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Seagirt Realty Corp. v. Chazanof - 13 N.Y.2d 282, 246 N.Y.S.2d 613, 196 N.E.2d 254 (1963)

Rule:

The doctrine of unclean hands which bars causes of action founded in illegality or immorality is not applicable against plaintiff. The property had been reconveyed and plaintiff holds title, legal and equitable. A voluntary reconveyance to the fraudulent grantor, even from the immediate fraudulent grantee, is effective as between the parties and is entitled to the protection of the courts in its enjoyment. The equitable maxim must be applied only where plaintiff has dealt unjustly in the very transaction of which he complains.

Facts:

In 1934 Jacob Landau, the sole stockholder and concededly alter ego of plaintiff Seagirt Realty Corp., caused Seagirt to convey certain property, together with other property, to his son, Alfred, without consideration, and for the purpose of concealing it from his creditors. Alfred, in turn, agreed to hold the property for his father's benefit. It also appears that Jacob Landau filed a petition in bankruptcy in 1945 in which he swore that he had no interest in real property. In 1950, Alfred, at his father's request, discharged his oral promise of 1934 by conveying the subject property to the defendant Jack Chazanof, the son-in-law of Jacob Landau. This conveyance was also without consideration. Defendant Chazanof did not record the deed, and it was lost. Several years later, Seagirt filed an action to compel Chazanof to remove a cloud on title to the property by conveying to Seagirt a replacement deed. The trial court ruled that defendant Chazanof was obligated to execute a replacement deed. This decision was reversed by the Appellate Division of the Supreme Court (New York). Seagirt appealed.

Issue:

Was defendant Chazanof obligated to execute a replacement deed for the property conveyed to him by plaintiff Seagirt Realty Corporation?

Answer:

Yes.

Conclusion:

The Court held that the appellate division erred in reversing the trial court decision. When equitable relief is sought, not to enforce an executory obligation arising out of an illegal transaction, but to protect a status of legal ownership, wrongs done by Jacob Landau to creditors in respect of the property at some time prior to the acquisition of the title now in issue may not now be raised by defendant Chazanof to defeat otherwise available relief. According to the Court, plaintiff property owner, Seagirt Realty Corp., was entitled to equitable relief in order to protect the status of legal ownership and so that third-parties would not be misled as to the actual ownership of the property. Whether Seagirt (Jacob Landau) had clean hands in the underlying transaction was relevant, but was weighed against the public concern for accurate land records.

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