Case ID: ad_59/html/0282-01.html
Source: Caselaw Access Project
Author: {"author": "Parker, P. J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

John J. Phelan, as Receiver of the American Fur Company, Respondent, v. J. Murray Downs, Individually and as Referee, and The First National Bank of Albany, Appellants, Impleaded with Others.
    
      Mortgage foreclosure sale — money of a corporation paid down at the sale by a bidder without its authority ■—it may be recovered where a new sale- is ordered, because of the bidder’s refusal to complete his purchase—form, of oi'.der directing a new sale.
    
    The American Pur Company acquired title to.certain premises subject to a mortgage. Thereafter a judgment was entered foreclosing the mortgage and ordering a sale of the premises. At the sale the premises were struck down to one ■ Gillig for $40,000, and Gillig, in accordance with the terms of sale, paid to the referee fifteen per cent of his bid, namely,. $6,000, by a certified check for that •amount drawn to the order of the referee. The terms of sale provided: “ Sixth. The biddings will be: kept open after the property is struck down; and in case .any purchaser shall fail to comply with any of the above conditions of sale, the . premises so struck down to him will be again put up for sale, under the direction of said referee under these same terms of sale, without application to the court, unless the plaintiff’s attorney shall elect to make such application, and ■such purchaser will be held liable for any deficiency there may be between the sum for which said premises shall be struck down upon the sale and that for which they may be purchased on the resale, and also any costs or expenses occurring on such resale.” Gillig having refused to complete his purchase, an order was made directing him to do so, and in the event of his failure to do so, directing that a resale be had and that- the $6,000 be retained by the referee subject to the further order-of the court. Pursuant to this order a resale ■ was had, and the premises were struck down to another party for $28,850..
    In an action brought by the receiver of the fur company against the referee to sell and Gillig to recover the $6,000, in the hands of the referee, it appeared that Gillig was an officer of the American Pur Company, and that the §6,000 paid by Mm was its property, and that he made the purchase for his own benefit.
    
      Meld, that the American Fur Company was entitled to the §6,000;
    That the referee to sell did not acquire the §6,000 under such circumstances as made him a bona fide holder thereof.
    
      Semble, that even if Gillig made the purchase for the benefit of the American, Fur Company, the latter corporation could recover the §6,000, as Gillig had no authority to use its funds for that purpose.
    
      Semble, that as the terms of sale did not provide for a forfeiture of the §6,000, and as the order pursuant to which the resale was had did not make Gillig liable for any deficiency arising on the resale, nor declare the §6,000 forfeited, Gillig himself could reclaim that sum.
    Appeal by the defendants, J. Murray Downs, individually and as referee, and another, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county -of Albany on the 4th day of October, 1900, upon the decision of the court rendered after a trial at the Albany Trial Term, the jury having been discharged:
    The plaintiff seeks to recover the sum of $6,000, now in the custody of the court, under' the following circumstances:
    Certain premises in the city of Albany were incumbered by a mortgage to secure $20,000. The defendant “ The First National Bank of Albany” held a judgment which was a subsequent lien upon such premises. The American Fur Company acquired the title to- such premises, subject to such liens. On January 4, 1897, the premises were sold on execution issued on the bank’s judgment and bid off by such bank. On January 20, 1897, a judgment foreclosing the said mortgage and ordering a sale of the premises was entered, whereby the defendant Downs was appointed a referee to make the sale. On February 11 j 1897, Downs, as such referee, offered the premises at public sale, and the defendant Gillig bid the sum of $40,000 therefor. They were struck off to him at that figure, and in accordance with certain terms of sale then and there signed, he paid to the referee fifteen per cent of such bid, viz., $6,000, by a check for that amount, drawn on the National Exchange Bank to the order of the referee and certified as good by its cashier. The referee indorsed such check “ for deposit only,” and it was placed to his credit in the First National Bank of Albany. By the terms of sale Gillig was to pay the balance of his bid by February ■fifteenth, and it was therein further provided: “ Sixth. The bid-dings will be kept open after the property is struck down, and in case any purchaser shall fail to comply with any of the above con- ■ ditions of sale, the premises so struck down to him will be-again put up for-sale, under the direction of said referee under these-same terms-•of sale, without application to the court, unless the- plaintiff’s-attorneys shall elect to-make such- application, and such purchaser will beheld liable for any deficiency there may be between -the sum for which, said premises shall'be struck down upon the sale, and that for which they may be purchased on the resale, and also any costs or expenses occurring on such resale.”
    - Gillig refused to: complete his purchase, and oh May 22, 1.897, an' order of court was made directing Gillig-to complete his purchase,, and in the event that, he failed to do so, directing that a resale be had and that the - $6,000 be retained by • the referee, subject to the further order of the court. A resale was had on June twenty-eighth,, ■ and the-premises were. struck off to one Keeler for the sum of $28,850, who paid! the money and took a conveyance from the referee. The referee applied a sufficient amount thereof to satisfy the mortgage debt and costs, - and reported that he had a balance of $5,997.12 in his hands, as. sur plus moneys-arising on,the sale, -which, was paid to the county treasurer. He also reported that he still held the $6,000, and asked instructions regarding the same. . On July-fourteenth an order; was made confirming his report and directing him to hold such $6,000 until further order.
    This action was subsequently commenced by the plaintiff, as- ■ receiver of the fur company, to recover such amount, on the-ground that Gillig, -being an officer of the fur company, had unlawfully abstracted it from the funds of that, company. The-. defending bank claims that, being the owner of the equity of redemption in. the mortgaged premises, it is entitled, to such fund.. A judgment- of the Special Term was rendered -in the plaintiff’s; favor; and from such judgment this appeal is brought:
    
      J. Newton Fiero, for the appellants.
    
      Lewis E. Carr, for the respondent.
   Parker, P. J.:

■ It must be conceded that the $6,000 in question comes from the bank account of the American Fur Company. The check given to the referee was paid from that account, and it was so authenticated by the president that such payment could not. have been subsequently repudiated on the part of that company.

On the record, we must further concede that Grillig made such purchase in his own name and for his own benefit; and hence the money was used by him in his own personal venture. Neither the president, nor the other officers acting in the matter, could lawfully authorize him so to do. Therefore, his use of the check was an unlawful appropriation of the company’s funds to his own use.

' But if we assume that he was in reality purchasing the property for the benefit of the company, and with the purpose of transferring the title to the company when it was conveyed to him, nevertheless it was a misappropriation of the company’s funds. Such officers had no right to make such a contract or investment for the company, and no authority to use its funds for such purpose.

Therefore, the $6,000 which went into the referee’s hands and which he still holds, was and is a fund which has been unlawfully withdrawn by its officers and agents from the bank account of the fur company for a purpose to which they had no right to apply it.

If this fund was still in Gillig’s hands, there would be no question but that he could be compelled to restore it to the owner. Has any one in the course of the transaction acquired such a right to it, or such an equity in it, as to prevent .the court from now directing such restoration ?

It is well settled that where a fund so misappropriated has been kept intact and can be identified, it may be recovered by the owner as against any one except bona fide holders for value. (American Sugar Refining Co. v. Fancher, 145 N. Y. 552, 556, 557; Roca v. Byrne, 145 id. 182; Rochester & Charlotte T. R. Co. v. Paviour, 164 id. 281.)

The referee Downs makes no claim to the fund, except as an officer of the court. He, personally, parted with no value for it, and still holds it subject to the order of the court. The defending bank, as the mere depository of the referee, makes no claim to it. As between them, it concededly holds it subject to his order ; but it is claimed by such bank that the referee, in his official capacity, became a bona fide holder for value of such fund, and that, therefore, the same cannot be reclaimed from him; that being so held by the referee, as against the fur company, it is a part of the purchase, money received on the- sale of the mortgaged premises and should, be distributed to it as the owner of the equity of redemption.

So the question is presented, whether the referee, or the court, father — for the referee but represents the court — acquired and still holds this fund Under circumstances that make it a bona fideholder for value.

It is argued that it was a sum received in good faith by the-referee upon an indebtedness due from Grillig to him, which had been created by Grillig’s bid of $40,000.

Suppose it to be precisely that. The object of the foreclosures proceedings was to sell the mortgaged premises and apply the proceeds to the mortgage debt, and to distribute the surplus among those entitled thereto. And it was the duty of the referee, acting for the court, to procure upon the sale all that the premises would fairly bring. If Grillig had paid up the balance of his bid and the premises had been conveyed to him, it might be claimed that the-court held the $6,000 as a part of the purchase price, and having received it in good faith, was equitably bound to hold it to the use of those interested ih the mortgaged premises. But when Grillig refuses to pay the balance of his bid, and it appears that the amount: which he did pay was not his money but belonged to his principal, from whom he had unlawfully converted it, was it not the duty of-the court to disregard his bid and resort to a resale of the premises rather than to insist on the steal for the benefit of these defendants ?

Such is substantially the situation here. Grillig makes default; abandons his bid; the court, instead of insisting upon his performing it and enforcing its mandate by proceedings for contempt, orders a resale." Such order does not declare the $6,000 forfeited, nor, as I understand it, does it require .Grillig to pay any deficiency that may arise upon the resale. It does, however, direct the $6,000 to be retainer! by the referee, subject to the further order of the court. Whether or not the court had then discovered' G-illig’s fraud does not appears But that does not affect the. situation. It is clear that, under the proceedings which it took, it did not receive and apply the $6,000 upon the purchase price for which the premises were sold and conveyed by the referee. If it is to hold the $6,000 at all, it holds it as a forfeiture, and not in consideration of premises conveyed. In my opinion, under such circumstances, no such equity accrued to those interested in the premises as requires the court, now that the real ownership of the fund appears, to. insist-that it acquired it for value and in good faith.

But the precise condition claimed by the defendant does not exist. There was no contract of purchase and sale between Grillig and the referee. Grillig made an offer for the premises which the court, on its part, in the exercise of its discretion, might accept or reject. (Camden v. Mayhew, 129 U. S. 73; Fisher v. Hersey, 78 N. Y. 387, 388.) The sole liability on Grillig’s part was to comply with the terms of sale under which he bid. Those terms did not provide for any forfeiture. They did provide for a resale without order of court, or for a sale, at the option of the plaintiff, upon a new order. What would have been Grillig’s liability had they been resold without order, we need not determine. They were, in fact, sold upon a new order which neithef forfeited the $6,000, nor made Grillig responsible for the deficiency. Under such circumstances, within the authority of the following cases, Gillig could, himself, reclaim the $6,000. He would not forfeit the amount, because the terms of sale did not so provide. (Miller v. Collyer, 36 Barb. 250.) It could not be applied upon any deficiency, because the resale was not had under an order that made him liable for the deficiency. As is said in Goodwin v. Simonson (74 N. Y. 133, 136): “As the court granted a resale, the purchaser was discharged from liability to make good the deficiency arising in the last sale, by the order of the court.” (See, also, Home Insurance Co. v. Jones, 45 How. Pr. 498 ; Leslie v. Goodhue, 69 Hun, 71; Flint v. George, 8 N. Y. Supp. 221; Ray v. Adams, 44 App. Div. 177.)

If Gillig could reclaim the amount from the referee, clearly the real owner may do so in this action, where Gillig is a party and makes no claim. This plaintiff, as receiver, may claim what the fur company could claim, and, hence, I conclude that the judgment restoring to him the fund in question was correct and should be affirmed.

Smith, J., concurred in result.

Judgment unanimously affirmed, with costs.