Case ID: nys_36/html/0764-01.html
Source: Caselaw Access Project
Author: {"author": "BRADLEY, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

ARMSTRONG v. McLEAN.
    (Supreme Court, General Term, Fifth Department.
    December 28, 1895.)
    1. Marshaling Securities—Application op Proceeds.
    A creditor holding several claims against a debtor, secured by a general mortgage, can be required by other creditors to apply the proceeds of such mortgage on the claims pro rata.
    3. Same—Receiver.
    A creditor holding several claims against a debtor, on some of which he has an excess of security, and on others a deficiency, which deficiency he has reduced to judgment, is entitled to share, on such judgment, in the excess of security on his other claims, pro rata with a receiver appointed at the instance of other judgment creditors.
    Appeal from special term, Monroe county.
    Action by William W. Armstrong, as receiver of George S. Riley, against Hector McLean. There was a judgment in favor of plaintiff, and defendant appeals.
    Reversed.
    Argued before LEWIS, BRADLEY, and WARD, JJ.
    Cassius C. Davy, for appellant.
    J. E. Durand, for respondent.
   BRADLEY, J.

In proceedings supplementary to executions issued on several judgments, amounting to upward of $5,000, against George Riley, the plaintiff was appointed receiver of his property. The purpose of this action was to require the defendant to turn over to the plaintiff certain land contracts and a bond and mortgage assigned by Riley to the defendant, to secure the payment of a certain indebtedness of Riley to the defendant of $3,686.41, or the proceeds of such securities in excess of the amount remaining unpaid of such indebtedness. The nominal value of those securities was $8,300. The trial court found that the amount of that particular indebtedness had been reduced to $2,012.02 by the application' which had been made thereon, by operation of law, from the proceeds of a judicial sale of real property on foreclosure of mortgages given by Riley to secure all his indebtedness to the defendant, amounting to upward of $40,000. The foreclosure by action of those mortgages of Riley to the defendant resulted in net proceeds of $19,411.36, and in a deficiency of $21,520.20, _ for which judgment was perfected in favor of the defendant against Riley. Those proceeds of the sale in that foreclosure action constituted 47.42 per cent, of the total amount of the indebtedness of Riley to McLean, as found by the court; and the application therefrom of that percentage on the amount of that particular debt mentioned of $3,636.41, with interest upon it, would reduce the debt to $2,012.02; and, as the defendant had received from some of those securities an amount in excess of the last-mentioned sum, judgment was directed that the defendant pay to the plaintiff such excess, and hand over to him the residue of the securities so taken by the defendant for the payment of such debt. Treating the mortgages foreclosed by the defendant’s action as security for the payment of all the indebtedness of Riley to him, the other creditors of Riley could insist that the net proceeds of the sale should be applied pro rata on the several debts the payment of which the mortgages were intended to secure. This, upon recognized equitable principles, is the general rule applicable to such cases, although it has no application to voluntary payments. And, since such proposition must be deemed settled by judicial authority in this state, the reasons upon which it is founded need no special consideration on this review. Bridenbecker v. Lowell, 32 Barb. 9; Bank v. Moore, 112 N. Y. 543, 20 N. E. 357. It is therefore assumed that the debt of $3,636.41 was, by the legal application upon it of sufficient of the proceeds of the mortgage foreclosure sale, reduced to $2,012.02; but it does not follow that the plaintiff was entitled to the entire exce'ss of that sum in the amount of the securities and their proceeds which the defendant had taken on account of that debt. It has been observed that the defendant had a judgment of upward of $20,000 for deficiency against Riley. He was a judgment creditor of Riléy to that extent. No reason appears why he, as such judgment creditor, should not beneficially share with the creditors represented by the plaintiff in the amount of such excess. His relation of judgment creditor places him in the same relation to it as that which they have through the receiver, and his equities are equal to theirs for aught that appears by the record here. It would seem to follow that, on the principle before referred to, such excess should'be applied pro rata on the judgments upon which the plaintiff’s claim is founded, and that which the defendant recovered against Riley as to the amount of it remaining unpaid.

There is some evidence tending to prove that the defendant’s judgment may have been reduced about $10,000 by the application of the surplus resulting from the foreclosure of a prior mortgage upon some of the property covered by one of the mortgages which was foreclosed in his action. Whatever the fact is in that respect may be made to appear on another trial. The view taken is that, upon the evidence undisputed, the plaintiff was not entitled to take from the defendant the entire amount of the securities first above mentioned in excess of that remaining unpaid upon the debt they were taken by the defendant to secure, but that, because the defendant was also a judgment creditor of Eiley, he, having them, was entitled to share pro rata with the plaintiff in the amount of such excess.

The judgment should therefore be reversed, and a new trial granted; costs of this appeal to abide the final award of costs. All concur.