Case ID: ad_135/html/0737-01.html
Source: Caselaw Access Project
Author: {"author": "Burr, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Continental Insurance Company, Respondent, v. Julia B. Reeve and Others, Defendants, Impleaded with the Lotus Realty Company and City Real Estate Company, Appellants.
    Second Department,
    December 10, 1909.
    Foreclosure—bid at sale binding contract — reduction of bid — rights of junior mortgagee.
    A bid at a foreclosure sale when accepted so far constitutes a contract that it cannot be withdrawn except undér circumstances that would justify the rescission or reformation of an ordinary contract for the sale of land. An order reducing the amount of a bid amounts to a reformation of the contract.
    Where a plaintiff on foreclosure bid in the property which was subject to a • junior mortgage, an order reducing the amount of the bid should not be granted, in the absence of fraud, merely because there was an oral agreement between plaintiff and one of the defendants that the former should purchase the property at a price exactly sufficient to pay the mortgage debt and the costs and taxes, and the bid was made too large by a mutual mistake.
    The junior mortgagee who did not enter into the agreement was legally a party to the contract of sale and is affected by the order reducing the bid because entitled to have any balance of the proceeds of the sale after the payment of the first mortgage, the costs and expenses, applied to the payment of the junior mortgage.
    Appeal by tlie defendants, the Lotus Realty Company and another, from an order of the Supreme Court, made at the Kings County Special Term and entered in the office of the clerk of the county of Kings on the 22d day of September, 1909, reducing the amount of plaintiff’s bid on a foreclosure sale.
    
      Charles 8. Carrington [ Van Mater Stilwell with him on the brief], for the appellant Lotus Realty Company.
    
      Lynn C. Norris [Edward M. Perry with him on the brief], for the appellant City Real Estate Company.
    
      William N LyJeman [Philip 8. Learn with him on the brief], for the respondent.
   Burr, J.:

By a sale under a judgment of foreclosure, and the delivery of the deed in accordance with the terms thereof, the purchaser acquires all of the title to the mortgaged premises which the mortgagor and the mortgagee had at the date of the execution of the mortgage. In like manner he acquires also all of the title of any person claiming through the mortgagor after the said date, free from any liens or incumbrances which have subsequently accrued thereon, provided the persons claiming such title or liens are made parties defendant to the action. (Code Civ. Proc. § 1632; Rector, etc., Christ P. E. Church v. Mack, 93 N. Y. 488.) A bid at a foreclosure sale may be deemed an offer to purchase all of the title of the above-named persons to the said property, and such bid when accepted so far constitutes a contract that a bidder may not withdraw his bid except under circumstances that will justify the rescission or reformation of an ordinary contract for the sale -of land. (24 Cyc. 29.) The order made in this case, which reduces the amount of plaintiff’s bid upon the foreclosure sale, amounts to a reformation of the contract so far as the purchase price is concerned. If it can be sustained it must be, because the parties, have established themselves upon some of the recognized grounds of equitable relief. There is- no claim that the bid of the plaintiff, was induced by any fraudulent conduct upon the part of any of the persons connected with the transaction. If the plaintiff and the defendant Lotus Bealty Company were the only parties concerned, it might be that the contract of purchase could be reformed upon the theory that they had orally agreed that the plaintiff should purchase the property, at a price which should be exactly sufficient to pay the amount of the mortgage debt, the costs and expenses of the action and the sale and the taxes which were liens thereon, and that when the parties came to formally express this agreement through the bid and' its acceptance^ by mutual mistake the sum named as the purchase price was too large. But in legal effect there was a third party to the contract of sale, the -defendant City Beal Estate Company, which held a junior mortgage upon the premises, and- which is entitled, so far as the record discloses, to any surplus of the proceeds of sale that may remain after plaintiff’s claim is satisfied. As to this defendant there is no- evidence of any agreement by it, or by any one authorized to act for it,, as to the price at which the plaintiff should .purchase the property, and there was no mutual mistake in the contract. The City Beal Estate Company is a party affected by the decision made in this case, because, under the well-established rules of equity respecting the marshalling of assets, it is entitled to demand that the rents in the receiver’s hands shall be first applied to the payment of plaintiff’s claim, and that it shall exhaust this fund before resorting to the proceeds of sale. (Keogh v. McManus, 34 Hun, 521.) This will leave a balance of such, proceeds applicable to the payment of said defendant’s claim by way of mortgage. The plaintiff does not stand here asking for a rescission of the sale, but only for a reformation of the contract of sale. In the absence of evidence that the property is worth less than the amount which plaintiff bid for it, it may be doubted whether even rescission could be had. But if entitled to rescission, for the reason above stated, it clearly is not entitled to the relief granted by the order appealed from. The statement in Fisher v. Hersey (78 N. Y. 387), that where a party is entitled to some relief, “ the question whether the relief should be a reduction of the bid, or a re-sale, was purely one of discretion,” Was obiter dictum in that case, and we do not feel constrained to follow it.

The order appealed from must be reversed, with ten dollars costs and disbursements, and the motion denied, with ten dollars costs, without prejudice to an application on the part of the plaintiff to rescind the sale if it is so advised.

Jenks, Thomas, Rich and Miller, JJ., concurred.

Order reversed, with ten dollars costs and disbursements, and motion denied, with fen dollars costs, without prejudice to an application on the part of the plaintiff to rescind the sale if it is so ■ advised.