Gilbert v. Thayer

The order of the surrogate, directing the defendant to account for the proceeds of the land in controversy, was appealable to the general term; and that tribunal did not err in reversing the judgment, instead of dismissing the appeal. Such an appeal is permitted where the order “ affects a substantial right.” Code Civil Proc., § 2570. It need not be a “final” order, as becomes an essential inquiry when the jurisdiction of this court is invoked. (In re Halsey, 93 N. Y. 48 ,) but, whether such or not, is subject to review by the general term, if it involves a substantial right. That was the character of the order appealed from. It went beyond a mere direction to account, where assets are admitted, and their amount in the sole controversy, and adjudged, against the defendant’s denial, that there were assets, and settled the only substantial point of the litigation, except the amount of damages to be awarded.

In Fiester v. Shepard, 26 Hun, 183 , S. C. 92 N. Y. 251 , there was an order to account, which the general term reversed, and which we deemed appealable. That order determined the disputed right of the petitioner under the will, and so involved a substantial right of each party to the controversy.

The main question involved in the appeal was carefully considered by the general term, and, but for its interest and importance, and the alleged doubt clouding the opinions of this court upon the subject, might justly be allowed to rest upon the argument which prevailed with that tribunal. It is quite necessary, at the outset, to clear the facts of a possible ambiguity. The contention of the appellants depends largely upon the theory that Gilbert stood as creditor of the Little Falls Company, for a loan of. $1,000, secured by a mortgage of that company upon the laud in controversy, aud Thayer was simply a guarantor of that loan, in consideration of a certain proportion of a large rate of

Three persons, Gideon Pitts, Perez R. Pitts, and Edwin Gilbert, the plaintiff’s intestate, loaned to George Thayer, the defendant, $3,000, taking his two notes,- — one for $1,000, dated October 1, 1859, payable in two years, with interest; and one for $2,000, dated November 1, 1859, payable in three years from date, with interest. It is undoubtedly true that Thayer borrowed this money to lend it in turn to the Little Palls Company. He had made application for a loan to that corporation, which the lenders had refused, but at the same time intimating a willingness to. take him as their debtor for the amount. This fact the surrogate expresses in his second finding in a somewhat ambiguous form, but not at all inconsistent with the further facts which he finds, and with the papers executed to carry out the arrangement. The original proposition for a loan to the company was for $5,000. This, the surrogate says, was refused, but he adds that the lenders “ were willing to loan the sum of $3,000, provided the said Thayer would guaranty or become responsible for the same.” How that responsibility was to be assumed, or what form it should take, the surrogate does not determine, except as he finds the form that it did take, and that form is a direct loan to Thayer in the first instance, making him the primary and sole debtor to the lenders, and leaving him to deal with the corporation as he pleased, save that the finding may leave room for a possible inference that, if Thayer secured on his loan to the corporation an interest of 15 per cent., he should allow to the lenders an interest of 10 per cent. The defendant made such loan, and took from the Little Falls Company their notes, corresponding with' those given by Thayer to his creditors in dates and amounts and periods of maturity, but providing for interest at 15 per cent., payable semi-annually. These notes were secured by the company’s mortgage to Thayer of their real estate on the east side of the river, dated two days earlier than the date of the October note. There the matter rested, with the rights and relations of the parties thus fixed, for a period of more than four months. On the fourth of February, 1860, Thayer assigned his notes and mortgage against the company to his lenders, as collateral security for his own debt to them. The assignment is in writing, and is proved to have been prepared by Gilbert, and written by him. There is no room for misunderstanding the fact it establishes. It recites the debt of Thayer to the original lenders, describing by dates and amounts the notes he

In May, 1861, Gilbert died, and Thayer and the widow became administrators of his estate. In the inventory which they filed no mention is made of the Little Falls Company’s notes and mortgage, but the debt of Thayer to Gilbert is included. In the original loan of $8,000 each of the three parties furnished one-third, and Thayer’s debt to the amount of $1,000 was the property of Gilbert. We find in the inventory, accordingly, one-third of the note of October, 1859, and one-third of that of November, 1859, credited to the estate as assets, and due to the-estate from Thayer. There was a third note of earlier date for $224.09 inventoried as due from him. The final settlement of the accounts shows that all these notes were paid to the estate,, the one last mentioned in 1862, and the other two May 30,1863.. Soon after the death of Gilbert, the Little Falls Company gave-to Thayer another mortgage, but upon its property on the west-side of the river, dated November 26, 1861, and conditioned to secure the payment of $1,000 in one year, with interest at 12 per cent., payable semi-annually. The consideration of this-mortgage was a new loan to the company by Thayer to about one-half of the amount, the remaining half securing arrears of interest on the existing debt to him, and this, the west-side, mortgage, was assigned to the three creditors of Thayer, as collateral security for his debt to them, precisely in the same, manner as the first, or east-side mortgage.

These transfers, in legal effect, were each a mortgage of a. mortgage, or a pledge of a mortgage. The assignees get only a defeasible title, subject to destruction by the payment of the-debt, at any time before the rights of the assignor were foreclosed or extinguished. Both mortgages were foreclosed, and, on a sale, the lands were purchased by the administrators of Gilbert. The second, or west-side, mortgage was foreclosed by advertisement, the two Pitts and the representatives of Gilbert appearing as-mortgagees, the sale taking place February 16, 1863, and, under the law of Minnesota, one year thereafter being allowed for redemption by the mortgagor, in default of which the equity became extinct. The east-side mortgage was foreclosed by a suit ■ in equity, in the naine of the Pitts, as plaintiffs, to whom, for

The property now in controversy is that covered by the second, or west-side, mortgage, and, after the payment by Thayer of his debt to the estate, was conveyed by him, as administrator, and by Mrs. Gilbert, as administratrix, to a third person, who in turn conveyed it to Thayer, who has since sold it for large sums. Are those proceeds his own, or do they constitute assets in his hands belonging to the estate of Gilbert ? Necessarily they must belong to either the assignor or assignee; for, by the foreclosure, -the equity of the mortgagor was effectually cut off and destroyed. The claim of the assignee is founded upon the purchase under that foreclosure by the administrators of Gilbert, and is, that an absolute title passed to the estate which was not, and could not be, transferred by the deeds to Thayer, and so the lands are to be treated as personal assets, and accounted for to the next of kin.

Two cases have substantially determined, as the doctrine of this court, that where the mortgage of a third person has been assigned by the mortgagee, as collateral security for his own debt, the foreclosure of that mortgage by the assignee, and his purchase at the sale, as against the assignor, work no other result than' to substitute the land for the mortgage in the hands of the assignee, and to leave it subject to the assignor’s right, by payment of the debt, to reclaim and hold his own property, discharged of the assignee’s lien upon it. Slee v. Manhattan Co., 1 Paige, 48; Hoyt v. Martense, 16 N. Y. 231 . Of course, these cases assume that, upon the foreclosure, the equitable right of the assignor was not involved by making him a party, and foreclosing such right, but deal with the result where the right survives the foreclosure : and they were subsequently criticised by .suggestions, to which our attention is invited. Bloomer v. Sturges, 58 N. Y. 168 . In that case the court held that the assignor, defendant, was so made a party defendant in the foreclosure action that its equity, as well as that of the mortgagor, was involved in the judgment, and extinguished by the sale. Of course, that ended the inquiry, and any decision of what would have been the rights of the Ocean Bank, if not involved in the action, was needless, and valuable only as a caution. That caution becomes applicable upon the facts before us, and makes it prudent to take the measure of its just force.

The opinion of JOHNSON, J., points out that in Hoyt v. Martense, the debt of the assignor, to which the assignment of the mortgage was collateral, was not yet due, and so the foreclosure

In Dalton v. Smith, 86 N. Y. 176 , we held that the right of the assignor attached to the land, if the assignee became purchaser, and to the purchase money, if the title went to a stranger. In that case the appellant’s points cited Bloomer v. Sturges, as having effectually shaken the previous authorities. Our opinion then was, and still remains, that the assignment is in substance a mortgage or pledge of the transferred security; that it gives to the assignee merely a defeasible title, which ends upon payment of the debt, leaving the ownership in the assignor, precisely as if no transfer had been made; that such defeasible title cannot be changed or enlarged, as against the assignor, by any act or dealing of the assignee or his representatives to which the assignor is not in some manner a party ; that if the assignee forecloses the mortgage without foreclosing the assignor’s right, and becomes a purchaser at the sale, he holds the land as a substitute for the mortgage, and precisely as he held the latter, and by no other or different or stronger title ; and that whatever of benefit results from extinguishing the mortgagor’s equity inheres in the-security assigned in its changed form, and goes of necessity to him who resumes his ownership by payment of the debt. The sale to the assignee, freeing the property from the mortgagor’s equity, affected the relations of both assignor and assignee with the original mortgagor, but not at all their relations with each other. The security was thereby strengthened, and made more valuable, but remained a security still, and held by the same

Here the foreclosure and sale was an incident belonging to possession of the collateral, and to the trust which that possession created. It became the duty of the administrator to sell, because the trust security demanded that action for its safety and strength. It became the duty of the administrator to buy, for the protection of the estate and of the assignor ultimately liable; and whatever of benefit resulted was an incident of the trust, and belonged to the two parties concerned, according to their respective rights, and, when the assignor redeemed, belonged wholly to him.

The argument founded upon the doctrine of merger is well answered by the opinion of the general term, which shows that, in equity, such merger will never be allowed against the interest of the parties, or their obvious, intention, or where the two estates are held in different rights. We have recently affirmed that view of the doctrine. Smith v. Roberts, 91 N. Y. 475 .

The contention that some unpaid interest should be accounted for by defendant cannot survive the settlement of the administrator’s accounts by the surrogate. The notes were then paid, with interest. If a greater rate was chargeable, that was the time and occasion to have asserted the claim.

The order of the general term should be affirmed, with costs.

All concur.