Case Name: Minneapolis Trust Company, Appellant, v. Helen Mather, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1904-01
Citations: 90 A.D. 361
Docket Number: 
Parties: Minneapolis Trust Company, Appellant, v. Helen Mather, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 90
Pages: 361–379

Head Matter:
Minneapolis Trust Company, Appellant, v. Helen Mather, Respondent.
Collateral — obligation of the creditor in enforcing it — his duty to account where he purchases it at a judicial sale — his duty as agent — his duty as trustee for the owner.
In December, 1886, Helen Mather, a resident of the State of Hew York, received from one Whitney, of St. Paul, Minn., notes aggregating §20,100, secured by five several mortgages made by Whitney upon lands situated in Minnesota. In 1889 Mather sent the notes and mortgages to the Minneapolis Trust Company for the purpose of collection and remittance.
In 1890 the trust company loaned to Mather §5,000 upon her note for that amount. On the same day Mather assigned and transferred to the trust company, as collateral security for the note, the Whitney notes and mortgages.
In June, 1890, Whitney conveyed the lands covered by the mortgages to one Van Dyke, who assumed and agreed to pay, as part of the purchase price, the mortgages executed by Whitney and the notes secured thereby. A portion of the mortgaged premises had also been purchased by two persons named Sumbardo and Horr, and they paid interest upon the notes at various times.
Subsequently, Sumbardo and Horr having failed to continue their interest payments, and there being a large amount of unpaid taxes against the property, correspondence was had between, the trust company and Mather with respect to the foreclosure of the mortgages. Mather was also represented in Minnesota by one Atwater, and at some time between June 20, 1894, and July 5, 1894, Atwater, pursuant to instructions from ' Mather,' had an interview with the trust company and informed it that there was no other course to pursue except to foreclose the mortgages as soon as possible, bid in the property for somewhere near its present value and take judgment against the makers for any deficiency,
July 16, 1894, the trust company commenced proceedings to foreclose the' mortgages, and on September 5, 1894, .purchased the mortgaged property for §24,484.35, which sum represented the full amount due upon the Whitney notes, together with the costs of foreclosure. Mather was not made a party to the foreclosure proceedings and had no notice thereof until they had been completed.
The land covered by the mortgages was worth about §20,000 at the time of the sale. Mather’s total indebtedness to the trust company on the day of the sale amounted to §6,699,31. No attempt was made to collect the amount of the notes from Whitney, or from Yan Dyke, who had assumed the payment of the notes and mortgages.
Held, that when the trust company made the loan to Mather, and received as collateral security for such loan the notes and mortgages which it had formerly held as agent, a new relation .was created which entitled the trust company to manage the securities for its own benefit to the extent of protecting its interests as pledgee;
That such relation imposed upon the trust company the duty of caring for the property to such an extent as not to jeopardize or injure Mather’s interest therein beyond the extent necessary to the enforcement and conservation of its own interests in the property;
That when the trust company’s interests were satisfied out of the property, any balance remaining was held by it in trust for Mather’s benefit, and that she might compel an accounting in respect thereto;
That, whether the trust company acted as Mather’s agent.or as Mather’s trustee, it was - bound to exercise reasonable care and diligence and to refrain from unnecessarily injuring her, and that if it departed either from Mather’s instructions when acting as her agent, or from its duty-as trustee When trying to conserve its own interests, it was liable to account for its acts to Mather.
That Atwater’s instructions to the trust company to “ foreclose the mortgages as soon as possible, bid in the property for somewhere near its present value, and take judgment against the makers of the notes for any deficiency there might be,” could not be construed into an authority to bid in the property for the full amount of the notes and thereby discharge the maker and the person who had assumed ¡the payment of the notes as a consideration for the deed;
That the trust company had the right, either to follow the plan suggested at the conference with Atwater, or to act independently and purchase the property itself and account to Mather for the proceeds;
That having elected to purchase the property itself, and having paid a price in excess of the one suggested or agreed upon, it became liable as a purchaser for its own benefit and was bound to account to Mather to the extent of the purchase price as though the property had been' sold to a third person for "the amount of the trust company’s bid.
Hiscock and Spring, JJ., dissented. 1
Appeal by the plaintiff, the Minneapolis Trust Company, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of Jefferson on the 31st day of May, 1902, upon the report of a referee, with notice of an intention to bring up for review upon such appeal an order entered in .said clerk’s office on the 27th day of Marclv 1902, awarding an extra allowance of costs, and also an order entered in said clerk’s office on the 16th day of June, 1902, denying the plaintiff’s motion for a retaxation of costs.
Selden Bacon and Elon R. Brown, for the appellant.
M. H. Merwim, and Levi H. Brown, for the respondent.

Opinion:
Stover, J.:
This action was brought to recover upon a note for $5,000 and interest, and the sum of $2,298.60 for moneys loaned and advanced.
The defendant does not dispute her indebtedness upon the notes, nor for moneys loaned, but seeks an accounting, and sets up á counter claim of $14,000 and interest. There is very little, if any, dispute as to the facts in the case, the error alleged, being based upon the conclusions of law by the referee.
The defendant is a resident of this State, and the plaintiff is a corporation, organized and doing business in the State of Minnesota.
In December, 1886, the defendant received from one Whitney, of St. Paul, Minn., several notes, aggregating $20,100, and secured by five several mortgages, made by said Whitney, upon lands situate in the State of Minnesota. On the 24th of October, 1889, the defendant left the notes and mortgages above described, and of which she was still the owner, with the plaintiff, for the purpose of collection and remittance to the defendant by the plaintiff. The interest was collected by the plaintiff and remitted to the defendant down to April, 1891.
On the 18th day of December, 1890, the plaintiff loaned to the defendant $5,000, taking therefor her note for that amount, and on the same day the defendant assigned and transferred to the plaintiff as collateral security for said notes, the five mortgages above mentioned, together with the notes and obligations therein described; the assignment being the usual one, by which the defendant constituted the plaintiff her attorney to collect, and take all lawful means for the' recovery of the money and interest, and said assignment was duly recorded in the proper- county in the State of Minnesota.
The'plaintiff collected at different times, interest on the notes of Whitney, the same being paid by two persons, Sumbardo and Horr, who had purchased the property covered by the mortgages, or some part thereof.-
In June, 1890, Whitney, the mortgagor of the premises, conveyed the lands covered by the mortgages,- together with other lands, to one James Yan Dyke, subject to the said mortgages and! the notes secured thereby, and which James W. Yan Dyke thereby agreed to pay, according to the respective tenors thereof, as part of the purchase money for the property. ' The conveyance was duly recorded. -
Sumbardo and Horr having failed to pay the interest on the notes,, no-interest having been" received for sometime, there being a large amount of unpaid taxes against the property, considerable correspondence was had between the-defendant and plaintiff as to-the.best method of procedure and with respect to the foreclosure of the mortgages.
The defendant was also represented by one Atwater, residing in the city of Minneapolis, and who had various consultations with the plaintiff as to the best manner of proceeding for the purpose of protecting the interests of the defendant, and on the 18th of June,, 1894,' the defendant wrote the plaintiff that she had instructed Atwater to see the plaintiff about the Horr and Sumbardo notes and mortgages, this being the designation generally used for the five Whitney notes and mortgages above mentioned, and asking if something could not be done whereby a judgment for past due interest,-, or a lien on -some real estate which they might have, could be obtained, and requesting it to give all information to Hr: Atwater and confer with him as to the best method of -procedure.
On the 20th of June; 1894, the plaintiff, answered this letter of defendant by saying that they thought the course pursued to get all the interest possible out of Sumbardo and Horr, by delaying foreclosure, had been the wisest, and stated that they could foreclose the mortgages and sell the property for one-half or two-thirds of the notes and -get judgment against them for the balance, if -the defendant desired; that it did not believe such judgment would be worth much ; that it would talk with Mr. Atwater as suggested.
After the 20th of June, 1894, and before the 5th of July, 1894, the said Atwater saw the plaintiff in the interest of the defendant, and told it that there was no other coursedo pursue, except to proceed to foreclose the mortgages as soon as possible, bid in the property for somewhere near its present value, and take judgment against the makers of the notes for any deficiency there might be.
On the 16th day of July, 1894, foreclosure of the five mortgages above mentioned was commenced by plaintiff by the publication of a notice of sale, dated on that date, under the statute of the State of Minnesota. The property described in the mortgages was sold on the 5th day of September, 1894, by the sheriff of Ramsey county, Minn., to the plaintiff, and certificates thereof given to said plaintiff as purchaser, the aggregate bid for the five pieces of property being $24,434.35, and for which sum the premises were sold to the plaintiff, this sum being the full amount which was due upon the notes in question, secured by the respective mortgages given, with the costs of foreclosure of each of said mortgages respectively.
The defendant was not made a party to the foreclosure, and had no notice of the foreclosure until after the same was completed.
The land covered by said mortgages at the time of sale was worth about $20,000. The amount due the plaintiff on the note of $5,000, made by the defendant, on the day of sale, was $5,886.66, and the amount due for services and money advanced at the same date was $812.65, making a total indebtedness of defendant to plaintiff of $6,699.31.
No suit was ever commenced on the notes made by said Whitney, nor was any attempt made to collect the same .of him, and there was no evidence of any suit being commenced against James W. Van Dyke, or of any attempt made to collect the amount of said notes from said James W: Van Dyke, grantee in the deed before mentioned, and who had assumed the payment of said notes and mortgages.
The referee found that the plaintiff was negligent in the collection of said collateral notes and mortgages, in causing the mortgaged premises to be sold at the full amount due on the respective securities,, and thus releasing from all liability on the same the said' Whitney, the maker of the said notes, and the said Van Dyke, the-grantee of said premises, who had assumed the payment of the same.
There is in this case an element of conversion, that is, of placing-the property where it cannot be restored to defendant, and where' .plaintiff has the benefit of its sale. This is quite different from a-case in which defendant might disaffirm and recover her property.
(Scott v. Rogers, 31 N. Y. 676; Laverty v. Snethen, 68 id. 522;. Comley v. Dazian, 114 id. 161.) Plaintiff, acting for itself, had the right to buy at any price, but its action deprived defendant of all right in the property mortgaged and all remedies against the makers-of the notes. She cannot be restored to her former position, and is-left to her accounting with or proceeding against plaintiff as her remedy.
The referee found, as a conclusion of law, that there had been a-conversion of the Whitney notes and mortgages by the plaintiff, and rendered judgment against the plaintiff in favor of the defendant-for the amount of the securities, less the sum of $6,699.31, due from defendant to plaintiff upon her note, and for moneys advanced,, together with the interest on said sum from September 5,1894.
Although the record is a voluminous one, the controlling facts-upon which the case' may be said to depend are within a narrow compass, and in order to deduce the proper conclusion it will be profitable to consider briefly the relations of the parties and their legal rights and duties.
During the time that the plaintiff held the securities for collection, its duties were clearly that of an agent of the defendant for the-purpose of receiving the interest due upon the notes and mortgages- and remitting to the defendant; and had this been the only relation which the plaintiff, had borne to the defendant, the questions now under consideration would, in all probability, never have arisen.. But when the loan was made by the plaintiff to the defendant, and it received as collateral security for that loan the mortgages and notes which it had formerly held as agent, a new relation was created, in which the plaintiff had the further right to handle the securities for its own benefit, to .the extent of protecting its own interest as pledgee of the property. On the other hand, it owed to' defendant the duty of caring for the property to such an extent as not to jeopardize or injure her interest therein, beyond the extent that it might be necessary to conserve and enforce its own interests and rights in the property. And, beyond its own interest in the property, it had the further duty to see that the defendant was not injured by its act in reference to the property. Its interests being satisfied out of the property, it was subject to an accounting to the defendant, and any balance remaining after the satisfaction of its claim was held by it in trust for the benefit of the defendant. In either capacity, whether as agent for the defendant and acting under its direction, or as a trustee, who was bound to act in good faith in the protection of its own rights, and in so doing to not unnecessarily injure the defendant, it was bound to exercise reasonable care and diligence; and if it departed, either from the instructions of its principal when acting as agent, or from its duty as trustee when trying to conserve its own interests, it was liable to account for its acts to the defendant either as principal or cestui que trust.
The plaintiff, so far as it can be claimed that it was acting under , the direction of the defendant, must find its authority in the instructions of Atwater on the 20th of June, 1894. While the finding of the referee is as ,to the fact as to what occurred, without drawing conclusions, and perhaps the deduction might be made that there was simply a conference, and the conclusion that in the interests of all of the parties the course there stated was the best one to pursue, yet, assuming that- the statements then made were sufficient to authorize the plaintiff to act as the agent of the defendant at that time, it must be held to have authority only in accord with the instructions there given, and if it is to be construed as an instruction, that instruction would be to " foreclose the mortgages as soon as possible, bid in the property for somewhere near its present value, and take judgment against the makers of the notes for any deficiency there might be." This certainly could not be construed into an authority to bid in the property for the full amount of the notes and thereby discharge the maker and the person who had assumed the payment of the notes as a consideration for his deed.
While there can be no adverse criticism upon the plaintiff's action in bidding off the property, for it had the right to make itself the purchaser and to bid such sum.as it saw fit upon such purchase, yet, if it did elect so to do, it must stand upon its rights as a purchaser; and having exercised, its election to become a purchaser, or neglected to follow the instructions . of or agreement • with the defendant, it cannot, after the consummation of -the sale and the receipt of the benefits, repudiate that position and revert to, the one of agent of the defendant: It is not upon the plaintiff to make the election after the deed as to its position, but having departed from instructions, and apparently, to the detriment of the defendant, the election, is- in the defendant,-and it is the defendant who has the right to say whether the agent who has departed from her instructions, or the trustee who has gone beyond its duty, shall occupy the position of purchaser, or not.
It will make but little difference how. the transaction may be characterized, whether it be called a conversion or a departure from authority, under a mistaken idea of the rights of the parties. In either event, the injury to the defendant is the same, and 'the rule of responsibility is to be applied rather to the act itself than to the name which may be given to it.
We conclude that the plaintiff, having the right either to' follow the plan suggested at the conference with Atwater, or to act independently and purchase the property itself and account to the defendant for the proceeds, having elected, to purchase the property and having bid a price in excess of the one suggested or agreed upon, became liable as a purchaser for its own benefit, and is subject to account to the defendant to the extent of the purchase price.
Plaintiff should be adjudged.a purchaser for the amount bid, and should account for that purchase price, as though the property had actually been sold for that amount to a third party.
The judgment should be affirmed,, with costs.
McLennan, P. J., and Williams, J., concurred; Hiscock, J., dissented in an opinion in which Spring, J., concurred.