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Continental Ins. Co. v. Reeve

Supreme Court of New York, Appellate Division

March 15, 1912

CONTINENTAL INSURANCE COMPANY, Appellant, Respondent,
v.
JULIA B. REEVE and Others, Defendants, Impleaded with CITY REAL ESTATE COMPANY, Respondent, Appellant.

CROSS-APPEALS by the plaintiff, the Continental Insurance Company, and the defendant, the City Real Estate Company,

Page 836

from an order of the Supreme Court, made at the Kings County Special Term and entered in the office of the clerk of the county of Kings on the 23d day of December, 1910.

COUNSEL

William N. Dykman [Philip S. Dean with him on the brief], for the plaintiff.

Lynn C. Norris [Edward M. Perry with him on the brief], for the defendant City Real Estate Company.

JENKS, P. J.:

These are cross-appeals by the plaintiff and by the defendant City Real Estate Company from an order of the Special Term in an action for foreclosure of a first mortgage on realty. The City Real Estate Company is the owner and the holder of a second mortgage for $140,500, due, unpaid and next in priority to the said first mortgage, and the only other lien on the said realty. It owns and holds that mortgage as collateral security for a debt of $28,971.48, due from Pelletreau and Cooper, who were the real owners of the equity in the premises, or at least controlled it. On the day before plaintiff filed the lis pendens herein the record title of the realty was in the defendant the Lotus Realty Company. The foreclosure search, continued thereafter, failed to disclose a recorded deed of the premises made to Lewis, a dummy, at the instance of Pelletreau, and so Lewis was not made a party to the action. Shortly before the foreclosure sale this omission was discovered, and thereupon the plaintiff, in consideration of Pelletreau's procurance of a deed of the premises from Lewis to the defendant the Lotus Realty Company, stipulated in writing that plaintiff would bid at the foreclosure sale 'at least the amount found due by the said judgment, together with its taxable costs and disbursements and allowance, with interest, less any sum in the hands of the Receiver.' It is not contended that the said second mortgagee, the City Real Estate Company, had any hand in the conveyances to the dummy Lewis, or was a party to the said arrangement for the said reconveyance by Lewis, or to any agreement or stipulation incident thereto. Upon motion of the plaintiff a receiver pendente lite of the rents and profits of the premises had been

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appointed by an order that directed him, after deduction of the proper charges and expenses, to apply the residue of the rents to the payment and satisfaction of the amount remaining unpaid on the plaintiff's bond and mortgage, to bring all rents into court by deposit with the Title Guarantee and Trust Company and not pay out, but to safely keep, subject to the further order of the court, all such moneys, 'excepting so far as payments and disbursements are authorized by the terms of this order.' The plaintiff bid in the premises upon the foreclosure sale held on August 24, 1909, for $365,000, the amount, by plaintiff's estimate, required by its said stipulation (in addition to taxes, which the plaintiff considered within the spirit of its stipulation), less only the money in the hands of the receiver. But in casting up that amount the plaintiff included the tax of 1907, an item of $3,700 in round numbers, when in fact that tax had been paid. Pelletreau refused plaintiff's application that he permit the bid to be reduced by that item, and the plaintiff thereupon moved at Special Term for reduction of its bid by such item. The Special Term granted the motion, but upon appeal, for the reasons stated in the opinion of the court per BURR, J., the order was reversed and the motion was denied, without prejudice to an application on the part of the plaintiff to rescind the sale if it be so advised. ( Continental Insurance Co. v. Reeve, 135 A.D. 737.) An appeal from our decision was dismissed by the Court of Appeals. (198 N.Y. 595.) The order now under review was made thereafter at the instance of the defendant, the said City Real Estate Company, which moved for a reduction of the deficiency, found by the report of the referee to sell under the judgment of foreclosure, by deducting therefrom $3,387.43, for direction that the deficiency judgment be for that reduced amount, for determination that the said City Real Estate Company is entitled to the balance in the receiver's hands after deduction of the amount of the deficiency as so reduced, for direction that the receiver pay said balance to the said City Real Estate Company, and for such other and further relief as might be just. At the hearing of the motion, plaintiff read and filed a stipulation of the said City Real Estate Company to the effect that, in addition to the bond and mortgage covering

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the premises in suit and in addition to any claim on the fund in the hands of the receiver, it has securities collateral to the note of Pelletreau and Cooper amply sufficient to pay the note or any balance due thereon in full with interest. The stipulation, however, was made expressly 'without prejudice to the contention of said defendant City Real Estate Company that the fact of its possession of such collateral securities is immaterial upon this motion.' The Special Term granted the motion, amended the referee's report of sale by insertion of the $365,000 as the amount of the bid instead of $361,612.55, directed that the difference between these sums be deducted from the deficiency as found by the report of sale, reduced the deficiency accordingly, ordered the receiver to pay to the plaintiff the reduced sum, with interest thereon at six per cent per annum from September 23, 1909, to the date of the entry of the order in satisfaction of the deficiency and to pay to the City Real Estate Company the balance of the funds in his hands as receiver. The plaintiff appeals generally, the said City Real Estate Company appeals 'in so far as the said order fails and omits to provide for a further reduction of said deficiency by deducting therefrom interest on $3,387.45 from September 23rd, 1909, as prayed for in the said defendant's notice of motion herein, and from so much and such part of said order as directs the receiver herein to pay to plaintiff or its attorney interest on the said deficiency as thus reduced at the rate of six per cent per annum from September 23rd, 1909, to the date of entry of said order.'

I shall consider first the appeal of the plaintiff, whose contention is that upon the said stipulation of the defendant, the City Real Estate Company, the doctrine of marshaling of assets should be applied in that the said City Real Estate Company, having two funds as security for its debt, should be relegated solely to the securities which it has in its hands.

The fund which is in controversy is made up of the rents and profits of the realty collected by the receiver. If the amount received under the foreclosure sale did not suffice to satisfy the plaintiff's claim as mortgagor (inclusive of the expenses incidental to its action for foreclosure [ ...


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