Matter of City of Rochester , 136 N.Y. 83 ( 1892 )

The questions involved in this appeal arise from a struggle among creditors for a priority of payment out of a fund paid into court by the city of Rochester as compensation for a water right, taken from the landowner by condemnation proceedings. The fund was once awarded to William Hamilton in a contest between him and the executor of the landowner, but to which Alexander M. Holden was not a party. Before the money was paid over to Hamilton, Holden intervened, asserting a priority of equitable lien, and pending that litigation and because of it, the fund was transferred from the savings bank to Hamilton under and by force of a stipulation which first recites the facts and then proceeds thus: "Now, therefore, it is stipulated and agreed that the said fund so on deposit in the Mechanics' Savings Bank, or such part thereof as shall be withdrawn by said Hamilton in pursuance of the said order of this court in case it shall be finally held either in the above-entitled proceeding or in the said action, that the same, or any part thereof, rightly belongs to said Holden, and any order or judgment shall finally be made which directs the same, or any part thereof, to be paid to the said Holden, the said Hamilton will account for the fund so withdrawn by him, with interest thereon from the time of his withdrawal thereof to the time of such payment at the rate of four per cent per annum, and will pay over to said Holden such sum of money with the same effect and to the same amount as if the same had actually remained on deposit in the said savings bank at the rate of interest aforesaid." In accordance with this stipulation, the fund was transferred to the custody of Hamilton, and Holden was allowed to intervene in the original proceeding and set out and assert his claims, which have been recognized as prior and paramount to those of Hamilton.

At the outset of the argument it is contended on behalf of Hamilton that the fund is no longer in court; that it has been paid over to him in pursuance of a lawful order of the court for its distribution; and has ceased to be subject to control in the original proceeding. It is insisted that such proceeding is at an end, with all its purposes accomplished and all its authority exhausted, and that the sole remedy of Holden is through an action against Hamilton based upon the former's equitable right and the terms of the stipulation. The objection is of course formal and outside of the merits of the controversy, but it goes to the jurisdiction, and if sustained is decisive of the appeal. But I am unable to see that the transfer of the fund to Hamilton under the terms of the stipulation was intended to or did take the money out of court, and end the judicial control over it flowing from the nature of the condemnation proceeding. The stipulation itself recites the existing situation as the cause and occasion of the agreement. The fund had been adjudged to belong to Hamilton as between him and the executor of Smith, but nothing had been adjudged as against Holden unless possibly by a default which the court was at liberty to excuse and open. Holden intervened to stop and prevent payment of the fund under the existing order, to retain that fund in court and subject to another and different judicial distribution founded upon claims and equities never as yet presented for consideration. He was endeavoring to lay his hand upon the fund with a view to keep it undistributed until his equities should be determined, and for that purpose had in progress and pending both an action and a motion to open his default, in each of which he had been defeated, but had taken an appeal pending and in aid of which he had moved to stay payment until the appeals should be determined. In this situation of affairs the stipulation was made, and it explicitly provides that if it shall be finally held either in the action or proceeding that the fund in whole or in part belongs to Holden "the said Hamilton will account for it with the same effect and to the same amount as if the same had remained actually on deposit in the said savings bank." The stipulation recognizes the pendency of the condemnation proceeding, Holden's effort to be heard therein, his possible success, and Hamilton's duty thereupon to pay over the fund; and it is subject to that right, subject to the power of the court in that proceeding to divert the fund to a new ownership, that the consent is given; not to divest the court of its jurisdiction, but merely to change the custody of the fund. I think it would be a manifest perversion of the terms and purpose of the stipulation to hold otherwise.

Several further propositions advanced by the appellant may be considered together since they admit substantially of one and the same answer. It is argued that Holden is bound by the original order which awarded the fund to Hamilton, because that was a proceeding in rem which bound every possible interest in the fund; because Holden aided and assisted the executor in that proceeding and so was represented by him; and because the order of this court embodied in its remittitur could not be changed or varied in the court below. All these things may be to some extent or in some manner true without in the least touching the right of the court to open a default or let in to defend one who had omitted to assert his rights in regular and due season. A judgment in rem, at least before it is finally executed, is never so conclusive upon the court which rendered it as to prevent it from opening a default or vacating or setting it aside for sufficient reason. That Holden mistakenly supposed that his interests lay in the success of the executor and so aided and assisted the latter did not make him a party to the proceeding or involve his right to the fund as between him and Hamilton, and an order of this court while conclusive between the parties litigating does not prevent the opening of the judgment by the court whose judgment it has become for the hearing of a new party and the determination of a new claim.

The appellant further contends that title to this fund passed to the respective purchasers upon the foreclosure sales under the two prior mortgages, upon the ground that the fund stood in the place of the land. It was to be so regarded for the purpose of measuring and settling the rights of the parties interested (In Matter of City of Rochester, 110 N.Y. 159;Utter v. Richmond, 112 id. 610), but the paramount right of the city withdrew from the lien of the mortgages the water-right, condemned and transferred it to the city free and discharged from the mortgage liens. That occurred before either sale. The balance of the land only could be sold and conveyed on the foreclosure; the referee's deed could convey and did convey only that balance; and the right of the mortgagees became merely an equitable lien upon the fund in the hands of the court to the extent of any deficiency which the land sold did not pay. There was such a deficiency on the sale under the Smith mortgage. There could have been none on the theory that the whole fund was for sale, and would pass by the referee's deed. Application was made to the court for the payment of that deficiency which was granted, and Hamilton thereupon paid it, and has been allowed to retain that payment as against Holden. Pending the proceedings on the motion for distribution, Hamilton has acquired the title of the purchaser, but that title covered only the land remaining under the lien of the mortgage. The fund was not sold; it simply remained in the hands of the court for distribution. As to it, so much of the purposes of a foreclosure as consists in turning land into money was already accomplished, and the money stood in the place of the land for the purpose of equitable distribution and not as a subject of a needless and superfluous sale.

Treating it as land to ascertain and fix rights could not alter the real and existing fact, that it was proceeds of land already sold, and merely awaited distribution according to the antecedent rights and liens of those interested. Neither foreclosure gave title to the fund, or altered the duty of proper distribution by the court. That fund was the product of a paramount proceeding which cut off every right in the water both of owners and incumbrancers, so that there could be neither sale nor foreclosure as to that, and instead there remained an equitable lien upon the proceeds to be worked out by the court empowered to distribute.

Two further objections are made to the recovery by Holden: one that he is equitably estopped from setting up his lien by reason of a conversation with Hamilton relating to Smith's affairs; and the other that Holden's mortgage was a fraudulent and not a genuine instrument. It seems only necessary to say that none of the essential elements of an estoppel existed in the casual conversation relied on; and that the findings settle upon the evidence the question of fact, as to the genuineness of Holden's mortgage.

That mortgage had priority over Hamilton's assignments both as to its execution and its record; and over the Perkins mortgage because earlier executed and although that instrument was first recorded it gained no advantage from that priority, because given to secure an antecedent debt.

The order should be affirmed with costs.

All concur.

Order affirmed.