Case ID: ad_153/html/0140-01.html
Source: Caselaw Access Project
Author: {"author": "McLaughlin, J. : Laughlin, J. (dissenting):", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Estelle Quinlan, Appellant, v. John E. Olson Construction Company and Others, Defendants, Impleaded with Ezra P. Prentice, as Receiver and Trustee, etc., of Morris H. Hayman, a Bankrupt, Respondent.
    First Department,
    November 15, 1912.
    Mortgage —foreclosure—right of defendant to have prior mortgagee made party.
    Where in a suit to foreclose a third mortgage it appears that the amount due on a first mortgage is in dispute, a defendant, who is a receiver and trustee in bankruptcy and owner of a fifth mortgage given to the banlcupt, is entitled to have the holder of the first mortgage made a party in order that he may ascertain just how much there is due upon such mortgage, and be in a position to bid intelligently at the sale, to the end that the whole controversy respecting the hens upon the land in question may be settled.
    Laijghlin, J., and Ingraham,. P. J., dissented, with opinion.
    Appeal by the plaintiff, Estelle Quinlan, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 4th day of September, 1912, granting the respondents’ motion to bring in as defendant the Hudson Mortgage Company.
    
      Benjamin N. Cardozo [Benjamin M. Kaye with him on the brief], for the appellant.
    
      Selden Bacon [Saul S. Myers with him on the brief], for the respondent.
   McLaughlin, J. :

It is unnecessary to state the facts since they are set forth in the opinion of Mr. Justice Laughlin. The authorities there cited, as it seems to me, when applied to the conceded facts, require an affirmance of the order. The trustee in bankruptcy is entitled to know just how much there is due upon the first mortgage, otherwise he is not in a position to bid intelligently at the sale. It is alleged that while the first mortgage is nominally for $300,000, it is in fact for, and there is only due, $260,000. Under such circumstances, the action being in equity, the court was justified in requiring the plaintiff to bring in the Hudson Mortgage Company, to the end that the whole controversy respecting the liens upon the land in question might be settled. I do not see how full and complete justice can be done to all of the parties unless this course be adopted.

In Sutherland v. Lake Superior, etc., Co. (1 Cent. L. J. 127) the court, speaking of the propriety of making a prior lienor a party, said: “It is not enough that a court of equity causes nothing but the interest of the proper party to change owners. Its decree should terminate and not instigate litigation. Its sales should tempt men to sober investments and not to wild speculations. Its process should act upon known and definite interests and not upon such as admit of no medium of estimation. It has the means of reducing every right to certainty and precision and is, therefore, bound to employ those means in the exercise of its jurisdiction.” While this case was reversed in the United States Supreme Court (sub nom. Jerome v. McCarter, 94 U. S. 734), on the ground that the facts, as found, did not show the existence of any doubts concerning the validity and extent of the prior liens, nevertheless it approved of the rule, saying: “And so, when there is substantial doubt respecting the amount of the debts due prior hen creditors, there is obvious propriety in making them parties that the amount of the charge remaining on the land after the sale may be determined, and that purchasers at the sale may be advised of what they are purchasing.”

To permit a sale so long as the amount due on alleged prior liens remains uncertain is to deprive would-be purchasers of knowledge enabling them to bid intelligently; in other words, if the trustee in bankruptcy, in order to protect his lien, bids at the sale, he must either assume that there is due the Hudson Mortgage Company $300,000, or else take his chances in subsequent litigation having for its object the reduction of that lien to $260,000. This is a position which a court of equity ought not to compel him to take. Hull justice can be meted out to all of the parties by requiring the Hudson Mortgage Company to be brought in as a patty defendant to this action. The rights, interests and equities of all of the parties claiming an interest in the mortgaged premises, and the respective, priority, of their liens thereon, should be settled and , determined, before any judgment of foreclosure and. sale, is .entered. (Commercial. Trust Co. v. Peck, 135 App. Div. 732; Metropolitan Trust Co., v. Tonawanda, etc., R. R. Co. 43 Hun, .521; affd. on opinion below, 106 N. Y. 673.) Otherwise the sale becomes a mere speculation both as tq what is spld. nnd vfhqt is purchased. , The foregoing views aro in no Yf&j, m conflict wiftl wbaf, Wfts; held in Jacobie v. Mickle (144 237),; Brush v. Levy (54 App. Div. 296), and Lester v. Seiliere,..,(50 id. 339).; , In. the, Jacobie case the holder ,qf a .prior mortgage Wjas:m.adp..a.party defendant and the ^qmplamt, alleged the existence of ¡speh prior mortgage and in,the.fprayer for .relief, asked that the¡anrqrm.t.. due thereon be a^r|^ed;..of. sale. The owner, of the prior mortgage enffgrect default. The j udginent rendered jfollowed, the prayer, for; relief, .and s.if, w^-s,, held that the holder .of ¿the prior mortgage was conclud ed by the judgment and could, .not, thereafter "’^maintain ¡an,,action,, tq., foreclose his mortgage., ... , ... . . In the Brush ease the: action was brought to annul a lease made by plaintiff to defendant upon the latter’s alleged false representation that she had acquired title to a prior lease of the premises covering a portion of the demised term. It was held that the prior lessee Would not be made a party against the will of the plaintiff. in order to allow the defendant to litigate differences arising between her and such prior lessee as to what rights defendant took under a bill of sale and sub-lease executed to her by the prior lessee, in which the plaintiff had no interest, All that was held in the Lester case was that where adjoining parcels of land, owned by different persons, were occupied as a single parcel for hotel purposes, and the department of public works furnished water to the hotel with the knowledge of the different owners, the charge for which became a hen on the entire property, the owner of one parcel might, without first paying the entire charge, maintain an action in equity against the owners of the other parcels to obtain an apportionment thereof.

The order appealed from is right and should be affirmed, with ten dollars costs and disbursements.

Clarke and Scott, JJ.,. concurred; Ingraham, P. J., and Laughlin, J., dissented. .

Laughlin, J. (dissenting):

This action was commenced in the month of December, 1911, to foreclose a third mortgage on premises known as Nos. 127-131 West Twenty-fifth street, borough of Manhattan, New York. The' Hudson Mortgage-Company, which the order requires the plaintiff to bring in as a party, is the owner and holder of a first mortgage, which was given to secure a building loan, and on its face it is for $300,060. Prentice, as receiver and trustee in bankruptcy, is the owner and holder of a fifth mortgage, given to the bankrupt to secure the payment of $13,000, and his object in applying for the order was to have the amount secured by the first mortgage, which he contests, determined in this action, to the -end that the bidders at the foreclosure sale will know precisely the. amount of the lens subject to which the property is to be sold.

The moving papers show, among other things, that the Hudson Mortgage Company brought an action, which is still pending, for the-foreclosure of its mortgage, alleging that the whole amount thereof was due and unpaid; that in that action an answer was interposed by this plaintiff, or one Wood, her assignor, through the attorney who. appears for the plaintiff in this action, claiming that the mortgage of the plaintiff in that action was a building loan mortgage, and that only the sum of $260,000 had been advanced thereon, and that, therefore, it was a lien only for that amount; that upon this partial defense being interposed, that action was allowed to stand, and was not brought to trial or noticed for trial until the October term, 1912; that Wood owned a second mortgage on the premises, of . which there remains due and unpaid $21,575, and interest from June 12, 1911, and the mortgage, to foreclose which this action is brought, upon which there is due and unpaid the sum of $20,000 and interest from the same date, and the fourth mortgage, upon which there is due and unpaid, with interest from the same date, the sum of $5,000; that he brought an action to foreclose the second mortgage, which evidently is still pending, and that in order not to bring two foreclosure actions in his own name he assigned the mortgage which is the third lien on the premises to the plaintiff, who was his stenographer, and evidently had no interest therein; that if a judgment of foreclosure and sale should be decreed herein, without bringing in the Hudson Mortgage Company and determining the amount of its lien, the bidders will be obliged to assume that the amount of said mortgage may be established at its face, whereas it may be subsequently decided, in the action to foreclose that mortgage, that it is a lien only to the, extent' of $260,000, in which event the purchaser on the foreclosure of this mortgage will profit by the difference; and that it is improbable that the premises will sell, subject to the Hudson •Mortgage Company’s mortgage as a $300,000 mortgage, for sufficient to enable the trustee in bankruptcy to receive any part of the indebtedness secured by the fifth mortgage, but that if the Hudson Mortgage Company is brought in as á party, and it shall be decided that its mortgage is a lien for $260,000 only, then it is probable that the premises will bring sufficient to pay a large part if not all of the indebtedness secured by the fifth mortgage. It does not appear otherwise than I have stated who were made parties defendant in the other foreclosure actions, but as the bankrupt or as the trustee in bankruptcy were necessary parties, it is to be presumed that they are before the court. The respondent' Prentice, as receiver and trustee, alleged in his answer that the first mortgage is a lien for only $260,000, and that after an answer was interposed in the action to foreclose it presenting that claim the plaintiff in this action, by collusion with the first mortgagee, brought this action with a view to cutting off the fifth mortgage before an adjudication could be had on that question.

It would not be proper to express an opinion with respect to the merits of the claim,, concerning the amount of the lien of the Hudson Mortgage Company’s mortgage, since that company is not before the court. Suffice it to say that the contention made in behalf of the trustee in bankruptcy appears to he made in good faith, and that the facts and circumstances, indicate that it may be well founded.

The learned counsel for the appellant contends broadly that the court is without power to compel the plaintiff to bring in the Hudson Mortgage Company, and it is further contended that the order should not have been made, even if it was within the jurisdiction of the court. It appears that the first mortgage was due, and that an action for its foreclosure was pending, which the plaintiff did not see fit to press. With the first mortgage due, if the mortgagee did not see fit to bring an action to foreclose it, or even with such an action pending a junior mortgagee on foreclosing his mortgage could make the first mortgagee a party, to the end that the property may he sold free and clear of all incumbrances or subject to the hen of the first mortgage, the amount of which would he adjudicated by the decree. (Metropolitan Trust Co. v. Tonawanda, etc., R. R. Co., 43 Hun, 521; affd., 106 N. Y. 673; Guilford v. Jacobie, 69 Hun, 420. See M'Gown v. Yerks, 6 Johns. Ch. 450; Emigrant Industrial Savings Bank v. Goldman, 75 N. Y. 127; Smith v. Roberts, 62 How. Pr. 196.) The respondent did not even ask to have the first mortgagee brought in with a view to having its lien satisfied,, hut only to have the attioimt thereof determined. It has been held by numerous ¡ decisions of the: Federal courts that it is proper to make the first mortgagee, a¡ party to a foreclosure of. a junior mortgage, even though his mortgage be -mot -due, for the purpose of, having - the amount of the, lien thereof i judicially determined,, to the end that bidders: may know precisely tbelámount: Of the lien, subject ; to, which they may he required- to take title: ó (Sutherland v. Lake Superior, etc., Co., 1 Cent. L. J. 127, 129, 9 Nat. Bank. Reg. 298, 305; 23 Fed. Cas. 459, No. 13,643; sub nom. Jerome v. McCarter, 94 U. S. 734; Caldwell v. Taggart, 4 Pet. 190 Parsons v. Robinson, 122 U. S. 112.) The appellant contends thatv; she is .not interested in . the: determination of the question raised by the respondent withr.esp.ect to the amount of ¡.the lien of the first mortgage, and . she ¡objects to - the delay of the trial of this action, incident to bringing in the first mortgagee: . It also, appears: that; the,attorney .for ¡the first mortgagee ¡ has;. stated, that his client objects to, and will coiitost hemg brought in to litigate the amount of its mortgage:- ..'.Theonly authority.!under our .practice for bringing in a party not named in the summons is section 452; of the Code of Civil Procedure,. which provides as Mlowgi:,rc;Thei court may determine: the ¡controversy, ¡as between the parties before it, where it can doiso without prejudice; to. the; rights Of . Others,, or by saving , their- rights;., but where a complete determination of the controversy cannot be had without the presence of other parties, the court must, direct them to be brought,,in- ■ i. And where a. .person,- nofca. party to. the action;,; has. an interest in the subject thereof,, or in real property,.-the ¡title, to? which may in. any manner he affected by the judgment,, ,©r: in: real: property for, injury ¡to which - -the ■ ¡complaint ¡demands reMef, and ¡makes application to the court to be made a party, it must direct him-to be brought in by the: proper amendment:??

Mo decision has been cited and -we have, found bone .construing these, provisions as- either requiring or authorizing the court to,-compel a ¡.plaintiff, finta, foreclosure action to bring" in a sénior mortgagee; against, ■ whom he demands .no -relief,. ,aS¡ a. party..,defendant,* ¡and, the, .weight:i of judicial - opinions; is, against such construction. (Jacobie v. Mickle, 144 N. Y. 237; Brush v. Levy, 54 App. Div. 296; Lester v. Seilliere, 50 id. 239.)

It follows that the order should he reversed and the motion denied.

Ingraham, P. J., concurred.

Order affirmed, with ten dollars costs and disbursements.