National Surety Co. v. Manhattan Mortgage Co.

Headnote

Money had and received ■—■ purchase by guardian of subordinate interest in mortgage with trust funds—when payment of such funds to mortgagee makes latter trustee and liable for the amount if, on foreclosure, an insufficient amount is received to protect same.

National Surety Co. v. Manhattan Mortgage Co., 185 App. Div. 733 , affirmed.

Appeal from a judgment entered February 13, 1919, upon an order of the Appellate Division of the Supreme Court in the first judicial department, reversing a judgment in favor of defendant entered upon a decision of the court at Trial Term without a jury and directing judgment in favor of plaintiff. The defendant held a mortgage for $20,000 covering premises owned by the Orosant Construction Company. That company desired to increase the mortgage to $25,000. The defendant agreed to surrender its $20,000 mortgage and take a prior interest in a $25,000 first mortgage, provided some one could be found to take a subordinate $5,000 interest. The guardian of two infants had money of theirs in her possession and her attorney induced her to take that $5,000 subordinate interest, paying for the same with money in her hands as guardian. Thereafter the mortgage was foreclosed and the guardian’s interest wiped out. Upon an accounting by the guardian she was surcharged with the amount as having been improperly invested' and this plaintiff, being surety, was compelled to pay the same. This action was to recover the amount as unlawfully received and paid out by defendant, it having notice that they were trust funds. The Appellate Division held that defendant made itself a trustee of the fund which it unlawfully diverted and, therefore, it was hable.