Hayes v. Dickinson

Beady, J.:

This action was brought to foreclose a mortgage. On the 14th September, 1875, the complaint and Us pendens were filed. On the sixth September one of the defendants was served with the summons and complaint, but Dickinson, the mortgagor, was not served with them until the eleventh September. On the eighth September, and therefore prior to such service, he presented his petition in bankruptcy and on the twenty-third September was adjudged a bankrupt. On the twenty-ninth September an application was made herein for the appointment of a receiver of the rents and profits of the mortgaged premises, on the grounds that upon the sale thereof they would not bring enough to pay the debt due and the existing liens and that the mortgagor was insolvent. The affidavit containing these statements was verified on the ninth September. On the first October an order was entered appointing a receiver. On the 23d March, 1876, an order was duly entered appointing a referee to pass the receiver’s accounts, and on the coming in of his report the plaintiff moved, on proper notice to all the parties, for its confirmation, and that the balance of rents remaining in the receiver’s hands should be paid to him. The assignee in bankruptcy appeared on the motion and claimed such balance as a part of the assets of the bankrupt. The result of the motion was the confirmation of the report, and a direction that the balance should be paid to the assignee and not to the plaintiff. The plaintiff appeals from such direction. "Was the plaintiff entitled to the money ? This is the question presented for our consideration. When the plaintiff commenced this action the necessary elements existed, which authorized the application for a receiver and entitled him to such relief. The mortgaged premises were not sufficient to pay the debts and liens, and the mortgagor was insolvent. An equity consequently intervened, and the proceedings to secure it were inaugurated on the ninth September, when the affidavit mentioned was made, and therefore before the defendant was adjudged a bankrupt. It is settled as a part of our system of remedies that a receiver must be appointed under circumstances such as disclosed, and the jurisdiction of this court over the whole subject was acquired when the action was commenced. (Sea Ins. Co. v. Stebbins, 8 Paige, 567; Rowell v. Ripley, 10 id., 47; Astor v. Turner, 11 id., 436; Clark v. Rinninger, 39 How. Pr., 363; Miller v. Bowles, 2 N. Y. S. C. [T. & C.], 568.) The trustee or assignee in bankruptcy takes the property subject to all legal and equitable claim of others. It is affected by the equities which can be urged against it, not tainted by fraud. (Coole v. Tullis, 18 Wall., 332; Kelly v. Scott, 49 N. Y., 595 and cases cited.) Aside from the equity which springs from the relations of mortgagor and mortgagee, and the design of the parties that the premises should be employed to pay the mortgage debt, there are equities in favor of the plaintiff herein. It was by his diligence that the rents were secured. The receiver appointed to collect and preserve them was appointed at his instance, and not by any act of the assignee, so far as we are advised by the papers, submitted. It is enough, however, that the assignee took whatever interest the bankrupt had in the premises, subject to the existing equities, to render it our duty to reverse the order made at Special Term. Such must be the effect of this appeal, and it is so ordered; but we think no costs should be granted against the assignee, who is in fact the respondent in this proceeding.

Davis, P. J., and Daniels, J., concurred.

Order reversed, without costs.