Hood v. Fahnestock

The opinion of the court was delivered by Rogers, J. It seems to be conceded, that the conveyance of Jacob Herrington to his brother, James Herrington, was' fraudulent, and as such, void against his .creditors. The title, therefore, that Magill the sheriff’s vendee acquired, was avoidable by the creditors of the grantor. The defendant contends that he is in abetter situation than Magill, because he insists, that he stands in the attitude of a bona fide purchaser for a valuable consideration, without notice, and protected by the statute of 13 and 27 Eliz., 8 Watts, 489, Hood v. Fahnestock. This case depends on the doctrine of notices, viz., whether the defendant had either express or implied notice of the fraudulent transaction between the original grantor and grantee. It appears, that after the fraudulent conveyance the grantor retained the possession as before, exercising every act of ownership over it, and at the time of the purchase he was in the actual possession, holding the premises by his tenant. Under this state of facts, the court instructed the jury that the possession of the lot in controversy by Jacob’s tenant, when Magill sold to Hood, was constructive notice to Hood of Jacob’s fraudulent conveyance to his brother James. This instruction is assigned for error. The doctrine of constructive notice, says Mr. Justice Sergeant in Jaques v. Weeks, 8 Watts, 271, seems not to be very accurately settled. It is difficult, observes Mr. Sugden, to say what will amount to constructive notice. Sugden on Vendors, 534. And Chancellor Kent remarks that the doctrine of constructive notice is very greatly surcharged with cases abounding in refinement. It is difficult to define with precision the rule which regulates implied or constructive notice, for it depends on the infinitely varied circumstances of each case. To this I must be permitted to add, that there are no class of cases which require stricter scrutiny and more minute attention than transfers of real estate from fraudulent grantors; for there is no device more common among the multiplied and infinite schemes of villany, than attempts to cover up and conceal from investigation the iniquity of the original transaction, by covenous conveyances to third persons. Although it is true, that the doctrine of constructive notice in all cases may not be accurately defined; yet there are certain elementary principles embracing a wide [474] circle of cases which are well settled. Thus, whatever puts a party on inquiry amounts in judgment of law to notice; provided the inquiry becomes a duty, as in the case of purchasers and creditors, and would lead ,to a knowledge of the required fact by the exercise of ordinary-diligence and understanding. So every purchaser of land must be presumed to know, whether the possession be vacant or not. The purchaser of an estate in tire possession of tenants is chargeable with notice of the extent of their interests as tenants; for, having knowledge of the tenancy, he is bound to inform himself of the conditions of tire lease. Jaques v. Weeks, 7 Watts, 276, and Kent's Com. 179. Now, here stands the case: Hood, the purchaser from Magill, knew, or, which in law is the same thing, ought to have known, that there was a tenant in possession of the estate he was about to purchase. He was bound to inform himself, as we have seen, of the conditions of the lease; and in doing so he must have discovered, if he was before ignorant of the fact, that the person in possession held it as the tenant of Jacob Herrington, the man who, in conjunction with his brother, concocted the fraud. The purchaser was bound to make inquiry; and if this duty, which the law throws upon him, had been exercised with’ due diligence and proper discretion, can a doubt remain, it would have led to a knowledge of the important fact, that Jacob Herrington was the landlord of the tenant in possession ? — a position of things totally inconsistent and irreconcilable with the title of Magill. Possessed of this information, the most natural inquiry would be, why is it that you, Jacob Herrington, claim to be landlord of the tract in possession, after the conveyance of all your interest in the premises to James Herring-ton ? This would have been a question difficult to answer, and must have eventually led to a knowledge of that which was notorious to the whole neighbourhood, and to none more than Magill himself: that the whole matter was a vile contrivance to defraud the creditors of the fraudulent grantor. Hood must, at any rate, have discovered, that doubts and difficulties surrounded the title. I agree, that knowledge of the possession has not the effect of visiting the purchaser with notice of every fact and circumstance, which he might have learned by making inquiry of the persons in possession. But here we cannot avoid believing, that ordinary diligence and understanding on the part of the purchaser would have eventually led to the knowledge of circumstances, which would have prevented any prudent man from becoming a purchaser. It is not a case of ordinary lack of care, but of such gross laches as induces the belief that nothing but the peculiar condition of purchaser caused him to intermeddle with the estate. The case presents no feature, view it hi whatever aspect we may, which, on any principle [475] of law or equity, puts the vendee in a better position than the vendor. Notwithstanding occasional remarks which escape judges, that the doctrine of constructive notice has been carried to the verge of propriety ; yet I must be permitted to say, that when there is no default, • as, for example, when the rights of creditors are involved, the doctrine, in the broadest extent to which it has as yet been carried, is founded in the maturest wisdom. Constructive notice, in truth, in a great majority of cases, is actual notice; it answers every purpose of informing purchasers of every fact which is necessary for their security. .It is an unreasonable assumption that purchasers are so negligent, when they have the means of knowledge,, as not to make the usual inquiries as to the state of the title to the estate which they intend to purchase. The fact, in most cases, is in consonance with the legal presumption, that inquiries are set on foot which lead to an actual knowledge of every requisite fact. Constructive notice must suffice, unless we are to do infinite injustice; for if the law was so unreasonable as to require actual, express, and positive notice to be brought . home to the purchaser, it would be so difficult and impracticable, in many, cases, as to frustrate the ends of justice; it would serve as a .cover to fraud, and no creditor would be safe from the cunning devices of fraudulent debtors. Mr. Sugden, in his treatise on Vendors, 2 vol. p. 339, it is true, says: Notice of a tenancy will not, it seems, affect a purchaser with constructive notice of the lessor’s title. Therefore, if a person equitably entitled to an estate let it to a tenant, . who takes possession; and then the person having the legal title sells it to a person, who purchases bona fide, and without notice of the equitable claim; the purchaser must hold against the equitable owner, although he have notice of the tenant being in possession. For this .position no authority is cited, and the principle is announced with becoming diffidence. The doctrine, however, is noticed without appro.bation by Mr. Justice Yeates, in the Lessees of Billington v. Welsh, 5 Bin. 134, and by Judge Story, in Flagg v. Mann, 2 Sumn. 555, with the remark, that it would be pushing the doctrine of constructive notice to a great degree of extravagance, if held that a purchaser was bound to know, not only the title of the party in possession, but all its derivative sources. However just this may be, as a general remark, and there is solid room to differ from that eminent judge, I see nothing extravagant in the application of the rule to this and similar cases, which must depend, as Chancellor Kent justly remarks, upon the infinite varied circumstances of each case. The doctrine, in truth, is . absolutely necessary to guard the rights of creditors from a palpable fraud, or, to say the least of it, from such negligence and omission of [476] duty as amounts to fraud. It is nothing to the purpose that Hood lives at a distance from the property; for this cannot excuse him from rfiaking the necessary inquiries, either by himself or through the agency of another. No person can doubt, that if ordinary and common prudence had been observed, this purchase would not have been made; granting, as we are bound to do, that Hood was disposed to hold to the principles of right and justice, which forbid that the property of one man should go to pay the debts of another. Thus much for general principles. How stands the question on authority ? It is not a new question in this state, and, whatever may be thought of it elsewhere, it is settled here. Thus, in Sailor v. Hartzogg, 4 Wharton, 266, a cause tried at Nisi Prius, the judge, in charging the jury as to constructive notice of title, put the landlord and tenants in precisely the same category. One of the points of defence, on which great reliance was placed, was, that certain persons, under whom the defendants claimed, were bon& fide purchasers, without notice; and in that aspect of the case the charge was given. The defendant moved the court in banc for a new trial, and among other matters assigned this part of the charge for error. But although the cause was ordered for a new trial, yet the fact was expressly affirmed; the court observing, “ that after a very full and elaborate discussion of the points made by the counsel on both sides, and on deliberate consideration of them, we are well satisfied they are correctly answered by the judges.” It is, therefore, in vain to say, that this principle was not disputed, no authority read to the court, and that the controversy was as to the fact of ’s possession. All the points were affirmed after a close investigation, and the cause was reversed, because, as the court believed, the verdict was contrary to the weight of evidence. It is true, the act of limitations was one of the grounds of defence; but equally prominent was the obligation that the persons under whom the defendant claimed were bona fide purchasers, and they certainly were so, unless they had notice of the plaintiff’s title arising alone from the possession of a tenant. The case of Sailor v. Hartzogg rules the case, for it cannot be disguised, that if the defendant’s position be right, the court was then wrong. They are wholly irreconcilable with each other. It will be observed, that the case put by Mr. Sugden, as an illustration of the principle that notice of a tenancy will not affect a purchaser with constructive notice of the lessor’s title, is the case of a person equitably entitled to an estate, who lets it to a tenant, who takes possession; and then tire person having the legal estate sells to a person, who purchases bona fide and without notice of the equitable claim. If the rule asserted be confined to cases, such as the example given, and particularly to countries [477] having the benefit of the registry acts, it is not objectionable; inasmuch as it established nothing more than is ruled in Scott v. Gallagher, 14 Serg & Rawle, 339. The possession of a cestui que trust and the exercise by him of acts of ownership, are not constructive notice to a purchaser of the legal title from the trustee: there should be direct, express, and positive notice of the fact. The equitable owner, in Scott v. Gallagher, was in default. It was his duty to put his title on record, and, omitting to do so, he brings himself within the operation of a principle of equity, that where one of two- innocent persons must suffer, he who causes the loss ought to bear it. This doctrine, as Mr. Justice Story very justly observes in Flagg v. Mann, is enforced by considerations arising out of our registration acts, which are designed, and with great justice, to protect purchasers against latent equities. But it would be a misapplication of a beneficial principle to apply the rule to creditors, who are not in default, who have no other means of protection than by a liberal administration of the conservative rules, making it the imperative duty of the purchaser of real estate to malee diligent inquiry as to the state of the title of his vendor. The other errors assigned have, been properly abandoned by the counsel. Judgment affirmed.