Fraw Realty Co. v. Natanson

• Decision Date: 11 April 1933
• Citation: 261 N.Y. 396,185 N.E. 679
• Parties: FRAW REALTY CO., Inc., v. NATANSON et al.
• Court: New York Court of Appeals Court of Appeals

261 N.Y. 396

185 N.E. 679

FRAW REALTY CO., Inc.,

v.NATANSON et al.

Court of Appeals of New York.

April 11, 1933.

Action by the Fraw Realty Company, Inc., against Max N. Natanson and others. From a judgment of the Appellate Division, First Department (236 App. Div. 722, 257 N. Y. S. 1042), affirming the judgment of Special Term dismissing the complaint on the merits, plaintiff appeals.

Reversed and rendered.

LEHMAN, J., and POUND, C. J., dissenting.

Appeal from Supreme Court, Appellate Division, First Department.

Eugene A. Sherpick, William Gilbert, James J. Regan, and John W. Jordan, all of New York City, for appellant.

Samuel Seabury and Alexander Pfeiffer, both of New York City, for respondents.

KELLOGG, Judge.

Max Natanson and his brother, Alexander Natanson, were the sole stockholders of the defendants Normar Real Estate Corporation and Malex Realty Corporation, the former owing 75 per cent. of the stock in each corporation and the latter 25 per cent. Max was the president of each corporation and Alexander was the treasurer. In February, 1928, the Natansons procured the purchase of a parcel of land from 875 West End Avenue Corporation. Normar Corporation made a down payment of $89,000 for the property. Title was conveyed to Malex Corporation, which executed and delivered to West End Avenue Corporation a bond for $83,833.30, the balance of the stipulated purchase price, together with a mortgage upon the parcel purchased to secure the payment of the bond. The bond and mortgage were subsequently transferred to the plaintiff. After the execution of these instruments, many other parcels of real estate were caused to be purchased. The down payments were in all cases made by Normar Corporation; title was in all cases conveyed to Malex Corporation; in all cases where purchase-money mortgages were given, Malex executed them. In May, 1929, Malex made default upon the bond and mortgage assigned to the plaintiff. Foreclosure, begun shortly thereafter, on May 26, 1930, resulted in a deficiency judgment of $86,752.69 in favor of the plaintiff against Malex. Meanwhile, in the months of October and November, 1929, Malex had conveyed to Normar, or its designees, all the real estate and other properties, conveyed to Malex after the execution by it of the mortgage held by the plaintiff, together with all other assets which it possessed. Learning of the fact, the plaintiff brought this action to set aside the conveyances so made, on the ground that they were made in fraud of creditors and particularly of the plaintiff. The defendants, the transferees, admit, as does Malex, that all the transfers were made without consideration paid therefor, and that the transfers stripped Malex of all its assets. The defense is that Normar was the real owner of the properties; that Malex held the legal title for its benefit; that the conveyances operated merely to convey to the true owner, or its designees, the naked legal title.

Admittedly there was never any writing between Normar and Malex that the latter should hold title for the former; never any resolution to that effect adopted by either corporation. Admittedly, on the various occasions when the properties were purchased, there was not then any declaration, either written or oral, that Malex would hold title for the benefit of Normar. The Natansons testified that there was merely a general understanding or arrangement between the two, arrived at on some occasion not stated, that Normar would make the down payments upon all purchases, and that Malex would take title, for the benefit of Normar, delivering to the sellers all necessary purchase-money bonds and mortgages. They say that Malex was ‘to hold the record title to property’ for Normar; that Malex was to ‘act as a dummy’ for Normar. The object to be achieved was that the Natansons might use ‘the Malex for the purpose of the delivery of the purchase money bond and mortgage.’ Granted the existence of the general understanding Malex would still have held legal title to the properties purchased, even though it had been intended that Malex should play the passive role of a so-called ‘dummy’ for Normar. The legal title would have constituted a full and complete title, unless, by the words and conduct of the parties, some equitable estate or trust had been raised. There could have been no express trust, for decalrations of trust are ineffective to create such an estate unless the declarations are in writing. Real Property Law, Consol. Laws, c. 50, § 242. There could have been no resulting trust, arising from the fact that Normar paid the purchase money and Malex took the title, for all such trusts have been abolished. Real Property Law, § 94. Unless, therefore, the facts were such, that a constructive trust would have been raised by a court of equity, Malex was the sole owner, in law and in equity, of all the properties conveyed.

The principle governing the erection by a court of equity of a constructive trust in cases of a similar character has been recently stated in Foreman v. Foreman, 251 N. Y. 237, 240, 167 N. E. 428, 429, to be as follows: ‘The rule is now settled by repeated judgments of this court that the statute does not obstruct the recognition of a constructive trust affecting an interest in land where a confidential relation would be abused if there were repudiation, without redress, of a trust orally declared.’ As authority for the principle enunciated the court cited Sinclair v. Purdy, 235 N. Y. 245, 253, 139 N. E. 255, 258;Gallagher v. Gallagher, 135 App. Div. 457, 120 N. Y. S. 18; Id., 202 N. Y. 572, 96 N. E. 1115;Leary v. Corvin, 181 N. Y. 222, 229,73 N. E. 984,106 Am. St. Rep. 542,2 Ann. Cas. 664;Goldsmith v. Goldsmith, 145 N. Y. 313, 39 N. E. 1067;Wood v. Rabe, 96 N. Y. 414, 426,48 Am. Rep. 640. It also quoted the following statement from Sinclair v. Purdy, supra: ‘It is not the promise only, nor the breach only, but unjust enrichment under cover of the relation of confidence, which puts the court in motion.’ The confidential relation, referred to in Foreman v. Foreman and Sinclair v. Purdy, self-evidently is not the relationship which is newly created by the transaction involving the conveyance and the promise, for so to hold would mean that in every case a trust may be created by an oral declaration. Clearly the references are to a pre-existing relationship of confidence such as that obtaining between husband and wife, father and son, brother and sister, or otherwise. This appears from the fact that in each of the cases cited by the court such a relationship existed, as well as from the language of the opinions written therein. Thus, in the leading case of Wood v. Rabe, supra, which involved the promise of a mother to take title to property in her name for the benefit of a son, if he performed an act requested by her, it was held that an enforceable trust arose. The court said: ‘It was a transaction between parent and child, a relation which, if not fiduciary in the strict sense, was nevertheless one ordinarily involving the greatest confidence on one side, and the greatest influence on the other.’ Again, it was said: ‘It was on the part of the son the case of a confidence induced, not by the bare promise of another, but by the promise and the confidential relation conjoined. The confidence in fact, had its spring and origin in the relation, and that relation was a controlling ingredient moving his action.’ Page 426 of 96 N. Y. In Goldsmith v. Goldsmith, supra, it was said: ‘Upon the whole transaction, therefore, including the confidential relation of the parties and its nature as a family arrangement very much beyond a mere business relation, we think it was competent for a court of equity to impress upon the property and its proceeds an implied trust for the benefit of the children.’ Page 318 of 145 N. Y.,39 N. E. 1067, 1068.

We disclaim any purpose of holding that the requisite confidential relationship must be one found within the confines of a family. We conceive that it might exist between lawyer and client, doctor and patient, priest and parishioner, and many other sets of persons, between whom there are bonds of intimacy and trust. Suffice it to say that we find no such relationship existing between Normar Corporation and Malex Corporation Surely, if a court of equity had refused to carry out the arrangement made between the two Natansons, no ‘unjust enrichment under cover of the relation of confidence’ could have resulted. On the contrary, recognition and enforcement of the arrangement, might have produced, rather than have prevented, an unjust enrichment. In that event, the Natansons personally would have escaped the payment of a purchase-money bond because shielded from liability by the two corporations; Normar would have escaped, although posing as the principal actor in the transaction, because it did not sign and seal the bond; Malex would have escaped payment because it had no property with which to pay. Thus, through the aid of a court of equity, the fruits of a contract of sale would have been secured to Normar, notwithstanding the fact that the promises to pay therefor had been repudiated or rendered worthless. It is not thinkable that a constructive trust would have been raised by the court to accomplish an end so unjust.

In Foreman v. Foreman, supra, the facts considered were these: A husband caused a conveyance of land for which he had paid, to be taken in the name of his wife, upon her promise to convey to him upon demand. ‘After the purchase had been made, he collected the rents and used them as his own. He paid the taxes, the insurance premiums, the interest on the mortgages, and the cost of improvements and repairs. The dominion that goes with ownership was continuously his.’ In holding that the wife held in trust for the husband, it was said by the court: ‘In its origin the trust was dependent for proof of its existence on nothing better than word of mouth. In the...