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RIORDAN v. FERGUSON (02/14/45)

February 14, 1945


Before SWAN, CLARK and FRANK, Circuit Judges.

Per Curiam.

Plaintiff, as ancillary administrator with the will annexed of his father, John J. Riordan, Jr., who died in 1939, sued in the Supreme Court of the State of New York for the foreclosure of a mortgage given his father June 30, 1924, by Merchants & Manufacturers Exchange of New York. The mortgage covered, among other things, several pieces of real estate in Westchester County, New York; and the action involves one of these pieces, which had been acquired by defendant Ferguson as Federal Housing Administrator upon default of an insured F.H.A. loan secured by a mortgage on the property. The Administrator removed the action to the District Court, and then brought in, as third-party defendant, Inter-County Title Guaranty & Mortgage Company, which had insured the title of the property in the sum of $8,600. Both defendants answered and defended on the merits. After a trial the court dismissed the action and this appeal followed.

The mortgage in question, which was duly recorded in the land records, recited that it was made to secure a loan of $215,000, "payable $100,000.00 in 30 days, balance thereafter on demand, with interest at 6 per cent." With the mortgage Riordan received the mortgagor's promissory note, reciting these same terms, but adding also that the mortgaged property was to be held as security not only for the payment of the note, but also for "all other present or future debts, claims or demands of any and all kind of the holder against the maker." The note was not recorded, and no reference to the mortgage appears in later deeds in defendant's chain of title. On December 10, 1925, the mortgagor gave to Philso Estates, Inc., a New York corporation, two full covenant warranty deeds, neither making mention of the mortgage, both executed on behalf of the mortgagor corporation by its president "by order of the Board of Directors." One of these deeds included, among other parcels, the land now in suit; the other conveyed other property covered by the mortgage. The latter property was thereafter involved in litigation on which is based the defense of res judicata, discussed below. The execution of the deeds also is made the ground of the defense of estoppel, since Riordan at that time - indeed from 1923 until late 1926 - was a director of the mortgagor-grantor.

In addition to the two defenses just noted, the defendants had raised the defense of lack of jurisdiction of the person of the Administrator and of the subject of the action, and the further defenses of the statute of limitation and laches, and of payment. Prior to the trial the court ruled that it had jurisdiction and declined to enter summary judgment on the other defenses, D.C.S.D.N.Y., 42 F.Supp. 47. Thereafter the case came on for trial before another district judge, where all the defenses were reiterated, with the issue of payment naturally occupying the most space in the printed record. That issue involved subordinate questions as to whether there was an account stated, as claimed by plaintiff, as to how far payments made were to be applied to the mortgage note or to other indebtedness, and as to the reconciling of detailed and involved accounts, covering not only loans and discounts, but also agency commissions, and illuminated by the conflicting testimony of expert accountants. The mortgagor had gone into bankruptcy in 1927, receiving its discharge the following year.Its books and papers have been destroyed, but certain transcripts of the Riordan account, together with a personal account book and other material of Riordan, were introduced and were a fruitful source of conflict between the parties. The court overruled all defenses but that of payment; on that it made detailed findings supporting its conclusion that the mortgage was paid in full.

The claim of lack of jurisdiction is based upon the well-known immunity of the United States and its instrumentalities from suit, Cunningham v. Macon & B.R. Co., 109 U.S. 446, 3 S. Ct. 292, 609, 27 L. Ed. 992; Federal Land Bank of St. Louis v. Priddy, 295 U.S. 229, 55 S. Ct. 705, 79 L. Ed. 1408; Missouri Pac. R. Co. v. Ault, 256 U.S. 554, 41 S. Ct. 593, 65 L. Ed. 1087; The Lake Monroe, 250 U.S. 246, 39 S. Ct. 460, 63 L. Ed. 962, buttressed by the contention that here the land transferred on the mortgage default is really owned by the United States and hence is not subject to execution or suit. The National Housing Act, 12 U.S.C.A. 1702, expressly authorizes the Administrator "to sue and be sued in any court of competent jurisdiction, State or Federal"; but appellees rely on statements in Federal Housing Administration, Region No. 4, v. Burr, 309 U.S. 242, 250, 60 S. Ct. 488, 493, 84 L. Ed. 724, where the Court, in holding the Administrator subject to garnishment by a judgment creditor of the wages due his employee, went on to say: "That does not, of course, mean that any funds or property of the United States can be held responsible for this judgment." This claim is not without force. For all substantial purposes the land is now an asset of the United States; and United States v. Summerlin, 310 U.S. 414, 416, 60 S. Ct. 1019, 1020, 84 L. Ed. 1283, holds directly that a claim against the estate of a deceased assigned to the Administrator "became the claim of the United States, and the United States thereupon became entitled to enforce it." And where the United States is the owner of record, 28 U.S.C.A. 901, allowing suit to secure an adjudication concerning a mortgage, lien, or other claim on realty of the United States, does not apply. Sissman v. Chicago Title & Trust Co. et al., 303 Ill.App. 620, 25 N.E.2d 599.

But such a conclusion would seem at variance with the purposes of the Act. It would make the business carried on by the Administrator subject to various complications and restrictions of a hampering nature; and it would definitely prejudice prior lienors, who had not been able to foreclose their liens before the United States acquired full title to the property, by leaving them to remedies at best uncertain, indefinite, and undetermined. As said by the Court in the Burr case, supra, 309 U.S. at page 245, 60 S. Ct. at page 490, 84 L. Ed. 724: "* * * it must be presumed that when Congress launched a governmental agency into the commercial would and endowed it with authority to 'sue or be sued,' that agency is not less amenable to judicial process than a private enterprise under like circumstances would be." The Court also said: "Claims against a corporation are normally collectible only from corporate assets. That is true here. Congress has specifically directed that all such claims against the Federal Housing Administration of the type here involved 'shall be paid out of funds made available by this Act (chapter).' § 1 [12 U.S.C.A. § 1702]. Hence those funds, and only those, are subject to execution." And it is to be noted that the Housing Act itself gives recognition to "real property acquired and held by the Administrator" under the Act, in its careful provisions that such real estate shall not be tax exempt, 12 U.S.C.A. § 1714 of the original Act, and the added section of 1941, 12 U.S.C.A. § 1706b, dealing with property held in connection with the payment of insurance granted under the Act. We think the construction made by the court below more consistent with practical needs of the Administration and more probably the Congressional intention. See Reconstruction Finance Corp. v. J. G. Menihan Corp., 312 U.S. 81, 61 S. Ct. 485, 85 L. Ed. 595.

The defense of res judicata is based upon an action brought by Philso Estates, Inc., in the Supreme Court of New York for Westchester County in April, 1930. Riordan in 1928 asserted a claim on the mortgage in the sum of $60,000, and Philso, who then had agreed to sell the land acquired by it by the second deed of December 10, 1925, to purchasers for $55,000 bought its release from Riordan on October 26, 1928, for $29,631.32.*fn1 Philso thereupon brought the state suit against Riordan and the New York Title and Mortgage Company, insurer of the title, for a declaratory judgment that the amount paid was for a valid lien, and for consequential damages from the title company of this amount and interest. The trial court held that a declaratory judgment would not lie; but this was reversed on appeal. Philso Estates, Inc., v. Riordan, 240 App.Div. 998, 268 N.Y.S. 265. Thereafter the action went to trial February 8, 1934, on answers of Riordan supporting Philso's claim and of the title company opposing it. In due course the trial court rendered its decision finding that the mortgage had been fully paid long prior to the settlement of 1928 and directing judgment for the title company dismissing the complaint; and judgment was so rendered February 4, 1935, from which both Philso and Riordan appealed. But a stipulation of the parties dated March 10, 1936, provided for discontinuance of the appeals by the Appellate Division, Second Department; and on May 15, 1936, there was entered the order of the Appellate Division discontinuing the appeals on consent of both appellants.

Notwithstanding the fact that only the appeals were discontinued, plaintiff relies on other facts to show an intent of the parties for abandonment of the entire action and vacation of the judgment. While the appeals were pending, the title company was taken over for liquidation by the State Superintendent of Insurance in a proceeding brought in the Supreme Court of New York County. On March 10, 1936, the Superintendent of Insurance, as liquidator of the title company, entered into a settlement agreement with the two appellants pursuant to authorization granted by the Supreme Court in the liquidation proceeding. This agreement, after reciting the judgment of February 4, 1935, the pendency of the appeals therefrom, and the filing of claims in the liquidation proceeding by Philso and its attorneys, to whom 25% of its claim had been assigned, for the full amount of the sum ($29,631.32) paid to Riordan in satisfaction of his mortgage lien, provided that the claims should be allowed in the amount of $15,000 for Philso and $5,000 for its attorneys, and that the title company and its liquidator should be released from all further liability on the title policy. The parties further agreed to execute "such stipulations or other papers as may be necessary * * * for the purpose of discontinuing the appeals * * * and such other papers as may be necessary and requisite to discontinue said action and terminate all litigation with reference to said title insurance policy." A majority of the court agrees with the district judge that "The effect of this agreement was to annul the judgment." Regardless of failure to vacate the judgment of record, the parties treated the judgment as a nullity, for they recognized the validity of Philso's claim by allowing it as a general claim to the extent of $20,000. Since the agreement caused the judgment to cease to be binding on Philso, the judgment would likewise cease to be effective against any one in privity with Philso. Hence we find it unnecessary to consider the District Court's further ruling that there was no privity between any of the parties to the Philso action and the present defendants.

Turning now to the defense of payment, the plaintiff's attempt to overcome this by proof of an account stated clearly fails. For it is nowhere shown that Bolton, who bore the extravagant title of "internal auditor" and who signed the letters containing acknowledgments of Merchants & Manufacturers Exchange's indebtedness to Riordan, which letters comprise the alleged account stated, had the authority to bind the corporation in any way. Plaintiff's further claim that the District Court erred in failing, in the absence of specific earmarkings, to allocate payments first to the unsecured items of indebtedness, is clearly without merit, since the entire debt was secured. For it appears from the record that an agreement, dated April 30, 1926, whereby M. & M.E. assigned to Riordan all moneys due it from the Park-Lexington Corporation, was to serve as collateral security not only for the specific items of indebtedness therein described, but also for all past and future debts owed by M. & M.E. to Riordan. As between secured debts, the allocation of payments to antecedent items of the account in the order of their priority is clearly correct. Thompson v. St. Nicholas Nat. Bank, 113 N.Y. 325, 21 N.E. 57, affirmed 146 U.S. 240, 13 S. Ct. 66, 36 L. Ed. 956. The rest of the points raised by plaintiff as objections to the District Court's finding of payment concern questions of fact, and we accept the trial court's findings as to those items determined to be either doubtful or earmarked or unearmarked.

But the District Court erred in holding that there was no evidence to support two items of indebtedness claimed by plaintiff, consisting of commissions in the sums of $55,000 and $20,000 for the sale of Park-Lexington and Vanderbilt Avenue Building bonds respectively. For it appears that these items are entered in M. & M.E.'s own ledger books under date of December 31, 1924, a fact which the District Court must have overlooked. Though this date is after the execution of the mortgage, a letter by Catts, president of M. & M.E., and entries in Riordan's books indicate that these items antedated the mortgage. If that is actually so, and payments are accordingly applied first to these items, then it would seem that on the District Court's own view the mortgaged indebtedness has not been fully paid. Since, however, the court did not find it necessary to pass upon all the items of account, we shall not attempt final disposition of this issue, but shall remand it for determination below upon a more complete statement of the debits and credits.

The remaining issues may be disposed of quickly. The action being for the foreclosure of a mortgage, it is not barred by the statute of limitations on the debt secured thereby, Hulbert v. Clark, 128 N.Y. 295, 28 N.E. 638, 14 L.R.A. 59; House v. Carr, 185 N.Y. 453, 78 N.E. 171, 6 L.R.A.,N.S., 510, 113 Am.St.Rep. 936, 7 Ann.Cas. 185; Brooklyn Bank v. Barnaby, 197 N.Y. 210, 226, 90 N.E. 834, 27 L.R.A.,N.S., 843; see also Jones on Collateral Securities, 3d Ed., § 581, nor may the defendants avail themselves of the defense of laches. Monroe County Sav. Bank v. Baker, 147 Misc. 522, 264 N.Y.S. 101. The further defense of estoppel based only on the fact that Riordan was a director at the time the president of the mortgagor company executed warranty deeds of conveyance of the mortgaged premises seems to us properly not sustained. We need not come to the interesting question how far a director acting in his representative capacity may create a personal estoppel against himself, for we think the president's declarations that he executed the deeds "by order of the Board of Directors" were no more than the declaration by an agent of his own authority, which would not conclude the principal. Here the authorization in not unusual business practice may well have been to execute the instruments needed under the circumstances, i.e., those which would convey the company's actual title; it seems extreme now to guess or infer that the deceased actually and knowingly authorized a conveyance with did not except the mortgage whose enforcement he was found pressing so strenuously for many years thereafter.

The action must, therefore, be remanded for further consideration of the issue of payment in accordance with the views expressed in this opinion. There is no need of a complete retrial, however; the district judge who originally heard the case may proceed with the trial upon the basis of the evidence heretofore adduced and such further evidence as may now be pertinent, in accordance with the practice outlined in Gulbenkian v. Gulbenkian, 2 Cir., 147 F.2d 173.

Reversed and remanded.

CLARK, Circuit Judge (dissenting from so much of the opinion as rejects the defense of res ...

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