Personeni v. Goodale (199 N.Y. 323, 1910)

Chase, J.

This action is brought to compel the determination of a claim adverse to that of the plaintiff in real property, pursuant to sections 1638-1650 of the Code of Civil Procedure. The facts are unusually complicated, and we will avoid stating them, except as they affect the determination of the questions which we will consider in this opinion.

William Campbell died April 27, 1888, seized of 27os. 62 and 64 South Fifth avenue, New York city, his only real property. He was indebted at the time of his death, but most of his indebtedness was as surety for the firm of Phyfe & Campbell, composed of his son-in-law and son.

Among the creditors of Phyfe & Campbell were Heroy & Marrener, who held four of their notes, indorsed by said William Campbell in his lifetime, aggregating $5,413.75. The indebtedness on which the testator was liable as surety grew out of real property transactions on the part of said Phyfe & Campbell. The personal property left by William Campbell amounted to $2,611.45, and after'paying his funeral and testamentary expenses there remained $1,256.38, an amount wholly insufficient to pay his debts.

Campbell died leaving a will which was duly probated. It does not mention his debts nor include an express imperative direction to sell his real property. It includes a discretionary power of sale, as follows ; “ If at any time my executors, or such of them as shall have qualified, the survivors or survivor of them, shall deem it for the best interest of my said estate that any part or parts or all of my real estate shall be sold, then I authorize and empower my executors as such, and the survivors and survivor of them, to sell and dispose of any real estate of which I may die seized or interested in, and any part or parts thereof, upon such terms and in such manner as they shall deem best, and for that purpose to make, execute and acknowledge all necessary deeds of conveyance therefor.”

The testator, after giving three general legacies, gave, devised and bequeathed all the rest, residue and remainder of his real and personal property to his executors in trust to take possession, maintain and control the same and receive the rents and profits therefrom during the life of his wife, and upon her death he gave, devised and bequeathed six-sevenths of said rest, residue and remainder to six of his children named, in equal shares, and the remaining one-seventh thereof to his said executors in trust during the life of a named child, and, subject to such trust, to his other children.

On January 21, 1891, the executors of the will of said testator executed and delivered an executors’ deed of No. 61 South Fifth avenue to George T. Arnoux, and upon the same day said Arnoux executed and delivered to Edwin Booth a mortgage upon said premises to secure a bond given by said Arnoux to Booth for the payment of $16,500 and interest that day loaned by Booth to Arnoux, which deed and mortgage were duly recorded in the register’s office on the same day. It appears from the record, but not by the findings, that the proceeds of the mortgage were diverted by the executors to the use of Phyfe & Campbell in their said real property transactions out of which grew the indebtedness of Heroy & Marrener. On December 30, 1889, a payment was made upon the indebtedness of Heroy & Marrener of $1,813.20.

Letters testamentary to said executors of the will of William Campbell, deceased, were issued October 18, 1888. Within' three years after the granting of such letters testamentary and upon October 15, 1891, but after the sale under the power contained in the will and the said conveyance by mortgage by the grantee on said sale, James II. Ileroy and William W. Heroy, surviving partners of Ileroy & Marrener, commenced a special proceeding and filed a petition in the Surrogate’s Court of New York county by which they prayed for a decree directing the disposition of the said William Campbell’s real property or so much thereof as was necessary for the payment of his debts as prescribed by title 5, chap. 18, of the Code of Civil Procedure.

In said petition it was alleged that the testator died seized and in possession of Nos. 62 and 61 South Fifth avenue. The petition also expressly alleged that “Neither of said premises as your petitioners are informed and believe is now mortgaged or in any way encumbered except so far as said premises No. 61 South Fifth Avenue may be encumbered by the following instruments of record in the office of the register of the city and county of New York, to wit — ” Following the allegation of the petition just quoted there is in the petition a statement of the deed of 61 South Fifth avenue to said Arnoux, heretofore mentioned, and of the mortgage by said Arnoux to Booth for $16,500, as also hereinbefore mentioned.

The executors of the will of said testator answered the petition in said special proceeding and set up as a defense “ That the will of said William Campbell contained a power of sale * * * that pursuant to the power of sale contained in said will these executors have made a conveyance of the premises known as 61 South Fifth Avenue referred to in said petition, said conveyance being made to George T. Arnoux.”

The surrogate denied the prayer of the petition, and in doing so said : “ The point to be decided is, whether a valid power of sale is created by the tenth clause of the will, and if there is a power of sale whether it is one for general purposes, and if exercised whether from the proceeds arising therefrom the debts could be paid,”

He concluded that the power of sale was unlimited and broad enough to include power to sell the testator’s real property for the payment of his debts. An appeal was taken from the order denying the petitioner’s application, which was heard in the General Term, and is reported in Matter of Heroy (67 Hun, 13). In the opinion the court say: “ We think the error into which the learned surrogate has fallen is in formulating the question for determination, and in not noting the distinction between a discretionary and an imperative power of sale. He made the right of a creditor to a sale of the real estate under the statute to depend upon the question whether the power of sale in the will could be exercised for the payment of debts. We think the more correct expression to be, that the question for determination was whether there is a power of sale in the will which must be exercised for the payment of debts. And that, therefore, though a power of sale may be general and unrestricted, which, if exercised, might render the proceeds of real estate, if an intention to that effect could be reasonably inferred from the will, subject to be applied to the payment of debts; such a discretionary power of sale, unexercised and in the absence of any provision in the will for the payment of debts, or an expression of intention from which it could be inferred that the real estate must be sold for the payment thereof, is not sufficient to prevent creditors from enforcing payment of their debt by compelling a sale of the real estate where all the jurisdictional facts are shown, and all the proceedings have been regular and in accordance with the Code, as was concededly the position of the petitioners here.” (P. 19.)

The conclusion reached by the court was that the order should be reversed “ With leave to the executors to answer over with a view of showing whether the proceeds from the one piece of property sold (61 South Fifth Avenue) would leave sufficient assets in their hands out of which the debt could be paid, in which event the application should be denied, otherwise granted.” (P. 21.)

No appeal was taken from such order to this court. After the commencement of said proceeding and the decision of the surrogate denying the prayer of the petition therein, but after the expiration of three years from the time when letters testamentary were granted to the executors of the will of William Campbell, deceased, and on or about June 10,1892, said executors sold No. 62 South Fifth avenue to Amy C. Pliyfe, and said Pliyfe thereupon executed and delivered a mortgage thereon to one Ann A. Florss to secure the payment of $14,000 borrowed by the said Pliyfe of the said Morss on that day. The deed and mortgage so given were on the same day duly recorded in the register’s office of said city.

On June 7, 1893, the said Edwin Booth died, leaving a last will and testament in and by which lie appointed executors, and after the probate of said will and letters testamentary were issued to said executors, and on September 9, 1893, the said executors of said Edwin Booth, deceased, commenced an action to foreclose the mortgage given by said Arnoux to their testator, the said Booth, on said property, No. 64 South Fifth avenue. In that action the general creditors of William Campbell were not made parties. An answer was interposed by the executors of the will of Campbell in. which they attacked their power to sell said 64 South Fifth avenue as well as the good faith of the transaction by which the deed was given by themselves to said Arnoux. The result of the trial of that action was a judgment in favor of the plaintiff for the foreclosure of the mortgage.

An appeal was taken from such judgment to the Appellate Division where it was held that the sale and conveyance to Arnoux was not made in good faith and that it was not a valid exercise of the power conferred by the will; that the attorney representing tlie mortgagee had knowledge of the purpose of such sale and conveyance and that his knowledge was attributable to the plaintiff’s testator, and that the mortgage did not constitute a lien upon the property.

The judgment of the Special Term was reversed and the plaintiff’s complaint dismissed. (Benedict v. Arnoux, 7 App. Div. 1.) An appeal was taken, from such judgment of reversal to this court. The decision is reported in Benedict v. Arnoux (154 N. Y. 715). It was held that when an agent forms the purpose of dealing with his principal’s property for his own benefit and advantage, or for the benefit and advantage of other persons who are opposed in interest, the presumption that he has disclosed all the facts that have come to his knowledge does not prevail, and his knowledge is not imputable to his principal.

It was further held that the plaintiffs were entitled to enforce the mortgage as it was given by a grantee who obtained a deed which upon its face is an absolute deed for a full consideration and apparently within the power conferred by the will.

The judgment of the Appellate Division was reversed and that of the Special Term affirmed. Thereafter and on March 25, 1898, No. 64 South Fifth avenue was sold pursuant to the decree in such foreclosure action and the property was purchased by the plaintiffs in that action, the executors of said Booth.

The mortgage given on No. 62 South Fifth avenue by Phyfe was subsequently assigned, and the assignee of said mortgage commenced an action for the foreclosure thereof. The surviving partners of the firm of Heroy & Marrener were made parties to that action and they and other defendants interposed answers to the complaint. A decree was • entered therein for the foreclosure of said mortgage. An appeal was taken from such decree to the Appellate Division by the surviving partners of the firm of Heroy & Marrener and also by other defendants, and the decision of the Appellate División is reported in Olyphant v. Phyfe (48 App. Div. 1).

It appeared in that action that the deed to Phyfe was given after the commencement of said special proceeding and the judgment was reversed as against Heroy et ah, the petitioners in the special proceeding, and affirmed as to the others.

An appeal was taken from the judgment so far as it reversed the judgment of the Special Term as against Heroy et ah, and the decision (affirming the judgment on the opinion below) is reported in Olyphant v. Phyfe (166 N. Y. 630).

On April 25, 1899, the plaintiff without actual notice of the claim of Heroy et al. and of the other general creditors purchased of the executors of Booth said 61 South Fifth avenue, paying therefor an adequate consideration, and entered into possession of the same, which possession he has retained since that time. The special proceeding remained for several years after the decision reported in 67 Hun, 13, without action being taken therein. Subsequently tbe parties proceeded therewith and a decree was obtained therein directing the sale of the decedent’s real property 62 and 61 South Fifth avenue for the payment of his debts. The decree provides for the sale of said real property in the inverse order of its alienation by the executors. That decree is dated October 17, 1905. This action was commenced a few days thereafter to have it determined that’said decree is unenforceable against 64 South Fifth avenue.. The' Special Term rendered judgment dismissing the plaintiff’s complaint. An appeal was taken there, from to the Appellate Division, where the judgment was affirmed, without opinion. (Personeni v. Goodale, 132 App. Div. 928.) An appeal was taken from such judgment to this court.

The questions which we will consider in determining this appeal az'e: 1. Cana special pz'oceeding be maintained for the sale of a decedent’s z’eal property where the decedent left a will including a valid discretionary power of sale to his executors, which, befoz’e the commencement of the special proceeding, was exez’cised by said executors and a sale actually znade by thezn ? 2. Where the facts appear in the petition on which the special pi'oceeding is based, can such sale be attacked by a bona fide holder of the real pz’operty in an independent action ?

The proceeding to sell a decedent’s real property to pay his debts is statutory. When resort to the real property of a decedezzt for the paymezzt of his debts is sought by his creditors it can ozzly be had by virtue of the statute and the prescribed statutory proceedings znnst be strictly pursued. (Long v. Long, 142 N. Y. 545; Kingsland v. Murray, 133 N. Y. 170; Hogan v. Kavanaugh, 138 N. Y. 417; Duryea v. Mackey, 151 N. Y. 204.)

A brief statement of the statutes to enable creditors to sell the real property of a decedent for the payment of his debts is necessary in determining the questions considered. W ith certain exceptions relating to specialties and matters of record not necessary to mention here, a decedent’s real property was not assets available for the payment of his debts by the English common law. The first statute on the subject ever enacted in this state is chapter 27 of the Laws of 1786, by which a proceeding was authorized before the judge of the Court of Probate, and upon the hearing in which proceeding upon certain proof the judge was authorized to “ Order and direct the whole if necessary, or if not, so much of the real estate of such testator or intestate then remaining unsold, to be sold as will pay his or her debts.”

When the provisions for the sale of the real estate of testator or intestate were included in the Revised Statutes of 1829 it was therein provided that the surrogate before whom the proceedings under the Revised Statutes were to be instituted “ Shall make no order for tbe mortgaging, leasing, or sale of the real property of the deceased, until upon due examination he shall be satisfied :