Case ID: ad_9/html/0617-01.html
Source: Caselaw Access Project
Author: {"author": "O’Brien, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Adolph M. Bendheim, Appellant, v. James B. Morrow, Respondent.
    
      Satisfaction of a mortgage by trustees for creditors for less than its face—when authorized.
    
    Where a mortgage is made to trustees to secure creditors of the mortgagor whose claims amount to some §30,000 (the trustees being included in such creditors and entitled to preference in payment), and the mortgaged premises are sold at public auction, subject to two prior mortgages amounting to some §100,000, for only §6,000, an agreement by the mortgage trustees to accept such §6,000 and give a satisfaction piece of their mortgage is, in the absence of proof of fraud on their part, within the scope of their authority.
    It is not necessary that the creditors should execute the satisfaction piece.
    Appeal by the plaintiff, Adolph M. Bendheim, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of New York on the 11th day of January, 1896, upon the decision of the court rendered after a trial at the New York Special Term.
    
      Sol. Kohn, for the appellant.
    
      Sidney H. Stuart, for the respondent.
   O’Brien, J.:

This action, which has been twice tried, was brought for specific performance, or, in the alternative, for the recovery of damages, and the defendant interposed a counterclaim demanding specific performance or damages. From the facts agreed upon by the parties it appears that the defendant sold certain premises at public auction, subject to incumbrances mentioned in the terms of sale, aggregating over $100,000, and the plaintiff became the purchaser,. bidding $6,000 over and above incumbrances. He paid twenty-five per cent of this amount to the auctioneer together with the exchange fees. An examination of the title disclosed the existence of a mortgage on the premises unsatisfied of record. This mortgage was not specified in the terms of sale and was made to trustees for the benefit of creditors of the mortgagor, one McManus. The creditors were named in schedules attached to the mortgage, the trustees being included among the creditors and being first preferred in payment. At the time fixed for the closing of the title nothing had! been paid on "this mortgage, and upwards of $30,006 had been advanced by the creditors, the mortgage thus" being security for that amount. It "was arranged,, however, that the sum of $6,060, which was to be paid by the plaintiff, would have been "applicable to the payment of this mortgage. .The satisfaction piece executed "by the trustees, which was tendered to the purchaser at the time fixed for closing the title, was refused by him unless the creditors named in the mortgage either assented to the satisfaction or joined in its execution.

The General Term, in reversing the judgment obtained by the plaintiff upon the first trial, said (Y3 Hun, 90, 95): “ As the record stands, therefore, the only questions presented are two: (1) Did the trustees have authority to satisfy the mortgage in the course, of the due execution of the duties devolved upon them by the. trust ?' (2) Does the presumption arise, from the fact that they did execute the satisfaction piece, that it was a step taken in the proper discharge of the duties assumed by them ? The discussion already had requires an affirmative answer to both of these questions.” ' In another part of the Opinion the court said (p. 94): “ The conduct of' the parties, leads" us to suspect that, at the "time of the execution of the satisfaction, piece, the trustees had not been paid in full, and possibly that, they had consented to an. arrangement which they understood would: prevent them from receiving all that the mortgaged interest was fairly worth, so that, their conduct operated to-wrong their eestuis que trusty and was in the nature of a fraud upon them, of which facts the purchaser had knowledge. If such was-the case, an entirely different question would be presented than We have so far considered, for the presumption arising from the execution of the instrument satisfying the mortgage, to the effect that the trustees had proceeded in conformity with the duties imposed by the trust, would have been overcome.”

It will thus be seen, that the law relating to the validity of the satisfaction- piece tendered was passed upon adversely to the plaintiff, and that the only question reserved was one of fact as to whether or not the trustees were acting fraudulently. Upon this question of the consideration moving to the trustees for the .satisfaction piece, it appears that the property was put Up at public auction and sold to the plaintiff, and that all that was realized upon such sale was to be paid over to such trustees; and no proof was offered by plaintiff that the trustees were not to receive other mortgages, or a new one, as provided in the mortgage for which they gave a satisfaction piece. But if we assume that but $6,000 was to be received by the trustees ás a consideration for the satisfaction piece, the question is, Was this fraudulent? It appears that the property was-incumbered by a first and second mortgage, amounting in all to $101,143. It was sold at public auction for the best price that could be obtained, subject to these mortgages, and was purchased by the plaintiff. And not only was no proof offered to show that the property was worth more, but it is made to appear that subsequently, upon a resale, it brought much less. But if we disregard this testimony as to the resale, it yet appears that the trustees received a price equivalent to the value of the lien which they held; .and if they had any discretion in the matter they were bound to use it, and in the manner that they did, because the delivery of a satisfaction piece under the circumstances was a wise exercise of their discretion.

Note.— The other cases of this term will be found in the next volume, 10, App. Div.— [Rep.

The appellant relies mainly upon the legal position that the trustees had no discretion, but that their powers were limited by the express terms of the mortgage. This, as we have seen, however, was directly passed upon adversely to the plaintiff by the General Term. At the time of the tender of the satisfaction piece, the objection taken was that the trustees could not satisfy the mortgage without the creditors joining therein or consenting thereto; and no objection was made that they were only to receive $6,000, because that fact was not then known to the plaintiff. If, however, we agree with the appellant that this objection is now available, we think it was correctly disposed of by the learned trial judge, who was bound by the law as laid down by the General Term, which, upon the facts disclosed in this record, led him to direct a judgment for the defendant.

We think that the judgment should be affirmed, with costs.

Vam" Brunt, P. J., Williams, Patterson and Ingraham, JJ., concurred.

Judgment affirmed, with costs.