Ruckstuhl v. Healy , 222 A.D. 152 ( 1927 )

O’Malley, J.

The plaintiff vendee sues the defendant vendor to rescind a contract of sale of real property known as Nos. 834-836 Riverside Drive; to recover payment on the contract price of $5,000 and expenses incurred in the examination of title, and to have declared a total sum of $5,299 a lien on the property pursuant to a clause which provided for such hen. - The action is predicated upon the theory that the defendant misrepresented the nature of a third mortgage lien upon the premises.

As the complaint was dismissed at the close of the plaintiff’s case, her testimony and evidence are entitled to the most favorable inferences deducible therefrom. (Bahnsen & Co. v. Gerst, 235 N. Y. 426; Botway v. Schnitzer, 217 App. Div. 468; Neville v. Morrison Coal & Coke Co., 211 id. 282; Wheeler v. Lewis, 203 id. 222.) Moreover, as this is an action in equity to rescind and not one at law for damages, the plaintiff need neither allege nor prove that the alleged misrepresentations were knowingly made or made with fraudulent intent. It is sufficient if the representations were false. (Bloomquist v. Farson, 222 N. Y. 375.)

Plaintiff, a resident of St. Lom^ and a school teacher by profession, presented evidence tending to show that she had $30,000 in cash which she desired to invest in real property; that the defendant offered the premises for the sum of $167,500; that of this sum $30,000 was to be paid in cash; another portion thereof to be covered by the aggregate amount of the three mortgages then a hen on the premises, a first mortgage of $60,000, a second mortgage of $33,000, and a third mortgage of $17,000; and the balance of $27,500 by the execution of a purchase-money mortgage.

At the first of several conferences between the parties the plaintiff informed the defendant that she was willing to take the property at his price, provided satisfactory arrangements respecting mortgages could be made. The defendant told her she could get a new first mortgage of $90,000 with which to pay off the first mortgage of $60,000 and $30,000 on account of the second mortgage, and that the balance of $3,000 on the second mortgage could stand thereon, and that the third mortgage of $17,000 could continue as a third mortgage. Defendant also told her he would take back a fourth mortgage in the sum of $27,500, which was to be a purchase-money mortgage.

Plaintiff testified that she informed the defendant that she did not like to have a fourth mortgage upon the property whereupon the defendant said that in that case she could procure a new first mortgage in the sum of $95,000 which would take care of the first and second mortgages, and that the balance of $2,000 could be applied in reduction of the third mortgage.

On July 28, 1925, she finally came to an arrangement with the defendant, and upon a down payment of $100, received a binder. This set forth the purchase price and the manner of payment as above outlined. It contained also the following provision: “ The purchaser will procure a new 1st mortgage of not over $95,000, and will.pay off the present 1st & 2nd mortgages. This will make . the present 3rd mortgage of $17,000 a second Mortgage, and the seller, Edward J. Healy, will take back a third mortgage of $27,500. * * * ” (Italics ours.)

The plaintiff did not know at this time of any terms in the $17,000 third mortgage which would prevent it from becoming a second mortgage under the circumstances recited in this binder.

Under date of July 31, 1925, the parties executed a formal contract. It varied in one respect from the binder, by providing that the plaintiff would take the premises subject to a first mortgage which she agreed to procure before the delivery of the deed “ in the amount of not more than $110,000. With the proceeds of said mortgage, the Purchaser ” agreed to pay off the first and second mortgages and to take the property subject to the third mortgage of $17,000. It further'-provided that the plaintiff agreed to apply any amount of the new first mortgage so procured in excess of $93,000 in reduction of the said third mortgage. A representative of the title company, present at the time the contract was signed, testified that he understood from the binder and contract that this •third mortgage could always be subordinated to a new first mortgage, whatever its amount might be. This, of course, was plaintiff’s avowed understanding of it.

We now come to the provision of the third mortgage which is the basis of the alleged false representation. This izas of record and the defendant himself was the mortgagor therein. It contained a provision that it would remain a subordinate and inferior lien to the old first mortgage then on the premises or to any new mortgage which might be placed thereon in lieu of such old mortgage not exceeding the sum of $60,000, but with the privilege to raise a larger first mortgage to which this mortgage should remain subordinate, provided any excess raised above $60,000 was paid on account of the principal of the third mortgage.

It is apparent, therefore, that the defendant’s express oral representation to the plaintiff that the third mortgage would remain subordinate to a new first mortgage in the aggregate amounts of the old first and second mortgages, was untrue. The written documents themselves clearly contain a .representation to the same effect, which, of course, was equally untrue. Such representation, according to plaintiff’s testimony, was material. She testified she would not have made the purchase had she known of the true situation. The plaintiff, therefore, clearly established a prima facie case for rescission, and the defendant was called upon to offer proof in defense.

It was not incumbent upon the plaintiff to prove that the holder of the third mortgage would be unwilling to waive such provisions. She was entitled to stand on the representations made by the defendant. On the contrary, it was incumbent upon the defendant to have the third mortgage taken care of in the manner in which he represented to the plaintiff it was possible to do. (Greene v. Barrett, Nephews & Co., 238 N. Y. 207, 212.) Nor does the fact that the third mortgage was of record alter the situation. Having undertaken to speak concerning its nature, the defendant was obligated to speak truthfully, if not fully. The Recording Acts may not be used to effectively perpetrate a fraud or to permit a misrepresentation to be acted upon in this manner without redress. They are primarily for the protection of lienors as against subsequent purchasers and lienors. As was said in Mead v. Bunn (32 N. Y. 275, 278): “ It is claimed, on behalf of the appellant, that the mortgage was duly recorded, and that the plaintiff was, therefore, chargeable with constructive notice, that the statements of the defendant, as to its contents, were false. No such fact is found by the referee; but, if it were otherwise, it is sufficient to say, that it is neither the purpose nor the office of the Recording Acts, to charge the immediate parties with constructive notice of the precise contents of the instruments they execute, but to notify subsequent purchasers and incumbrancers of the rights such instruments are intended to secure. * * * Every contracting party has an absolute right to rely on the express statement of an existing fact, the truth of which is known to the opposite party and unknown to him, as the basis of a mutual engagement; and he is under no obligation to investigate and verify statements, to the truth of which, the other party' to the contract, with full means of knowledge, has deliberately pledged his faith.”

We think that defendant’s positive assertions, both written and oral, as to the nature of the mortgage executed by himself, justified the plaintiff in relying on the representations without a search of the record title.

We are not concerned with, nor is the record sufficient to permit us to judge of, the merit of the plaintiff’s clajm. This may be done only after a fair trial of the issues. Suffice it to say that, as already pointed out, she made out a prima facie case.

It follows that the judgment appealed from should be reversed and a new trial ordered, with costs to the appellant to abide the event.

Martin and Proskauer, JJ., concur; Dowling, P. J., and Merrell, J., dissent.