Case ID: ad_117/html/0488-01.html
Source: Caselaw Access Project
Author: {"author": "Scott, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Alwin Eisert, Respondent, v. Abner T. Bowen and Others, Appellants, Impleaded with William H. McWhirter and Dime Savings Bank of Brooklyn, Defendants.
    First Department,
    February 8, 1907.
    Debtor and creditor — agreement of creditors to prosecute claims for mutual benefit ■— when purchaser of debtor’s property holds as trustee for other creditors — when release in former action does not bar creditor from sharing in trust property —• reimbursement of trustee.
    Several creditors entered into a mutual agreement to act together in the enforcement of their respective claims and that the amount realized should be shared pro rata. It was agreed that certain sums should- be advanced by parties pro ■ rata to protect the debtor’s property from foreclosure on mortgages prior, to their liens, and that- upon foreclosure the property should be bought in and'sold for the benefit, of all creditors, none of .them, however, being, under.. obligation to advance any money. *
    
      Held, that one- of the parties to said agreement who purchased the property on foreclosure held it impressed with a trust for the benefit of his fellow-creditors, although under the agreement he was under no obligation to buy the property;
    That the interlocutory judgment in a former action by one of the creditors against the trustee to impress a-trust upon the property bought on foreclosure was not res adjudicata as to the right of a creditor who did not appear in that action/ when the relief awarded him in the final judgment was reversed- on the ground that there was nothing to support it; that a receipt and release executed by such creditor in the former action relieving the-other parties from all claims.referred only to the claims and liabilities that might have arisen out of the transactions recited in said instrument and had no reference to the creditor’s interest in the real estate impressed with the trust;
    That as the purchaser on foreclosure was held to have purchased as trustee for his fellow-creditors, he was entitled to he reimbursed for the money actually paid for the property and not merely for so much thereof as went to satisfy the mortgage.
    Appeal by the defendants, Abner T. Bowen and others, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 18th day of April, 1906, upon the decision of the court rendered after a trial at the New York Special Term.
    
      Henry B. Johnson, for the appellants.
    
      James M. Fish, for the respondents.
   Scott, J.:

In the year 1898 one Frank W., Gilbert was the- owner of four apartment houses in the city of New York, which- he had just erected. On October 18, 1898, he mortgaged the houses to the German Savings Bank for $165,000, and also placed a second mortgage upon them for $15,000. The latter mortgage was executed to one Bedfield, who assigned it to one Sondheim, and it will hereafter be spoken of as the Sondheim mortgage. It was agreed to be paid off in installments, commencing December,-1898. The property mortgaged was then worth about $245,000. ' When these mortgages were executed Gilbert was indebted as follows: To the plaintiff herein, $21,150; to William H. McWliirter, $9,656;’ to Abner T. Bowen, $26,500; . to Mary E. Busey, $27,000, and to William H. Busey, $895.84, aggregating $85,201.84. - No part of the claims of Abner T. Bowen, Mary E. Busey or William H. Busey were secured. -Part of plaintiff’s claim, to' wit, $3,500 thereof, was represented by an unrecorded mortgage. McWhirter’s claim was for materials furnished and work done and he was entitled to a mechanic’s lien. Gilbert, as it is said, promised to pay the ■ claims against him when he should have placed the permanent loan upon the property. Instead of doing'so, and on October nineteenth, th,e day after he had made the permanent mortgage to the savings bank, he executed and recorded a mortgage in favor of his mother-in-law, Mary Hopkins, for $18,000, and' on the following day, October twentieth, he executed and recorded another mortgage to Mrs. Hopkins for $65,000.. All the parties agree that as to .the creditors above mentioned these mortgages were void, and Mrs. Hopkins- herself seems to have so considered them, for she afterwards turned them over to the creditors or to trustees for their benefit. As soon as these last-mentioned mortgages. had been recorded the plaintiff, Eisert, placed his $3,500 mortgage'on record, McWhirter filed a mechanic’s lien and all the creditors began' such actions as they were advised to do in order to collect their claims. The above-named creditors had numerous conferences which resulted in an agreement between them dated December -3, 1898, whereby -they agreed to act together in the enforcement of their respective claims ; that all amounts realized should be. shared pro rata between them in proportion to their respective claims, except that moneys received on account of claims against Mrs. Hopkins should be pro rata only between Bowen, the Buseys, and Eisert; that certain sums should be advanced by the parties pro rata to protect the property from foreclosure or mortgages prior to the liens of the above-named creditors; that upon foreclosure and sale of the property it should be bought . in and sold for the benefit of all of said creditors, no obligations being implied thereby for the payment of any sum of money by any ' party. Various proceedings were thereafter had which it is unnecessary to recapitulate here, and on Eebruary 8, 1899, a further agreement was made between the parties reciting that Mrs. Hopkins had caused the $18,000 mortgage to be assigned in trust for the. creditors other than McWhirter (he assenting), and that the proceeds thereof should be pro-rated between such creditors (other than McWhirter); McWhirter thereupon discharged his mechanic’s lien, and discontinued an action he had brought to have' the mortgages declared void. At the same time Abner T. Bowen, as trustee for himself and for the other creditors, and with Gilbert’s consent, took possession of the premises, collecting the rents, and paying, the necessary expenses. The $18,000 mortgage was assigned to Busey, as trustee, for. the creditors, and on Eebruary 9,1899, a further agreement was entered into fixing the proportions in which the proceeds of the $18,000 mortgage assigned to Busey should be divided when realized, and it was again agreed that upon any foreclosure sale the property should be bought in, held, managed and sold for the benefit of all the creditors. It was finally agreed that the property should be sold under the so-called Sondheim mortgage for $15,000, and it was so sold on May 4, 1899. At this sale the property, subject to the first mortgage of $165,000, was purchased for $30,000, nominally by one Samuel T. Busey, the brother-in-law of Abner T. Bowen, and the deed therefor was in due time executed to said Samuel T. Busey. Part of the relief asked for and awarded to plaintiff is that it be declared that the purchase was actually made by Abner T. Bowen, and that he be adjudged to have so purchased it as trustee for plaintiff and the other creditors of said Gilbert.

This precise question, upon practically the same evidence, was decided by this court in a similar action brought by the defendant McWhirter (McWhirter v. Bowen, 103 App. Div. 447), and the judgment that Bowen was the real purchaser has recently been affirmed by the Court of Appeals. (187 N. Y. 516.) It is unnecessary, therefore, to consider that question further. If- Bowen in fact was the purchaser, as he undoubtedly was, the agreements into which lie entered with plaintiff and the other creditors impress a trust upon the property in his hands in favor .of his co-creditors. It is true, as he now urges, that he had not assumed any obligation to buy the property inasmuch as it involved the payment of a" sum of money, but having in fact bought he cannot escape the obligation to hold it as trustee for the creditors. The suggestion that the plaintiff is in someway barred by the judgment in McWhirter's action does not merit extended consideration. It is true that it was held that under the interlocutory judgment Eisert might come in and prove his claim and participate in the benefits of the first judgment. (82 App. Div. 144.) He did not take advantage of the opportunity, and the relief extended to him by the final judgment was reversed as to him, because, as to him, there was nothing to support the judgment. (103 App. Div. 447.)

He had not appeared in the action, had not participated in it, and was not bound to do so. The final judgment as modified by this court was not an adjudication upon his rights in any sense. It is strenuously urged that plaintiff has released all claims against the defendants. He did sign a receipt which contained words of release, but it did not apply to or affect his present claim to an interest in the property. A. surplus of some $9,500 resulted from the sale under, the Sondheim mortgage, and this, of course, went towards the satisfaction of the $18,000 mortgage, which was the next lien, and was held by William H. Busey, as trustee for the creditors other than McWhirter. Bowen as trustee for the creditors had collected rents and paid expenses, and he and Busey acted together^ representing the same interests. An account was made up of all the receipts and disbursements, including the surplus derived from the foreclosure sale and the net balance was distributed, Eisert receiving $1,000. He executed the paper set up as a release. This paper recited the previous agreements between the creditors, and, in' detail, the agreemenLas to the proportions in which the proceeds of' the $18,000 mortgage was to be distributed; that the expenses of maintaining the houses had, exceeded the rents collected ;. that a foreclosure sale had taken place from which a surplus had arisen to: -be applied on the. $18,000 mortgage. "Thereupon, in considera-x tion of the receipt of $1,000,. Eisert released and forever dis, •charged Bowen,'Mary E- Busey and William H. Busey from , all obligations, liabilities and claims, either- in law or equity, due or owing to him, said payment being declared .to be in full settlement and discharge of all obligations of- said parties and each of them to . hitm. It is entirely clear that this paper had reference only to such-claims or liabilities as might have arisen out of the transactions recited therein and had no reference whatever to the claim to an. interest in the real estate itself, which is the subject of the present action. (Jackson v. Stackhouse, 1 Cow. 122 ; National MechanicsBanking Assn. v. Conkling, 90 N. Y. 116.)

The so-called release does not, therefore, stand .in. plain tiff’s way. We are unable to see that any int'erlocutory decree for .any accounting was necessary. The amount of plaintiff’s claim is not disputed. All questions concerning Bowen’s receipts and disbursements while in possession of .the property as trustee for the creditors, and all . questions as to the disposition of the surplus moneys wére settled and disposed of upon the settlement winch 'resulted in the execution of the' release above referred to. There is, therefore, nothing left to be the subject of an accounting. .

. In one respect, however, the judgment must be modified. It . directs that Samuel T..Busey shall reconvey to Bowen, and'that the latter shall be deemed to hold the property as trustee for himself plaintiff and the other creditors, and that he shall on demand execute a deed to plaintiff of such an undivided interest in the property as the sum of $21,150 (the amount of' plaintiff’s claim) bears to $87,371.85 (the aggregate of all the claims) upon receiving from plaintiff a like proportion of the sum of $20,441.64, the amount paid upon the foreclosure of the Sondheim mortgage.

The evidence is that Bowen paid, or procured to be paid, $30,000 upon the sale under the Sondheim mortgage, of which $20,411.64' went to satisfy the foreclosure judgment, the balance constituting the surplus which was accounted for by Bowen and of which Eisert received and receipted for his proportion. If Bowen is to be held to have purchased the property as trustee for the creditors, lie is entitled to be reimbursed what he paid out to acquire it, and that is the sum of $30,000, and not_ merely so much thereof as went to satisfy the Sondheim mortgage. .

The judgment must, thérefore, be so modified as to require plaintiff tp pay to Bowen, upon receipt of a deed, the stated .proportion of $30,000, with interest thereon from the date of sale, and as so modified should be affirmed, with costs.

Patterson, P. J., McLaughlin, Houghton and Lambert, JJ,, concurred.

Judgment modified as directed in opinion, and a$ modified affirmed, with costs. Settle order on notice.