3105 Grand Corp. v. City of New York , 288 N.Y. 178 ( 1942 )

One Boehle was receiver in an action to foreclose a real estate mortgage. He was a business associate of one Faber, who was receiver in another like but independent foreclosure action. By concert between them, Boehle, on March 11, 1936, drew checks upon his receivership accounts for $8,923.26 and therewith paid taxes and penalties then outstanding against the premises that were under foreclosure in the action in which Faber was receiver. At the sale held in that action on April 29, 1936, these premises were bid in for $105,000.

The purchaser at that sale is the defendant in this present action which was commenced in 1939. The plaintiffs are the mortgagees on whose unrelated titles Boehle had acted as receiver. They now pursue the defendant on the theory "that the beneficial owners of foreclosure receivership funds wrongfully diverted to the payment of taxes in connection with another receivership by connivance with the other receiver may, when traced, be followed and recovered from the beneficiary of such payment." This theory was employed by the courts below with the result that the property purchased by the defendant has been impressed with a lien for the restoration to the plaintiffs of the amount of the taxes thereon which Boehle had antecedently paid out of his receivership credits. A single sentence sufficed to dispose of the issue of law. "Clearly," the Special Term said, "there has been an unjust enrichment to the extent of such taxes paid ($8,923.26), and in all fairness and justice the property ought not to be permitted to benefit by such payments." I cannot accept this short conception of the case.

The action in which Faber was receiver is described in the record as the "Bar-Lellan action." In respect of that action, the following findings were made below: "On March 11, 1936, taxes and penalties of $12,624.36 were due on the Bar-Lellan property. They were paid in this manner: $3,701.77 by Faber's check drawn on his receivership account in the Bank of Manhattan Company, $4,500 by Boehle's check drawn on his receivership account in the Jamaica National Bank, and $4,423.26 by his check drawn on his receivership account in the Bank of Manhattan Company. In his accounting in the Bar-Lellan action Faber was credited with the tax payment of $12,624.36, but was still short $16,300, in which amount he was surcharged; $15,000 was paid by his surety and the balance of $1,300 compromised by order of February 2, 1938,^* discharging him from liability and directing the defendant 92-21 Union Hall Street, Inc., to deliver to the receiver a general release, which was done. Apparently at this time [i.e., 1938] none of the parties other than the receivers knew the manner in which these taxes were paid." The foreclosure sale through which the defendant took title to the Bar-Lellan property was held, I repeat, on April 29, 1936.

I am of opinion that in these circumstances the defendant was entitled to the protection of the great equitable principles as to bona fide purchases for value and without notice. (SeeFrost v. Beekman, 1 Johns. Ch. 288, 300; Simpson v. DelHoyo, 94 N.Y. 189; Ten Eyck v. Witbeck, 135 N.Y. 40, 48,49.) "A court of equity will not deprive a defendant of any right of property, whether legal or equitable, for which he gave value without notice of the plaintiff's equity * * *. If he gave value, and had no notice of the equity, it is eminently just for him to keep what he has got." (Ames, Legal Essays, 254, 255.) As I see it, the decision now made by this court is contrary to these principles and to the cognate policy that there shall be free and fair transmission of record titles to real estate.

One or two other matters should perhaps be noticed. Faber was not the agent of the defendant or of any other person. He was the officer of the court wherein his accounts were settled. The compromise of his failure to make up his shortage of $1,300 was not the result of anything done by this defendant. The court ordered that compromise in the exercise of its own independent judicial discretion. Nor does the defendant suffer any disablement from the circumstance that it was the party plaintiff in the foreclosure on which it became the purchaser for value and in good faith. From the days of the Revised Statutes it has been the rule that every judgment for the sale of mortgaged premises must direct that the plaintiff or any other party may become a purchaser at the foreclosure sale unless the court specially orders otherwise. (Rules Civ. Prac., rule 259; Ten Eyck v.Craig, 62 N.Y. 406, 421. Cf. Maroney v. Boyle, 141 N.Y. 462. )

I think the judgments should be reversed and the complaint dismissed.

RIPPEY, LEWIS, CONWAY and DESMOND, JJ., concur with FINCH, J.; LOUGHRAN, J., dissents in opinion in which LEHMAN, Ch. J., concurs.

Judgment affirmed.

^* This order was dated February 2, 1938, but was entered March 2, 1938.