#### Morris Park Estates, Respondent, *v.*Joseph P. Day and J. Clarence Davies, Appellants.

First Department,

June 4, 1915.

Accounting — determination of issues raised by pleadings before accounting.

Where, in a suit against real estate agents and auctioneers for an accounting as to moneys received from purchasers upon the sale of lots, consisting of a percentage of the purchase price and “knockdown fees,” and also as to moneys alleged to have been expended in advertising without authority, the defendants claimed that under their agreement with the plaintiff the “knockdown fees” belonged absolutely to them, and that all expenditures for advertising were authorized, approved and ratified by the plaintiff, these questions affect the scope of the accounting and should be determined by the court before granting an interlocutory judgment for an accounting and directing a reference.

Appeal by the defendants, Joseph P. Day and another, 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 3d day of March, 1915, granting the plaintiff’s motion for an interlocutory judgment upon the pleadings herein, and also from the interlocutory judgment entered on said order in the office of the clerk of the county of New York on the same day, which directed an accounting and appointed a referee to take the same.

*Ignatius A. Scannell*of counsel *[Sayers Brothers,*attorneys], for the appellant Joseph P. Day.

*44*Manfred W. Ehrich*of counsel *[Ehrich & Wheeler,*attorneys], for the appellant J. Clarence Davies.

*Francis D. Pollak*of counsel *[Ralph Royall*with him on the brief], *Sullivan & Cromwell,*attorneys, for the respondent.

Clarke, J.:

The complaint sets up a transaction in regard to the preparation for the sale of over 3,000 lots of the Morris Park property; that the defendants, who were real estate agents, brokers and auctioneers, were employed to advise as to the preparation for-sale of the land at public auction; to produce the advertising copy and manage the advertising of said property for such auction sale; and to furnish their services as auctioneers and in managing the conduct of the said auction and the sale of the said property on the actual days of sale; that they were authorized to incur expenses for $150,000 worth of advertising and were to conduct the sale, upon which the successful bidders were to deposit with the defendants as auctioneers and agents ten per cent in cash of the amount of their respective bids and $15 as auctioneer’s fees; that their commissions were based upon different percentages in respect to the different amounts that the property might sell for; that several days after the commencement of the auction sale the defendants informed the plaintiff that they had disobeyed their instruction and exceeded their limitation of $150,000 in the purchase of advertising for such auction sale and that the advertising for such auction sale would aggregate about $240,000; that the plaintiff informed the defendants that it would hold them responsible for the payment of any and all advertising contracted by them in disobedience of their instructions and beyond limit of their authority; that the purchasers upon the said auction actually paid to the defendants in cash an aggregate sum approximately $435,000, such payments being composed chiefly of the cash deposits of ten per cent of the amount of the purchase price for the respective properties sold, in accordance with the said provisions of the said terms of sale, and being in part composed of other moneys paid by purchasers, in addition to such ten per cent on account of the purchase price at the time of the auction sale, and being in part composed of the *45knockdown fees paid in accordance with said terms of sale. Although duly demanded by the plaintiff, the defendants have never accounted to the plaintiff for the said sum so received by them from such purchasers aggregating approximately $435,000 or any part thereof, nor have they paid the same or any part thereof over to the plaintiff, excepting that, upon the order of the plaintiff, they have made certain payments aggregating $41,936.04.

The complaint sets up a list of actions against the plaintiff, and judgments obtained therein, many of which they have paid, and others of which are on appeal, to recover the value of advertising purchased by the defendants; that plaintiff served upon defendants notices of the pendency of said actions and gave them an opportunity to come in and defend. Wherefore, it asks for an accounting.

The answer, admitting the employment, alleges that by a written agreement executed and delivered contemporaneously with the contract set up in the complaint it was provided that defendants should receive the usual auctioneer’s and knockdown fees from the purchasers of the property, but denies that such auctioneer’s fees were to be received by them as agents for or for the account of the plaintiff. Defendants admit that the purchasers at the. auction sale paid to them cash deposit of approximately ten per cent o'f the purchase price of the property sold, such deposits amounting to $379,467.97, and that said purchasers paid them certain knockdown fees, which were, under the agreement of the parties, to belong to the defendants, and not to be accounted for to the plaintiff; that they have made the payments set forth in the 10th paragraph of the complaint, and allege that they have made further payments aggregating $212,734.46. They allege that each and every contract made by them in behalf of the plaintiff for advertising the auction sale, or involving other expenses relating thereto, was at or about the time of the making thereof submitted to the plaintiff by the defendants and duly authorized, approved and ratified by it, and that prior to the 26th of May, 1913, it had become evident to both the plaintiff and defendants that the cost of advertising said auction sale would greatly exceed the sum of $150,000, and that this fact was before and after *46said date subject to frequent discussions between the defendants and plaintiff, and that the plaintiff expressly instructed the defendants to proceed therewith, and ratified and confirmed all contracts and expenditures in excess of the sum of $150,000; that the difference between the amounts received by them of cash deposits on account of the purchase price, namely, $379,467.97, and the amounts paid on the order of the plaintiff on account of advertising charges or the expenses of the sale, namely, $212,734.46, was $166,733.51, which was applied against the compensation provided to be paid to the defendants under the contract, such amount being subject to the auctioneer’s lien; that the property sold for $3,747,925, and their commissions earned under the contract were $261,130.46, no part of which has been paid except $166,733.51, leaving a balance of $94,396.99, wherefore, they demand judgment, dismissing the complaint, and that they have judgment for said sum.

Upon these pleadings a motion was made for an interlocutory judgment for an accounting, and directing a reference, which motion was granted, and from .the interlocutory judgment entered thereon this appeal was taken.

The appellants claim that there are certain questions of law which should be determined by the interlocutory judgment in advance of the actual accounting. They claim that under the agreement the knockdown fees, which amount to over $45,000, belong absolutely to them and, therefore, they are not accountable therefor; that the expenditures for advertising purposes above the amount of $150,000 were all authorized, approved and ratified by the plaintiff, and they ought not to be required to account therefor until it is determined that the expenditures for such purposes above $150,000 were not proper.

It seems to us that these are two vitally important questions seriously affecting the scope of the accounting which should first be determined by the court before the actual taking thereof. *Goodman*v. *Roth*(135 App. Div. 515) was an appeal from an order granted on the pleadings and an interlocutory judgment for an accounting. It was not questioned that an accounting was proper, but there were issues of fact as to whether the defendants were accountable for certain *47matters. The court said: “These denials raise an issue of fact which must be decided before an account of such proceeds can be required. * * * It is the duty of the court, in the first instance, to determine the issues affecting the scope of the accounting, and send to a referee only the duty of taking the account within the lines laid down by the court.” That case seems in all respects applicable to that at bar.

The judgment and order appealed from should be reversed, with costs; the motion for judgment on the pleadings denied, with ten dollars costs to the appellants, and the case remitted to the Special Term for the determination of the matters for which the defendants are legally accountable.

Ingraham, P. J., Soott, Dowling and Hotchkiss, JJ., concurred.

Judgment and order reversed, with costs; motion for judgment on the pleadings denied, with ten dollars costs to appellants, and case remitted to Special Term for determination of the matters for which the defendants are legally accountable. Order to be settled on notice.