Opinion
No. 39/613.
02-26-1916
GOODELL v. TAYLOR et al.
Edwin B. Goodell, of Montclair, pro se. D. Frederick Burnett, of Newark, for defendant Watkins. E. Morgan Barradale, of Newark, for defendant Batt. Schuyler M. Cady, of Elizabeth, for defendant Addison.
Suit by Edwin B. Goodell, substituted administrator of Anna A. Burnet against Andrew S. Taylor, surviving executor, and others. Rights of parties determined.
Edwin B. Goodell, of Montclair, pro se. D. Frederick Burnett, of Newark, for defendant Watkins. E. Morgan Barradale, of Newark, for defendant Batt. Schuyler M. Cady, of Elizabeth, for defendant Addison.
STEVENS, V. C. This is a peculiar case, displaying a surprising amount of ignorance, and I regret to say, dishonesty on the part of a former solicitor of this court It is brought by the complainant, as substituted administrator of Anna A. Burnet, against Andrew S. Taylor, surviving executor (removed by the Essex orphans' court from his office on May 8, 1914), to recover land which the executor had bid in at foreclosure sale, and which he subsequently sold. The defendants are Ludwig Batt, a mortgagee, who became such before the executor's removal, Martha Addison, who before his removal purchased part of the land, Thomas H. Watkins and his wife, to whom he sold the land, or some part thereof, after his removal, and Kate Hayes, who lent money on the security of the land to enable Watkins to purchase.
It appears that Andrew S. Taylor, as executor of the estate of Anna A. Burnet, held two mortgages of $1,000 each, made by the defendant Thomas H. Watkins. Taylor foreclosed and bought in the property on April 29, 1913. The sheriff's deeds were both made to Andrew S. Taylor, "surviving executor of the last will and testament of Anna A. Burnet, deceased." The mortgages covered two tracts. Taylor sold the smaller to Ellen Daniel, for the defendant Martha Addison, for $900, and the larger, and somewhat more valuable, to Watkins, with an undertaking on Taylor's part that he would procure for him, without further cost, the smaller tract that he had already sold to Mrs. Daniel. The price paid by Watkins was $2,300.
The case involves the following questions:
(1) Is the Batt mortgage for $800, made before Taylor was removed, a valid mortgage as against the complainant?
(2) Is the conveyance by Taylor to Mrs.Daniel, made before he was removed, a valid conveyance as against complainant?
(3) Is the conveyance by Taylor to Watkins, made after he was removed, a valid conveyance as against complainant?
(4) Is the Hayes mortgage, made contemporaneously with the Watkins deed, a valid mortgage as against complainant?
(5) If these conveyances and mortgages, or any of them, are good, what are the equities of the parties inter sese?
Before proceeding to answer these questions it will be necessary to get a clear idea of the situation. Miss Burnet left a considerable personal estate. She did not authorize an investment of it in land, and she did not create any trust. She empowored and directed her executors to convey her real estate. What the executors had to do was to get in her personal estate, to sell her real estate, and to pay the legacies to her numerous legatees. Many of these legacies were, in fact, paid. It became necessary in the due administration of the estate to foreclose the Watkins mortgages, and, no other purchaser appearing, the executor bid in the property himself, as he had a right to do and as he ought to have done. It was, of course, his duty to reconvert the land into money as soon as possible and pay it over to the legatees.
What he did was this: On July 25, 1913, a few weeks after he received the deeds from the sheriff, he made a deed from himself as executor to himself "individually." In this instrument there appears the following remarkable paragraph:
"The said premises are conveyed by said Andrew S. Taylor, as surviving executor of said Anna A. Burnet, deceased, to Andrew S. Taylor in his individual capacity, for the reason that said premises arc in a very bad state of repair, the tenants threatening to move, and for the further reason that it is necessary to borrow considerable money upon said premises for the purpose of placing same in repair, and that several parties have refused to make loans upon said premises unless said Andrew S. Taylor would take title to said premises in his individual capacity, and in his individual capacity execute the necessary bond and mortgage to secure such loan, and that among the other parties to which said loan has been offered and refused are the Millburn Building & Loan Association and the South Orange Building & Loan Association, and that the South Orange Building & Loan Association has agreed to make said loan if the title to said premises is placed as before stated in the name of said Andrew S. Taylor individually, and that the title to said premises is therefore conveyed to the said Andrew S. Taylor in his individual capacity."
This recital shows that he did not, in fact, sell to himself for the consideration of $2,500 expressed in the paper, but that he went through the form of a sale for another reason, viz., for the purpose of borrowing money to make repairs. In his account filed he does not charge himself with the receipt of any money. The deed was recorded on the day following its date. It gave, notice of an intention on his part to divest whatever title the estate had in the land to enable him to raise money for an improper purpose. Of course, he did not by this abortive conveyance divest the estate of its equitable title. He got no money from the South Orange Building & Loan Association, and, as the evidence shows, he spent no money on repairs. The moneys that he did get from the transactions I am about to consider were misappropriated.
The first question is whether the mortgage to Batt is good as against the complainant. Batt lent his money in good faith, relying upon the advice of Taylor, his counsel. While he was not affected with Taylor's knowledge (Barnes v. Trenton Gaslight Co., 27 N. J. Eq. 33), he was affected by what appeared on the record. He had constructive notice that Taylor had made an attempt to transfer to himself what belonged to the estate, and that the purpose of the transfer was, in the words of the deed, to "borrow considerable money upon said premises for the purpose of placing same in repair." Taylor, holding this land for the estate, had no right to mortgage the property. Rutherford v. Sanntrock, 60 N. J. Eq. 471, 46 Atl. 648; Dubois v. Van Valen, 61 N. J. Eq. 331, 48 Atl. 241. If he had used the money for repairs, a different question would have arisen, but he did not. The amount received ($800) was out of all proportion to the amount needed for the purpose. As the event showed, the property, which was of small value, was salable without repairs. After Watkins took title he (Watkins) spent about $150 on it. It would seem to be plain that Batt, having constructive notice of Taylor's intention to apply such money as he might raise on mortgage to an improper purpose, is chargeable with the misapplication of the purchase money, and cannot hold the mortgage as against the estate.
2. Is the deed to Mrs. Daniel good? She stands, evidently, in a more favorable position than Batt. In her case Taylor did just what the law required him to do, viz., convert the land into money. She had constructive notice that Taylor had attempted to convey it to himself for an unauthorized purpose, viz., to borrow money for repairs, but she did not have constructive notice of anything more. As the notice was constructive, she was charged only with what appeared on the record. That was that he was trying to so place the title that he could mortgage it, not for himself, but for the benefit of the property. This notice did not give rise, as a matter of law, to the inference that he was going to misapply or embezzle purchase money. The attempted conveyance by Taylor, as executor, to himself, "individually," was merely nugatory. It left him just where he was before. His duty to sell remained. Perhaps he had made it a little harder to dispose of the property to any one who searched the records, but, if he did dispose of it to one who trusted him and did not examine the records, he did only what he should have done,and there is nothing on the face of the record, taken as a whole, that gave constructive notice of any intention to misappropriate the price.
3. Then we come to the case of Watkins. It differs from Mrs. Daniel's in that the sale to him was made after the decree removing Taylor from office. Taylor ought, after this decree was made, to have executed a deed to the new executor. Instead, he sold it to Watkins and misappropriated the purchase money. It is not denied that Watkins was a bona fide purchaser for value without actual notice. The claim is that he had constructive notice: (1) That Taylor was going to misappropriate the price; (2) that Taylor had been removed.
I have already disposed of the first of these contentions. As to the second, I know of no principle on which the claim of notice can be maintained. The evidence shows that Watkins bought on Taylor's representations alone. He made no search at the time. Whatever notice he had was constructive. The principle of such notice is that the purchaser "has constructive notice of every matter connected with or affecting the estate which appears either by description of parties, by recital by reference, or otherwise on the face of any deed which forms an essential link in the chain of instruments through which he must derive his title." Pom. Eq. Jur. vol. 2, § 626. It is obvious that the decree of the orphans' court removing him from office—an office which concerned the personal estate only—was not such an instrument. Perhaps an intelligent searcher might have had his suspicions aroused and might have examined the records of the orphans' court, and in doing so might have found the record of his removal; but this is not a case of actual inspection of deeds in the chain of title suggesting other inquiries, but of how far, the deeds not having been inspected, Watkins was charged with notice of what appeared on the record. It seems clear that he is only chargeable with knowledge of such matters as were contained in his chain of title.
Our act respecting conveyances provides (section 54) that:
"Every deed or instrument * * * shall, until duly recorded or lodged for record, * * * be void and of no effect against * * * all subsequent bona fide purchasers and mortgagees for valuable consideration, not having notice thereof, whose deed or mortgage shall have been first duly recorded." (2 Oomp. St. 1910, p. 1553).
Suppose Taylor had done his duty and conveyed to complainant, and complainant had not recorded his deed until after Watkins had recorded his. Could there, under this statute, be any doubt but that Watkins would have priority? If after a deed actually executed this would have been complainant's position, a fortiori must he be postponed when there was none. When the Legislature thought proper to make judgments and decrees notice to intending purchasers, they so provided. They have restrained the common-law effect of a lis pendens. It seems to me, therefore, quite impossible to support the contention that a purchaser of real estate which, as to him, is only real estate, is bound on the principle of constructive notice, by a decree not referred to in any instrument in his chain of title, and which in strictness has to do only with personalty. I think the Watkins deed is valid as against complainant.
4. The case of Mrs. Hayes, to whom Watkins mortgaged to obtain the money with which to pay for the property, stands upon the same footing as that of Watkins. If his deed is good, then her mortgage is good.
5. I now come to the equities of the parties intersese. I have said that the Batt mortgage was invalid as against complainant because Batt had constructive notice of a contemplated breach of trust. Was it invalid as against Mrs. Daniel and Watkins? I think not. Batt gave full consideration and put his mortgage on record. Daniel and Watkins therefore had notice of it. If Taylor was guilty of a breach of trust, it was toward the Burnet estate, not toward them. It was the Burnet estate that suffered, and it is the Burnet estate that should, as far as possible, be made whole. As Batt cannot hold his mortgage as against the estate, and as it is good as against Daniel and Watkins, he should be directed to transfer it to complainant. His situation is unfortunate. He is morally free from blame. His only fault is that he trusted his own counsel, who betrayed him. But he unwittingly assisted Taylor in appropriating the assets of the estate. When he took his mortgage, the lands became salable for $800 less. Much, therefore, as I regret depriving him of his security, in the contest between these two innocent parties I must hold that the loss must be borne by him. Ross v. Fitzgerald, 32 N. J. Eq. 838.
Watkins claims that Mrs. Daniel's grantee, Mrs. Addison, should convey the smaller lot to him. He says that while the property was being foreclosed he had an agreement with Taylor that Taylor, after foreclosure, would reconvey both tracts to him, and that Mrs. Daniel had notice of the agreement. It was not given to Mrs. Addison, the real purchaser, and it was not given in the course of her negotiation to purchase. The proof of the agreement, which was verbal only, and of the notice as well, is unsatisfactory. The only proof of notice, such as it was, is what was vaguely said by Watkins in the presence of Mrs. Daniel in July, 1913, six months before the purchase was made or contemplated. Mrs. Daniel had no interest in the property, and immediately reconveyed it to her daughter, Mrs. Addison, who paid the purchase money. The mortgage of $600 given by Mrs. Daniel to secure part of the purchase money belongs, of course, to the estate.