Olyphant v. Phyfe

This is the third foreclosure action arising out of the proceedings of the executors of William Campbell, deceased, the two previous cases being reported as below. Arnoux v. Phyfe, 6 App. Div. 505 , 39 N. Y. Supp. 973 ; Benedict v. Arnoux, 7 App. Div. 1 , 39 N. Y. Supp. 793 ; Id., 154 N. Y. 715 , 49 N. E. 326 . This case involves the determination whether the estate of the mortgagee, personally innocent, shall utterly lose the security given, on account of the mistake or wrong of her agent in making the investment.

William Campbell died in 1888, seised in fee simple of the premises No. 62 South Fifth avenue, New York City. He was involved to the extent of some $40,000 by indorsement's for the building firm of Phyfe & Campbell, composed of his son-in-law and son. In June, 1892, Phyfe & Campbell had nearly finished buildings on Ninety-Eighth street, and were seriously embarrassed. It was then determined by the executors to substantially repeat the transaction of 1891, by which a mortgage was given to the late Edwin Booth upon the adjoining premises, 64 Fifth avenue, for moneys to be used in completing the building operations of Phyfe & Campbell, and thus assist that firm to a position where it was supposed they might be able to take care of some of the obligations upon which the estate of William Campbell was liable. William H. Arnoux, a lawyer, was the adviser and agent of Clara E. Morss, whom the plaintiffs here represent. As such, he had control "of moneys belonging to her for investment. He had acted in a similar capacity in 1891 for Edwin Booth in taking his mortgage. He was personally interested in the ability of the estate of William Campbell to pay obligations on account of a note of $12,000 of Phyfe & Campbell, indorsed by William Campbell and guarantied by him, upon which judgment had been entered against the executors of William Campbell. Arnoux had paid the claim of the bank,- and taken an assignment of the judgment.

The supposed ability of the executors to raise money for Phyfe & Campbell from the estate of William Campbell came from the tenth clause of the will of the latter, giving to the executors, if they deemed it for the best interest of his estate that any part or all should be

By the decisions of the appellate division and of the court of appeals, these propositions of law or presumptions from the facts áre decisively settled for the determination by the trial court of this case:

First. The power given to the executors does not include a power to mortgage. Arnoux v. Phyfe and Benedict v. Arnoux, supra. The court of appeals in the latter case does not pass upon the question of the power to mortgage, reaching a conclusion in favor of the mortgagee upon different grounds. But the efficiency of the elaborate argument that such power is included in the greater power, now urged by the counsel for the plaintiff, is not open to the consideration of the trial court on account of the determination of the appellate division. It is not merely a question of power to mortgage, unembarrassed by other considerations. The controlling objection is that such an execution of the power is, from the inception, an act wholly subversive of the purposes of the trust confided to the executors, to which the power was attached.

Second. The design of the joint action of the executors and the agent of Miss Morss was to get the money to primarily relieve the son-in-law and son from financial embarrassment, and incidentally to enable them to meet the obligations to the estate. Arnoux v. Phyfe and Benedict v. Arnoux, supra.

Third. The executors were not to be the mortgagors, but they were to choose the daughter of one of those executors as mortgagor by virtue of clothing her with the apparent title .through a conveyance executed under the power of sale. Id.

Fourth. Thus, the record here displayed an apparent execution of the power in due form, while the real facts would be buried and known only to the actors.

Fifth. But the innocent mortgagee for value is not responsible for the wrongful conduct of her agent acting from motives of participating interest, whether he believed in the legality of the method or not. Benedict v. Arnoux, supra.

The conclusion, therefore, follows, upon this branch of the case, that, consciously or unconsciously, the agent traveled the way of departure

The claim of Heroy and Marrener presents additional questions for consideration. They were creditors of William Campbell. Before the mortgage to Miss Morss, and on the 16th and l7th of October, 1891, they filed a petition for the sale of the real estate in surrogate’s court and lis pendens in the county clerk’s office. On June 7, 1892, three days before the mortgage to Miss Morss, the surrogate denied the application of the creditors, presumably on the ground that it was antagonistic to the power of sale to the executors. Therefore, at the time Miss Morss received her mortgage, no claim of creditors was an apparent lien upon the real estate.

On the 24th day of February, 1893, the general term of the supreme court reversed the order of the surrogate, and the proceedings of the creditors were reinstated in surrogate’s court. In re Campbell’s Estate, 21 N. Y. Supp. 685 . It is now seriously contended by the creditors that Miss Morss should have taken notice of the right of appeal and the proceedings on the appeal, and therefore that her mortgage is subordinate to their claim, the same as though the surrogate had never denied their application, and the proceedings were still pending when the mortgage was given. The counsel for the creditors, however, have failed to cite any controlling authority which justifies the assertion that the reinstatement of the lien of a lis pendens or judgment, or other legal notice or order, whose force springs from a provision of law, statutory or unwritten, giving an intermediate lien to insure the proper effect for a final order or judgment, and prevent destructive action by the owner of the property in the meantime, is revived in force after a dismissal of the proceedings which gave it life, and upon which it rested, by a subsequent order of the same or a superior tribunal, reinstating the proceedings as against those who had.parted with money or property upon the faith of the record by which those proceedings were terminated. It would be a sad reflection upon the efficacy and certainty of the action of the courts if parties could not deal with property so as to-be placed in a position from which they could not be restored if the right of appeal for a known or unknown period, possibly carried along by stipulation of counsel, might produce such loss and injury. This does not seem to be the law. King v. Harris, 30 Barb. 471 , 34 N. Y. 330 . And even a delay for five or six years, as in this case, on the part of the creditors, to prosecute the proceedings upon which that notice of claim was founded, should be considered by the courts in dispensing justice between rival claimants. Lord Bacon, Order 12 in Chancery, 15 Bacon’s Works, 353; Murray v. Ballou, 1 Johns. Ch. 566 ; Hayden v. Bucklin, 9 Paige, 512; Myrick v. Selden, 36 Barb. 15 .

Judgment of foreclosure for plaintiffs, with costs.