Case Name: Alexander Frankenstein, Appellant, v. Barnett Hamburger and Others, Defendants; Isaac M. Berinstein, Claimant, Respondent; Adolf Prince, as Receiver in the Action, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1902
Citations: 73 A.D. 352
Docket Number: 
Parties: Alexander Frankenstein, Appellant, v. Barnett Hamburger and Others, Defendants. Isaac M. Berinstein, Claimant, Respondent; Adolf Prince, as Receiver in the Action, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 73
Pages: 352–355

Head Matter:
Alexander Frankenstein, Appellant, v. Barnett Hamburger and Others, Defendants. Isaac M. Berinstein, Claimant, Respondent; Adolf Prince, as Receiver in the Action, Appellant.
Receiver appointed for the benefit of a third mortgagee and directed to pay taxes — if he fails to do so the second mortgagee is entitled to receive the money which should have been so applied.
Actions having been brought to foreclose a first and second mortgage upon certain real property, the second mortgagee made an application foi the appointment of a receiver of the rents and profits of the premises, which motion was denied, without prejudice to a renewal, upon the ground that the affidavits were so conflicting that it was impossible to determine whether the order was necessary for the protection of the second mortgagee. A month after the denial of this motion a third mortgagee, who had brought an action to foreclose his mortgage, without notice to the second mortgagee, who was a defendant in that action, procured the appointment of a receiver of the rents and profits. The order recited that the receiver was appointed for the benefit of the third mortgagee, and provided, “And said Receiver is further authorized and directed to make such ordinary repairs on said premises as may be necessary; and to pay the taxes and water rates now or hereafter due thereon, and to keep the same insured against loss by fire for the benefit of plaintiff.” The receiver did not apply the surplus of the rents collected by him to the payment of the taxes and water rates. The premises were sold under the first mortgage, and the surplus remaining after the payment of the taxes, water rates and the first mortgage was insufficient to pay the second mortgage in full.
Upon an accounting by the receiver it was Held. that as the receiver’s failure to apply the surplus rents to the payment of the taxes and water rates reduced, by that amount, the sum applicable to the payment of the second mortgage, the second mortgagee was entitled to receive such surplus rents.
Appeal by the plaintiff, Alexander Frankenstein 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 24th day of April, 1902, confirming the report of a referee upon an accounting by a receiver of real estate in a foreclosure action and directing the distribution of the funds in such receiver’s hands.
A. H. ParTchurst, for the appellants.
Max L. Sohalleh, for the respondent.

Opinion:
Laughlin, J.:
This is an action to foreclose a third mortgage upon real estate. The appeal is from an order settling the accounts of appellant Prince as receiver of rents and profits. The respondent Berinstein held a second mortgage upon the same premises and commenced an action to foreclose it on the 13th day of November, 1900, fifteen days before this action was begun, making the plaintiff herein a party. On the 19th of November, 1900, between the commencement of Berinstein's action and this, an action was brought to foreclose the -first mortgage upon the premises and both the second and third mortgagees were made parties defendant. Berinstein made an application to the court on the 19th day of November, 1900, for the appointment of a receiver of the rents and profits of the premises. This motion was denied, without prejudice to renewal, on the 12th -day of December, 1900, upon the ground that the affidavits were so conflicting that it was impossible to determine whether it was necessary for the protection of the plaintiff that a receiver should be appointed. The receiver was appointed by an order granted by default on the 18th day of December, 1900, but no notice of the application was given to the defendant Berinstein. The order recited that Prince was appointed receiver of the rents and profits then due or to grow due during the pendency of the action " for the benefit of the plaintiff," and it further provided, among other things, as follows: " And said Receiver is further authorized and -directed to make such ordinary repairs on said premises as may be necessary; and to pay the taxes and water rates now or hereafter due thereon, and to keep the same insured against loss by fire for the benefit of plaintiff." At the time of the appointment of the receiver, or during the receivership and prior to the judgment of foreclosure, there were taxes due and unpaid aggregating $519.05, and during the same period the sum of $404.70 became due and unpaid for water rates on said premises. There remained in the hands of the receiver the sum of $852.62, being collections for rent, but he did not pay the taxes or water rates. The action brought to foreclose the senior mortgage proceeded to judgment and foreclosure sale. There was a surplus after paying the first mortgage, these taxes and water rates and the costs and expenses. That surplus was subsequently duly applied on the second mortgage but it still left a, deficiency. The other foreclosure actions were abandoned. Berinstein now claims the fund in the hands of the receiver, on the-ground that it was the mandatory duty of the receiver, under the order, to pay the taxes and water rates, and that his failure so to do-reduced the surplus applicable to the payment of the second mortgage by just that amount. The plaintiff contends on the authority of Washington Life Ins. Co. v. Fleischauer (10 Hun, 117) and Ranney v. Peyser (83 N. Y. 1) that the receiver was appointed solely for his benefit and that he was under no obligation to pay the taxes and water rates, unless it was for the interest of the plaintiff that he should do so. Were it not for the provision of the order which requires the receiver to pay the taxes and water rates, there could be no doubt that the plaintiff would be entitled to all the rents and profits collected by the receiver. A mortgagee has no legal or equitable interest in the rents and profits until, on his application,, a receiver thereof is appointed for his benefit. But Beriustein was a party defendant. He was entitled to notice of the appli-cation for the appointment of the receiver (Code Oiv. Proc. § 714), but for some undisclosed reason the plaintiff failed to-give such notice. The referee to whom the settlement of the. accounts of the receiver was referred found, and the Special Term has approved the finding, that Berinstein used all due diligence to have a receiver appointed. Within a few days after his application was denied, the plaintiff, ex parte as to him, obtained the order appointing a receiver. It may be assumed that he subsequently had notice of the granting of the order and he had, we think, a right, to assume that the receiver would apply any surplus of moneys, received over a,nd above his commissions and expenses to the payment of taxes and water rates. It may well be that Berinstein^ relying upon these provisions of the order, refrained from renewing his application for the appointment of a receiver in his own foreclosure action or having this receivership extended to his mortgage. The provision of the order is, we think, mandatory, and in that respect the case is distinguishable from the Ranney Case (supra).
Berinstein's right to have the taxes and water rates paid by the receiver was not lost by his failure to make a motion to compel such payment. The solution of this question depends upon equitable principles. The payment having been made out of funds that would otherwise come into his hands he will be deemed subrogated to the right to have the money so applied.
Bor these reasons the order should be affirmed, with ten dollars costs and disbursements.
Patterson, Ingraham, McLaughlin and Hatch, JJ., concurred.
Order affirmed, with ten dollars costs and disbursements.