to be effected inside of two years......Andrew Henderson gives to Wm. S. Carr & Co., the right to rent and collect the rent for these houses and lots, the same as they have done heretofore, before the deeds were made Gver to him, and in return Wm. S. Carr & Co., agree to see that the taxes and assessments, as well as the interest on the first mortgages, are paid. It is further mutually understood that the property, being only held by Andrew Henderson as trustee, for the sum of thirty thousand dollars, as before mentioned, Andrew Henderson agrees not to dispose of any of this property for a less amount than the deeds made over to him call for, without getting the consent of Wm. S. Carr & Co., or- else forfeit his claim on Wm. S. Carr & Co. in case he should not realize the amount of thirty thousand dollars, for which it is pledged.”

Andrew Henderson died in 1873, and Wm. S. Carr died about October, 1880, both leaving wills. The foregoing agreement was not recorded until September, 1882, when it was recorded both in libers of deeds and of mortgages". Matthew Henderson, as executor of Andrew Henderson, about December 29, 1881, assigned all his interest in such agreement to E. C. Delevan. Delev.an, in an action, against the representatives and heirs of Carr and Theo. Susemihl, claiming to foreclose said instrument, procured a decree of foreclosure and sale, and said premises were sold and conveyed by the referee to said Delevan, and by him were conveyed to the defendants. The heirs of Andrew Henderson were not made parties to the action.

At the time of the conveyances to Henderson and the execution of the agreement recited above, the firm of Wm. S. Carr & Co. was solvent and continued solvent until after the retirement of Susemihl iti. 1876.

Upon these facts, as to which there is no dispute, it was claimed and is still claimed by the plaintiff that inasmuch as no conveyance by Andrew Henderson or his heirs, was shown, the legal title presumptively is in such heirs; and that as they were not made parties to the foreclosure proceedings, they are not concluded by them, and are at liberty at any time to assert their title as it appéars on record.

The referee, however, held plaintiff’s contention to be unfounded because, in his opinion, the deed and agreement together were in effect a mortgage; that on the death of Andrew Henderson th'e title to said mortgage passed to his executor; that the subsequent assignment of the mortgage by said executor to Delevan, the foreclosure proceedings instituted thereon” by Delevan, and the purchase by him of the premises from the referee who conducted the sale, were sufficient to invest Delevan with a good title; and that consequently the title derived by the defendants from Delevan, is a sufficiently good title which a purchaser can be compelled to take.

In this I think the referee erred. True, the transaction between Andrew Henderson and the firm of Carr & Co. was such as to give to said firm the right, upon the realization by Henderson of more than ,$30,000, to insist that the deed and agreement together, as between themselves, was in a certain sense in the nature of a mortgage, and that therefore Henderson was bound to refund any excess. But that consideration alone cannot control the title. As matter of fact, the deed and agreement taken together neither are a mortgage in form, nor did the parties thereby intend that they should be a mortgage such as is ordinarily given to secure the payment of money.

The deed and agreement taken together are not a mortgage in form, for the following reasons, viz.: They were not contemporaneous in execution. There is no evidence that at the time of the execution of the deed, or at any time between the execution and the recording of it, the agreement was even contemplated. The deed is absolute on its face, and in the agreement there is no provision for a reconveyance of the premises in any event. There is no agreement by the firm to pay the principal debt, but only any difference or balance which may remain after a sale made with their consent. If a sale is made without their consent, the grantee forfeits his claim on the firm to the extent of $30,000. The sale was to be made in two years. The grantee assumes the payment of the mortgage of $6,000, which was on the premises.

On the question of intent it appears that the considerations recited in the several deeds mentioned in the agreement amount to $31,500, above the incumbrances assumed by the grantee; that they were in the first instance received in absolute payment to that amount; that afterwards a new agreement was made to insure to Henderson a certain sum ($30,000), and to give to the firm the benefit of any excess, and that the manifest intention of all the parties was that the absolute title in fee should vest in Henderson with absolute power of disposition by deed, and that at the same time he should be a trustee as to the proceeds, so that he should pay the proceeds to himself to the extent of 30,000, and the excess, if any, to Carr & Co. That Henderson so understood it, appears from his assuming the payment of the mortgage on the premises and from the fact that he put the deed at once on record as a deed and before the agreement of April 1st was made.

The legal result of all this is, that Henderson did become the owner of an absolute title in fee with absolute power of disposition, and a trustee as to proceeds only, and that therefore, upon his death, the legal title to the premises vested in his heirs, and not in his executor. As a necessary consequence, his heirs could not be affected by any transfer or assignment by the executor not assented to by them.

The legal result being as stated, it further follows that at the trial the plaintiff showed the title to be not' only doubtful, but bad, and that for that reason he was entitled to recover within the rule applicable to actions at law as laid down in O’Reilly v. King, 28 How. 408, and The Methodist Episcopal Church Home v. Thompson, 52 Super. Ct. 321.

The judgment should be reversed, the order of reference vacated, and a new trial ordered with costs to the appellant to abide the event.

Sedgwick, Ch. J., and Ingraham, J., concurred.