Case Name: The American Mortgage Company, Plaintiff, v. The Merrick Construction Company et al., Defendants
Court: New York Supreme Court
Jurisdiction: New York
Decision Date: 1906-05
Citations: 50 Misc. 464
Docket Number: 
Parties: The American Mortgage Company, Plaintiff, v. The Merrick Construction Company et al., Defendants.
Judges: 
Reporter: New York Miscellaneous Reports
Volume: 50
Pages: 464–467

Head Matter:
The American Mortgage Company, Plaintiff, v. The Merrick Construction Company et al., Defendants.
(Supreme Court, New York Special Term,
May, 1906.)
Fraudulent conveyances—What constitutes: Voluntary conveyances
and sufficiency of consideration — Conveyances to creditors. Corporations — Insolvency and receivers — In general — Prohibition of transfers with intent to prefer.
Foreclosure of mortgages on land — Foreclosure by action and sale— Distribution of proceeds and surplus — Persons entitled to interpose claims to surplus.
Where a mortgage is given by the owner of real estate, upon which a building is being erected, to a trustee for the purpose of paying each and all creditors who could file mechanics’ liens against the premises and the mortgagee at the same time executes to the mortgagor a deed of trust, declaring the trust upon which the mortgage is given, the deed is a sufficient consideration to support the mortgage.
In such case the mortgage does not create an unlawful preference and when a preference results from the refusal of certain creditors to accept the benefit of the mortgage such preference arises from the act of the creditor and not from the intent of the mortgagor and the mortgage is not thereby invalidated.
Where tenants pay rents to a receiver of mortgaged premises, during the pendency of a foreclosure suit, in advance of the terms of their leases, the purchaser cannot obtain such rents through proceedings for the distribution of the surplus moneys arising on the foreclosure sale under section 2405 of the Code of Civil Procedure, but must have recourse to the tenants to enforce proper payment to himself.
Motion to confirm a referee’s report regarding the distribution of surplus moneys.
Ohauncey S. Truax, for defendant, Smith.
Jas. A. 0. Johnson, for defendant, Yellow Pine Co.

Opinion:
Blanchard, J.
This is a motion to confirm a referee's report regarding the distribution of surplus moneys. The plaintiff foreclosed a mortgage upon property owned by de fendant Merrick Construction Company, and the surplus moneys were deposited with the city chamberlain. At the time of the foreclosure, a junior mortgage, to the defendant Smith, to secure the sum of $42,230.79 had been recorded June 1, 1904, and purported to cover the premises. At the time of taking the junior mortgage, Smith executed to the mortgagor a deed of trust which was not recorded, declaring that he held the security as trustee for the purpose of paying each and all creditors who could file mechanics' liens against the premises. The mortgage to Smith was in a sum equal to the aggregate of the claims of all creditors who could file mechanics' liens, including the claimant Yellow Pine Company. The referee has found that the mortgagor was then indebted to other creditors in the approximate sum of $5,000, and that its total assets, outside of the mortgaged premises, were about $11,000. On June 4, 1904, the Yellow Pine Company filed a mechanic's lien against the premises for $2,704.16 and interest. This company contended before the referee that its lien was to be preferred to fné alleged mortgage to Smith, on the ground that the mortgage was given without consideration and was a preference made by an insolvent corporation, and, therefore, invalid under section 48 of the Stock Corporation Law. The referee sustained the priority of the mortgage, and to this part of his report the Yellow Pine Company objects. Section 48 of the Stock Corporations Law provides: "No conveyance, assignment or transfer of any property of any such corporation, by it or by any officer, director or stockholder, nor any payment made, judgment suffered, loan created or security given by it or by any officer, director or stockholder, if the corporation is insolvent, or its insolvency is imminent, with the intent of giving preference to a particular creditor over other creditors of the corporation, or any creditor of the corporation, shall be valid except that laborers' wages for services shall be preferred claims and be entitled to payment before any other creditors out of the corporation assets in cases of any valid liens or encumbrances. " This section does not restrain the right of an insolvent corporation to make a general assignment for the benefit of its creditors without pref erences. Vanderpoel v. Gorman, 140 N. Y. 568; Croll v. Empire State Knitting Co., 17 App. Div. 282; Home Bank v. Brewster & Co., 17 Misc. Rep. 442, affd., 15 App. Div. 338; Munzinger v. United Press Co., 52 id. 338; Creteau v. Foote & Thorne Glass Co., 54 id. 168; Linderman v. Hastings Card & Paper Co., 38 id. 488. Had the transfer to Smith been in the form of an assignment for the benefit of the creditors named in the deed of trust, it would doubtless have been valid. The" contention of the claimant that the mortgage to Smith was without consideration seems unfounded. By executing the contemporaneous deed of trust, Smith clearly gave consideration sufficient to support the contract of conveyance in the mortgage. The circumstance that the claimant and certain other creditors mentioned as beneficiaries in the deed of trust did not accept its benefits in reduction or payment of their claims cannot affect the naked fact of a mortgage for sufficient consideration to Smith. The most that can be urged as to this circumstance is that the refusal of certain named beneficiaries to accept the benefits of the trust operates as a preference in favor of the other named beneficiaries who accepted. Admitting, for the purpose of argument, that- a preference could thereby be created, it clearly is a preference of the objecting creditors' own creation and not a preference created, given, contemplated or " intended " by the mortgagor corporation. The " intention of giving a preference to a particular creditor over other creditors of the corporation" is essential to invalidate the present mortgage. Stock Corp. Law, § 48; Curtis v. Leavitt, 15 N. Y. 108, 111; Gordon v. Southgate Building Co., 109 App. Div. 838, and authorities cited. Since this element is absent in the present case, the mortgage must be sustained and the referee's report confirmed., The purchaser of the premises asserts a claim to part of the surplus moneys upon the ground that the tenants of the premises paid rents in advance to the receiver in the foreclosure proceeding, which advance rents should properly have been turned over to the purchaser, but instead were wrongly added to the surplus moneys. If, as the purchaser contends, the rents would properly have accrued after he came into possession, he may compel the tenants to make proper payment thereof to himself. At any rate, the purchaser has not brought himself within the class of claimants tó surplus moneys fixed by section 2405 of the Code of Civil Procedure. Accordingly his claim must be dismissed. The expenses of the reference will be paid out of the fund.
Ordered accordingly.