City Bank Farmers Trust Co. v. Macfadden

• Decision Date: 07 April 1932
• Citation: 13 A.D.2d 395,216 N.Y.S.2d 215
• Parties: CITY BANK FARMERS TRUST COMPANY, as Trustee under Deed of Trust made by Bernarr Macfadden, dated
• Court: New York Supreme Court — Appellate Division

Page 215

216 N.Y.S.2d 215

13 A.D.2d 395

CITY BANK FARMERS TRUST COMPANY, as Trustee under Deed of Trust made by Bernarr Macfadden, dated April 7 1932, for the benefit of Mary Macfadden Plaintiff-Respondent, v. Mary MACFADDEN, Defendant-Respondent, and Bernarr Macfadden Foundation, Inc. and Edward F. Bodin and Paul Winkler, as Executors of the Last Will and Testament of Bernarr Macfadden, deceased, Defendants-Appellants.

Supreme Court, Appellate Division, First Department.

June 13, 1961.

Edward N. Costikyan, New York City, of counsel (John G. Simon, New York City, with him on the brief, Paul, Weiss, Rifkind, Wharton & Garrison, New York City), for appellants Bernarr Macfadden Foundation, Inc., and Edward F. Bodin and Paul Winkler, as exrs.

Maurice V. Seligson, New York City, of counsel, for defendant-respondent Mary Macfadden.

Richard J. Turk, Jr., New York City, of counsel (Turk, Marsh, Ouchterloney & Kelly, New York City), for plaintiff-respondent City Bank Farmers Trust Co. as trustee.

Before BOTEIN, P. J., and RABIN, McNALLY, STEVENS and EAGER, JJ.

EAGER, Justice.

This is an appeal by the defendants from the interlocutory judgment herein excepting such portion of the said judgment which consists of decretal paragraphs numbered '1' and '3' relating to the first and third causes of action and to the counterclaim of defendant Bernarr Macfadden Foundation, Inc. Therefore, the appeal by the defendants is from the judgment insofar as it is in favor of the plaintiff upon the second and fourth causes of action.

It appears that the judgment in favor of the plaintiff against the defendant executors of Bernarr Macfadden, deceased, upon the second cause of action, was rendered on consent of counsel given at the close of the trial. The judgment appealed from expressly recites that it is on consent of the defendants. It is clear that an appeal does not lie from a judgment entered on consent. Therefore, the appeal, insofar as it is an appeal from the judgment in favor of plaintiff and against the defendant executors on the second cause of action should be dismissed, without costs. See 8 Carmody-Wait, §§ 21, 71, pp. 508, 548; also Norton & Siegel, Inc. v. Nolan, 276 N.Y. 392, 394, 12 N.E.2d 517.

There was an application by the defendant executors to the trial justice for an order to show cause to bring on a motion to be relieved of the consent to the judgment against them upon the second cause of action, and for a rehearing and reconsideration upon the merits of the issues with respect to such cause of action. The trial justice, however, refused to sign the order to show cause and to entertain the application. No order was entered, and the merits of this application are not before this court.

The sole matter for consideration here upon the merits is the No. 4 decretal paragraph of the judgment providing for a recovery in favor of the plaintiff upon the fourth cause of action against the defendant Bernarr Macfadden Foundation, Inc. (hereinafter referred to as the 'Foundation'). In fact, following the discussion and concessions at the close of the trial, it was concluded that the only issue in the action requiring determination by the court was the subject matter of said fourth cause, namely, the matter of the alleged liability of the Foundation for the obligations of Bernarr Macfadden under the 1932 separation agreement to pay for the benefit of his wife any deficiency between the trust income and the sum of $15,000 yearly. The trial court has held the Foundation liable to pay such deficiency, and the question before this court is whether or not such holding is sustained by the record.

Some statement of the facts seems necessary before discussing and passing upon the questions involved. Bernarr Macfadden was the founder of a cult and an active promoter of the teachings of physical culture. It appears that Bernarr and Mary Macfadden were married in 1913 when she was 19 and he was 45 years of age. The marriage was apparently a happy one and the husband and wife worked together and achieved success and a great fortune. In 1930, however, the parties were separated. In 1931, Bernarr turned over about $5,000,000 to the Foundation, which he had incorporated as a New York membership corporation. In 1932, he and his wife entered into a separation agreement, by the terms of which Bernarr agreed to establish a trust for his wife with income to her for life and to supply a home for the benefit of herself and children. It was further expressly provided therein that if the trust should not yield a minimum income of $15,000 per annum for the wife, he would pay the deficiency. An inter vivos trust as provided for in the separation agreement was duly set up. It appears, however, that in each of the fiscal years ending April 7, 1955, April 7, 1956, April 7, 1957, April 7, 1958 and April 7, 1959, the income from the trust to be paid to Mary was substantially less than $15,000 and that the total deficiency for the five years amounted to $24,104.32. As aforesaid, judgment has been entered on consent for this last-mentioned sum, with interest, against the executors of Bernarr's estate; and by the fourth cause of action it is sought to recover judgment for said sum and interest against the Foundation.

By the provisions of the separation agreement, the obligation to pay the deficiency between the income from the trust set up for wife Mary and $15,000 per annum was made the personal obligation of Bernarr. The plaintiff-respondent trustee and the defendant-respondent Mary Macfadden sought in this action to hold the appellant Foundation for the deficiency for the five particular years on two theories, namely (1) that the transfers of funds and property by Bernarr in his lifetime to the Foundation were fraudulent as to the plaintiff generally and also as in violation of the provisions of Article 10 of the Debtor and Creditor Law; and (2) that the Foundation was nothing more than the alter ego of Bernarr and therefore responsible for his obligations. In support of their theories, the respondents took the position that a certain judgment rendered in an action by Mary against the Foundation and the executors of Bernarr by the New Jersey Superior Court (affirmed by the New Jersey Appellate Division--see Macfadden v. Macfadden, 46 N.J.Super. 242, 134 A.2d 531, affirmed 49 N.J.Super. 356, 139 A.2d 774) was res judicata on the issue of liability of the Foundation; and that, in any event, on the trial of the issue de novo herein, the liability of the Foundation was established.

This court, however, unanimously concludes that, independent of application of the doctrine of res judicata, the respondents have failed to establish that the transfers made by Bernarr to the Foundation were fraudulent as against Mary, as against creditors generally or as in violation of the provisions of Article 10 of the Debtor and Creditor Law. Also, this court unanimously concludes that the evidence before the court here, considered de novo, does not establish that the Foundation was the alter ego of Bernarr in the sense of making it responsible for his debts and obligations, including the obligation under the separation agreement to make up the deficit between the trust income and the $15,000 yearly to be paid to Mary.

Remaining only is the question of whether or not the issue as to the liability of the Foundation for the particular obligation of Bernarr was in fact determined by the judgment in favor of Mary in the New Jersey Superior Court action. The learned trial court concluded that the parties were bound by this judgment as 'a prior adjudication that the Foundation is the alter ego of Bernarr Macfadden and is, therefore, responsible for his obligations under the separation agreement.' [25 Misc.2d 125, 198 N.Y.S.2d 784] Such conclusion is justified, however, only if this precise issue here was litigated and determined in the New Jersey Superior Court action. Unless this is so, the judgment here is not sustainable on basis that the New Jersey Superior Court judgment is res judicata.

The New Jersey Superior Court action had been brought solely to secure a determination of Mary's rights with respect to the home, situate in New Jersey, supplied by Bernarr, her husband. Although Bernarr had paid the purchase price therefor, the title to the property from time of acquisition in 1927 was held by him in the name of divers corporations over which he had control; and, in 1937, title was conveyed to the Foundation, also controlled by him. For some time the corporations and the Foundation, though holding the legal title, recognized the outstanding interest of Mary in the property, and they paid the taxes and carrying charges. Finally, in 1954, the Foundation sought to take over this property which was occupied as a home by Mary and to sell it. Thereupon, she brought the action in the New Jersey Superior Court, and therein sought an adjudication that the Foundation held title to the home property subject to her rights therein under the separation agreement and with the obligation imposed upon it to keep the property in repair and to pay the taxes thereon.

The judgment in the New Jersey Superior Court action determined that the title of the Foundation to the home property was subject to a life estate in Mary, as provided for by the separation agreement, and, further, that there was imposed upon the Foundation, or on its default, upon the executors of Bernarr, the obligation to keep the premises in repair and free of unpaid taxes, so long as Mary should use and occupy the same. Clearly, such judgment was not a judgment upon the same cause of action as is here involved. Any determination reached here would not have the effect of destroying or in any way limiting, the rights of Mary as established by the judgment of the New Jersey Superior Court. Therefore, under the 'decisive test' applied by the decisions, such judgment is not res judicata as to the cause...