Bradley & Currier Co. v. Hofmann — 70 A.D. 77

Majority

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Bradley & Currier Co., Appellant, v. Gregor George Hofmann and Others, Defendants. Dudley S. Harde and Globe Realty Company, Intervening Petitioners, Respondents.

Headnote

Mortgage foreclosure — arrangement between a third mortgagee and the holders of the first and second mortgages for a certain disposition of the rents — a receiver appointed thereafter' at the instance of the third mortgagee without notice will be compelled to dispose of them in the same way—how far the act of the attorney binds the client.

An action having been brought to foreclose a third mortgage upon certain property,. the first and second mortgagees, who were not parties to the action, entered into negotiations with the third mortgagee’s attorney respecting the appointment of a receiver of the rents and profits of the property. The negotiations resulted in an agreement that the mortgagor should execute an assign

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ment of the rents to the third mortgagee and that the rents should be applied in the manner set forth in the assignment. After the assignment of the rents had been executed by the mortgagor and while the first and second mortgagees supposed that the rents were being collected under the assignment, the third mortgagee, without notice to the first and second mortgagees, obtained an order appointing a receiver of the rents and profits of the mortgaged premises.

Held, that the first and second mortgagees were entitled to intervene in the action brought by the third mortgagee and to obtain an order directing the receiver of the rents and profits to apply the money collected by Mm. in the maimer stipulated in the assignment of the rents;

That, assuming that the attorney for the third mortgagee had no authority to make a binding arrangement as to the application of the rents collected, he had actual knowledge that the first and second mortgagees were taking steps to secure their rights in connection with the rents, and that such knowledge was imputable to the third mortgagee;

That, under such- circumstances, the third mortgagee could not defeat the superior rights of the first and second mortgagees in the rents, by procuring the appointment of a receiver, without notice to them.

Van Brunt, P. J., dissented.

Appeal by the plaintiff, Bradley & Currier Co., from the following pOTtions of an order of the Supreme Court, made at the New York Special Term, bearing date the 7th day of January, 1902, and entered in the office of the clerk of the county of New York:

“ Ordered and determined that all and singular the allegations in the petition are true and that. the assignment of rents annexed to the petition and moving papers was and is valid and in full force and effect, and that the receivership of said receiver was and is in aid thereof; and it is further

“ Ordered that the motion and petition of the petitioners herein be and the same hereby is granted; and it is further . * * *

“ Ordered that -any moneys which may. have come into the possession of the plaintiff, Bradley & Currier Company, under or in pursuance of the assignment of rents above mentioned, shall he by it paid to said receiver to be by him applied as in said assignment provided, and that James R. Cherry, Esq., as such receiver, shall, and he is hereby directed to pay and apply all moneys now in his hands as such receiver, and all moneys which shall upon his final accounting be determined to be in his hands as such receiver for payment and distribution, in the following manner and in the folio wing.order to the extent of said moneys:

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“ 1st: In payment of the running expenses of said property including necessary repairs.

“ 2nd : In payment of taxes now existing against and a lien upon said property.

“ 3rd : In payment of the interest and principal now due upon the mortgage held by Dudley S. Harde, one of the petitioners herein upon said property, dated June 28th, 1900, and recorded July 2, 1900, in Section 7, Liber 116 of Mortgages, page 213.

“ 4th: In payment of the deficiency resulting from the sale of said premises under foreclosure in the action of Globe Realty Company, plaintiff, against Gregor George Hofmann and others, defendants, for the foreclosure of the mortgage in said action foreclosed.”

Austin E. Pressinger, for the appellant.

Nathan Ottinger, for the respondents.

This action was brought to foreclose a mortgage upon certain premises situate on Eighth avenue in the city of New York. The mortgage sought to be foreclosed was subject to the lien of two prior mortgages, one held by the Globe Realty Company, and the other by Dudley S. Harde, the latter being president of such company. Neither the company nor Harde were made parties defendant in the action to foreclose the plaintiff’s mortgage. During the pendency of plaintiff’s action, some negotiations were had between the attorney for the plaintiff and Harde, respecting the appointment of a receiver for the collection of the rents and profits of the property, and it was agreed between them that Harde should procure from the mortgagor an assignment of the rents to the plaintiff to be by it applied to the payment of running expenses, necessary , repairs and taxes upon the property ; the residue to be applied upon the principal and interest and upon the mortgage held by Harde; and it is claimed by the respondents that said assignment was never revoked by Hofmann and is still outstanding and operative. Upon this subject there is serious dispute between the parties, the plaintiff contending that it never made such arrangement with Harde, and that while the assignment of the rents was executed and delivered by Hofmann, yet he immediately nullified the same by

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refusing to admit the person sent to collect the rents to the premises, and thereby the plaintiff was unable to collect any rents thereunder. Upon this subject, however, it was quite competent for the court to find, as it did, that the respondents’ version was correct.

The assignment of the rents by Hofmann was executed February 28, 1901. On March first following, plaintiff applied for and obtained an order appointing a receiver of the rents and profits of the premises. Of this application the respondents had no notice, and they were not aware that it would be made, they relying upon the arrangement under which Hofmann executed the assignment. About April 24, 1901, the Globe Realty Company commenced a foreclosure of its mortgage, making the plaintiff a party defendant therein, but omitting as a defendant Dudley S. Harde, the holder of the other mortgage. This action proceeded to judgment of foreclosure, and upon a sale the property produced the sum of $11,000, leaving a deficiency of about $3,500 due upon the judgment of foreclosure. The effect of this judgment was to cut off the rights of the plaintiff, and to leave intact as a lien upon the premises the Harde mortgage. On December 6, 1901, Harde and the Globe Realty Company applied by petition to the Supreme Court for leave- to intervene in plaintiff’s action, and asked for an order requiring the receiver to apply the money in his hands as was directed in the assignment of the rents made by Hofmann, the mortgagor. ' The petition set up in substance the above facts, among others, and supported the same by affidavits, and upon the hearing additional affidavits were read ini rebuttal of the opposing papers. This application resulted in an order determining that the' facts stated in the petition were true; that the motion be granted; that the defendants have leave to intervene as parties, and that the moneys in the hands of the receiver be applied as directed in the assignment by Hofmann.

The appellant appeals from all this order -except that part which allowed the petitioner to intervene and have notice of the accounting and disposition of the money under the receivership. It is claimed that this order should be reversed for the reason that the plaintiff has by diligence on its part procured the appointment of a receiver of the rents and profits of the property prior to any action having been taken by the Globe Realty Company or Harde, and that

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thereby the plaintiff becomes entitled to receive the benefits of its diligent action, and that the money collected by the receiver should be paid to it.

If it be assumed that such claim is sustained by the facts, there would be much force in the contention. The law protects a party when by superior diligence he acquires a specific lien upon the rents, which are superior to any equities of the first mortgagee, and under such circumstances he is entitled to retain them and to apply the same upon his mortgage. (Ranney v. Peyser, 83 N. Y. 1 ; Washington Life Ins. Co. v. Fleischauer, 10 Hun, 117 .) The facts, however, as found by the court show that the receivership was obtained without any notice to the petitioners, after they had arranged for securing the rents and profits of the premises and for making particular application thereof in a manner assented to by the plaintiff’s attorney. It is undisputed that there was a negotiation between these parties about procuring an assignment of the rents from Hofmann and making disposition of the same without the interposition of a receiver. It may be assumed that the plaintiff’s attorney could not make a binding agreement as to a particular disposition of the rents and profits in the absence of an assent thereto by the client whom he represented; and if we assume that the attorney had no authority to make a binding arrangement as to the application of the rents collected, it, nevertheless, follows that the attorney had actual notice of the fact that the petitioners were taking steps to secure their rights in connection with the rents derived from the property. The attorney’s knowledge upon this subject was the knowledge of the plaintiff; and, having taken the assignment of Hofmann, he could not, without some notice to the petitioners, acquire rights which would defeat their equities. The liens of the petitioners were superior to the lien of the plaintiff, and all things being equal, they possessed superior equities, and could not lose the same, so far as all of the proceeds of the property were concerned, unless they lay idly by and permitted the plaintiff to acquire rights by diligent effort. (Ross v. Vernam, 6 App. Div. 246 .) After notice to the attorney by Harde that he intended to assert the right of the company and himself in the application of these moneys upon the liens held by the company and himself, the plaintiff could hot

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by diligence, in absence of any notice to him, acquire superior rights. The proofs tend to show that the petitioners supposed that the rents were being collected under the assignment, and as the application of the money when so collected would be for their benefit, the plaintiff, could not defeat their right thereto by surreptitiously procuring the appointment of a receiver. The condition was such that the petitioners were lulled into the belief that, they were secure, and of that fact the plaintiff’s attorney had notice when the receivership'was created. As. the petitioners had the superior equity, this act could not result to defeat their rights in the premises. The plaintiff lias not contested, or at least does not now contest, the right of the court to order the intervention of the petitioners in the action; and as they acquired right in the rents by action upon their part, such right attaches to their superior equity and entitles them to insist upon the application of the moneys as provided in the assignment.

The present order confirms such right. It should, therefore, be affirmed, with ten dollars costs and disbursements.

Ingraham, McLaughlin and Laughlin,, JJ., concurred; Van Brunt, P. J., dissented. '

Order affirmed, with ten dollars costs and disbursements.

Cases cited

Ranney v. Peyser 83 N. Y. 1 N.Y. 1880-11-30 p. 81