Ten Eyck v. Craig ( 1874 )

Gilbert, J.:

There are two insuperable objections to the granting of the relief which the plaintiff seeks, unless a mortgagee can be converted into a trustee. In the first place, the conveyance from Mrs. Sanger to him, under which alone he claims any interest in the premises in controversy, is wholly inoperative and void as against the defendants, for the reason that, when said conveyance was made, the decedent, Mr. Craig, was in possession of said premises, claiming under a title adverse to that of Mrs. Sanger.^* There is, therefore, a fatal lack of that privity, which is requisite to entitle the plaintiff to redeem.

In the second place, assuming that the relations between the deceased Mr. Stewart and the decedent Mr. Craig, independent of the mortgages, were those of cestui que trust and trustee, still the plaintiff is a stranger to the trust. The purchase of Mr. Craig was not void, but was voidable only at the election of the cestui que trust, or his heirs or personal representatives. It is perfectly valid and effectual, both at law and in equity, unless that election be exercised within the time allowed by the rule governing such cases. No person, except the cestui que trust, or some one standing in his place, can be heard to make such election. The purchase shall stand, if the cestui que trust acquiesces in the sale.^† No one but the cestui que trust, has a right to call in question a purchase made by the trustee.^‡ If, under any circumstances, such a right of election to avoid a purchase made by a trustee, would pass to the grantee of the property purchased, by virtue of a conveyance thereof by the cestui que trust, no such result followed the conveyance by Stewart to Sanger; for the purchase by Craig, which the plaintiff seeks to avoid, was made several years after that conveyance. Nor did any such right inure to Sanger, by virtue of the covenant of warranty contained in such conveyance, for the reason that none existed in Stewart. Stewart, or his heirs or representatives, might, if the alleged trust be assumed, have claimed the benefit of Craig’s purchase, and in that way his grantee, including the plaintiff, might have succeeded to his rights. ^§ But no such claim has ever been made. On the contrary, for aught that the evidence shows, they acquiesced in the purchase by Craig.

Perhaps the court might, in a proper case, compel a person, standing in Mr. Stewart’s relation to the property in dispute, to disaffirm acts done by his trustee, which would work a breach of his warranty, and so avoid a purchase made by the trustee for his benefit, for the purpose of protecting the title of his grantees.^* But, for obvious reasons, no such decree could be made, unless the cestui que trust, or, in case of his death, his heirs or personal representatives, were parties to the suit. It is said that a trustee cannot set up a title adverse to his cestui que trust, and that a conveyance of the legal title to the lands in dispute, should be held to embrace an assignment of any equitable right to redeem. Granted. But, if the foregoing views are correct, the plaintiff is not a cestui que trust, nor had his grantor, Mrs. Sanger, any such equitable right to assign. If, for any reason, the conclusions we have expressed, should be deemed erroneous, we are nevertheless of opinion, that, upon the facts of the case, the purchase of Mr. Craig was a perfectly valid one. With respect to the findings of the court below —that the judgment under which Powers redeemed, was held by Benedict in trust for Stewart; that Powers took the assignment thereof, subject to that trust; and that Craig is chargeable with notice thereof—it is at least very questionable whether they are warranted by the evidence. It is not however necessary to discuss that question, because, as already shown, the plaintiff, being a stranger to the trust, cannot be heard to disaffirm the acts of the alleged trustees, or to claim in this suit, the benefit thereof himself. Stewart, the cestui que trust, or his heirs or personal representatives alone, are vested with that right. The court below did not find whether the legal effect of the transactions between Stewart and Benedict, in respect to the judgment, was a payment thereof, or whether the redemption, under the circumstances proved, was in contravention of the statute regulating redemptions, on the ground that it was made ostensibly by a judgment creditor, but really by a trustee of the judgment debtor, after the expiration of the period within which judgment debtors are allowed to redeem, or whether it was a fraud on the purchaser at the sale under the execution, or otherwise. These questions may not, therefore, be properly before us for adjudication. If the redemption was valid, Craig got a good title by the conveyance from Powers, which must stand until assailed by Stewart, or his heirs or personal representatives. If it was invalid for the reasons suggested, it was a nullity; and Craig got a good title in equity by his purchase at the execution sale, which he is entitled to have consummated by a conveyance from the sheriff, vesting in him the legal title. His receipt of the money ■ paid to him by Powers, in order to effect the redemption, did not destroy his ri^ht to such conveyance, unless Powers had a right to redeem. The redemption proceeding cannot bo held to be valid, for the purpose of destroying the rights of Craig as purchaser at the execution sale, and at the same time be held to be invalid for the purpose of avoiding the conveyance to Craig, made by the same person who effected the redemption.

The only remaining questions relate to the finding of the court below, that “ Craig, upon entering on the collection of'the rents, on the assignment of the lease of the property in dispute, was in the position of a trustee for Stewart, in respect to' that property, and that his purchase of the same, while he occupied that position, inured to the benefit of the eesíui que trust, at his election.” We • are of opinion that this finding is erroneous. It seems to us to be a perversion of the rule, which incapacitates trustees and persons holding confidential or fiduciary relations toward others from purchasing the subject of the trust, to apply it to a person occupying the position of the decedent, Mr. Craig. He held mortgages on the lands in controversy, to secure the payment of the bonds of Stewart, the mortgagor. He had also become liable as the surety of Stewart, and held, as an indemnity against that liability, another mortgage of the same lands, made by Stewart, and also an assignment of the lease thereof for a term of years between Stewart as lessor and one Cook. Treating the assignment of the lease as constituting the relation of principal and agent between Stewart and Craig, still, the subject of the agency was not the property in controversy, but the money received by Craig for the rents thereof for a limited period. Its sole object and purpose were to enhance the security afforded by the mortgage held by Craig for 'his indemnity. It was not intended to impair any rights of Craig, as mortgagee, or to impose any burden or disability upon him; nor did it charge him with the duty or obligation of paying off the judgment against Stewart, or of protecting the mortgaged premises for the benefit of the latter, in case the lien thereof should be enforced by a sale. The only duty assumed by Craig, was, to receive the. money paid to him by Cook; to apply the same as directed in the assignment; and, in a contingency which never happened, to relet the premises in Mr. Stewart’s name. That duty he performed, and beyond that, his agency did not extend. We have been referred to no authority, holding that such an agency, undertaken by a mortgagee, incapacitates him from purchasing an outstanding title to the property mortgaged, and it is believed none can be found. It would hardly be contended that an agency to receive and dispose of farm products, as directed by the principal, incapacitated the agent from purchasing the farm on a sale thereof, under a decree or execution against the principal;^* and yet, if there be a difference on this point between such a case and that now under consideration, it is in favor of the latter, for Mr. Craig had an interest of his own to protect by purchasing, in order to prevent such interest being cut off by the sale.

It is urged, that, upon taking the assignment of the lease, Craig, in contemplation of law, went into possession of the mortgaged premises, as mortgagee. We think that transaction had no such effect. He certainly was not in actual possession, although, ordinarily, the reception of rents and profits is equivalent to possession; yet he did not receive them in the capacity of mortgagee, or in the assertion of any right pertaining to him in that character. His right to receive them sprang solely from the assignment, and it would have ceased with the payment of the debt for which he had become surety. As mortgagee merely, he had no interest in, or right to demand or receive them, ^†The question is material, only, upon the supposition that a mortgagee in possession, is a trustee for the mortgagor, and therefore incapacitated from purchasing. If that proposition should be established, the plaintiff might have a light to redeem. For the trust would be raised by implication of law, from the relations between the mortgagee and the owner of the equity of redemption. Opon this principle, Craig would have been a trustee for Mrs. Sanger. She would then have had the equitable right of enforcing the trust, and her conveyance to the plaintiff might be treated as an assignment of that right, which would be effectual, notwithstanding the hostile possession of Craig. But the rule referred to, has no application to mortgagees, whether in or out of possession. The relation between a mortgagee and the mortgagor, or his grantee, is not one of trust or confidence, nor has he any duty to perform in respect to the lands mortgaged, which incapacitates him from purchasing an outstanding title thereto. He is allowed by statute to purchase at a sale, conducted by himself, in execution of a power contained in his mortgage; ^* and the seventy-third rule of this court, which has the force of a statute, authorizes him to purchase at a sale, under a decree of foreclosure to which. he is a party, plaintiff or defendant. Why, then, should he be precluded from purchasing at a sale under an execution against the mortgagor ? If in possession, it is his duty to account in a way onerous to him; not however as agent or trustee, but as creditor; for all that he receives, comes to him in his own right. After his mortgage is paid, he is bound to turn over the possession to the owner of the land, not because he went in under a trust which has ceased, but because the mortgage debt has -been satisfied. But no duty to protect the equity of redemption against a sale thereof^ arises on being in possession; nor is any power, in fact, conferred upon a mortgagee for that purpose, ^† We think, therefore, it is a misnomer, to call a mortgagee a trustee of the mortgaged estate. He is a creditor having a lien. Like other creditors, who hold securities in other forms, he has opportunities to perpetrate fraud and oppression. The court will afford protection against such acts, but we are unable to discover any reason for taking a mortgagor out from the large class of debtors, who have become indebted upon the security of a pledge of their property, and thus practically making him a ward of the court. The judgments of the court of last resort in this State, appear to be decisive on this point. In Williams v. Townsend,^‡. it was held, that a mortgagee might purchase the mortgaged premises, at a sale thereof for taxes. It does not appear that this mortgagee was in possession; but, in the subsequent case of Trimm v. Marsh, ^* it was held, in effect, that a mortgagee in possession, who had caused the mortgaged premises to be sold under an execution in her favor against the mortgagor, might purchase at such sale. The question arose in a suit in equity, brought by the mortgagor to redeem, and the court held that a purchaser with notice, might set up the title, acquired by the mortgagee at the execution sale, against the claim of the mortgagor to redeem. The same doctrine prevails in England, ^† and in our sister States. ^‡ Ho case in which a contrary doctrine has been held, has been brought to our notice. Baldwin v. Bannister ^§ is not such a case. In Shaw v. Bunny, ^|| Lord J. Turnee states that, having examined the registrar’s book, he found that case to be no more than this: “ that the mortgagee had bought in the dower of the mortgagor’s widow for fifty pounds, and claimed to be repaid that sum upon the mortgage being redeemed, and it was decreed accordingly, apparently without dispute; and certainly there was no claim by the mortgagee, to hold the dower which he had purchased adversely to the mortgagor.” The principle on which the rule rests, also is against its application to a mortgagor, as will appear from an analysis of the real relation between mortgagor and mortgagee, and the rights and obligations of each. That has often been set forth in previous cases, and it would do no good to repeat it here.^¶

Upon the whole, therefore, we are of opinion that the court below erred in its disposition of the case, and that the defendants are entitled to a new trial.

New trial granted, with costs to abide the event.

* 1 R. S., 789, § 147; 2 id., 691 § 6

† Jackson v. Van Dalfsen, 5 J. R., 43; Same v. Walsh, 14 id., 415; Jennison v. Hapgood, 7 Pick., 1.

‡ Wilson v. Troup, 2 Cow., 238.

§ Hunt v. Amidon, 4 Hill, 345.

* Iddings v. Bruen, 4 Sand. Ch., 239, 277.

* See Hollingsworth v. Spaulding, 54 N. Y., 636.

† Parkinson v. Hanbury, Law R. (2 H. L. Cases), 1.

* 2 R. S., 546, § 7.

† Kirkwood v. Thompson, 2 De G., J. & S., 613; Clark v. Bush, 3 Cow., 151; See, also, Parkinson v. Hanbury, 1 Drew. & Sm., 143; S. C., 2 De G., J. & S., 450; S. C., Law Rep. (2 H. L. Case), 1.

‡ 31 N. Y., 411.

* 54 N. Y.;, 599.

† Cholmondeley v. Clinton, 2 Jac. & W., 182 to 185; Shaw v. Bunny, 2 De G., J. & S., 468; Knight v. Majoribanks, 2 Mac. & Gord., 10; Kirkwood v. Thompson, supra; Sug. V. & P. (8th Am. ed.), 689.

‡ King v. State M. F. Ins. Co., 7 Cush., 7; Walthall, Ex’r, v. Rines, 34 Ala., 92; Hurmder v. Roberts, 6 Flor., 711; Wordler v. Busch, 43 Mo., 231.

§ Cited in 3 P. Wms., 251, note a.

|| Supra.

¶ See Cholmondeley v. Clinton, supra; Astor v. Hoyt, 5 Wend., 603; Kortwright v. Cady, 21 N. Y., 343; Stoddard v. Hart, 23 id., 556; Trimm v. Marsh, supra, and cases cited.