Gates v. De La Mare

Full title: EPHRAIM C. GATES et al., Appellants, v . JAMES C. DE LA MARE, Respondent

Court: Court of Appeals of the State of New York

Date published: May 1, 1894

142 N.Y. 307 (N.Y. 1894)

59 N.Y. St. Rptr. 1

37 N.E. 121

Opinion

Argued April 13, 1894

Decided May 1, 1894

George W. Stephens for appellants. James C. De La Mare for respondent.

ANDREWS, Ch. J.

The mortgage to the Harlem Savings Bank was a paramount lien on the mortgaged property. The title of Denninger was subject to the mortgage, and any rights in the land which he might subsequently create would be subordinate to the mortgage. The power of sale upon default in the payment of the mortgage was an essential element of the mortgage security, and could not be taken away or impaired by any act or contract of the mortgagor. The lien of a mortgage attaches not only to the land in the condition in which it was at the execution of the mortgage, but to everything which becomes by annexation a part of the realty during the existence of the mortgage. Improvements made upon the land and buildings or structures erected thereon by the owner are immediately covered by the lien of the mortgage as effectually as though they had existed when the mortgage was executed. The statute authorizes liens in favor of mechanics and materialmen who have furnished labor or materials in the erection of buildings under a contract with the owner of lands. But liens so acquired cannot displace the lien of a prior mortgage, although the mortgage security has been strengthened by the new erections, nor, indeed, even though they furnished the principal element of value which made the mortgage collectible. We refer, of course, to cases where the mortgagee was not a party to the transaction and had not consented to subordinate his lien to the claims of other creditors.

The agreement between Denninger and the defendant was made in November, 1888, more than a year after the mortgage had been made to the savings bank. The bank was not a party to the agreement, nor, so far as appears, did it have any notice of its existence until after the sale on the foreclosure of the bank mortgage on the 21st of April, 1892. When the agreement was made proceedings had been instituted by the city of New York to acquire title to part of the lands of Denninger covered by the mortgage, for the purpose of a street, under the right of eminent domain. The agreement was entered into by Denninger as owner of the lands and for his own benefit. He could not make any agreement binding upon the savings bank, or which would affect its rights under the mortgage. If the proceedings were prosecuted to a final consummation the city would acquire title to a part of the mortgaged premises required for the street. All pre-existing titles and interests would thereupon become extinguished and the award of the commissioners would stand as a substitute for the land taken. Where the lands taken are mortgaged, the mortgagee would be entitled to have the award applied upon his mortgage to the extent necessary for his protection, and the remainder would be payable to the owner of the land. The court upon application would adjust the rights of the several claimants of the award according to their legal and equitable interests. ( Astor v. Hoyt, 5 Wend. 605; Bank of Auburn v. Roberts, 44 N.Y. 192; Barnes v. Mayor, 27 Hun, 236; 1 Jones on Mort. § 708.) The agreement of November 16, 1888, between Denninger and the defendant, was, on its face, a personal contract between the parties, upon which, so far as appears, an action may now be maintained by the defendant to recover the stipulated compensation. It may be conceded, also, that upon the making and confirmation of the award, the agreement operated as an equitable assignment to the defendant of any interest of Denninger therein, to the extent of the compensation agreed upon. But we perceive no principle whereby the claim of the defendant can be preferred as against the savings bank mortgage. If all the property covered by the mortgage had been taken by the city, the defendant could have made no claim on the award except upon any surplus remaining after payment of the mortgage debt. It may be true that the defendant, by his services, increased the award. But in rendering these services, he was acting under the employment of Denninger, and not as the agent or employee of the mortgagee. In law, the final award represented the actual value of the land, no more and no less, and the land was primarily pledged as security for the mortgage, and the priority of lien was transferred from the land to the award, and could not be subordinated to a lien subsequently created by Denninger in favor of the defendant, for services in the condemnation proceedings, however beneficial these services may have been either to Denninger or the mortgagee. So, also, a title to the award derived under the mortgage would be paramount to any lien or claim of the defendant under his agreement with Denninger. The right to enforce the mortgage by sale of the mortgaged premises, and to vest in the purchaser the land mortgaged, extinguishing thereby the title of the mortgagor, is, as we have said, one of the most important elements in a mortgage security. When the premises were bid off by Toch on the sale on the foreclosure judgment, April 21, 1891, there had been no confirmation of the report of the commissioners of estimate and appraisal. The confirmation did not take place until May 1, 1891. The title of Denninger to the lands included in the street was not divested at the time of the sale. By the terms of the Consolidation Act, under which the street opening proceedings were taken, the title of the owner is not divested until the confirmation of the report of the commissioners. Indeed, until that event the proceedings may, in a certain contingency, be abandoned. (Consolidation Act of 1882, § 900; Matter of 17th Street, 1 Wend. 262; Matter of 11th Avenue, 81 N.Y. 436.) Toch, the purchaser on the foreclosure sale, became entitled to a conveyance from the referee on completing his purchase, and he received a deed May 25, 1891, purporting to convey the entire premises sold. This deed was in accordance with the sale, but intermediate the sale and the conveyance, and on May 1, 1891, the court had confirmed the report of the commissioners. Much was said on the argument upon the question whether the deed of May 25th took effect by relation as of the date of the sale. It does not seem to us that this is a material inquiry. The sale was in fact followed by a deed made in pursuance thereof. The purchaser, on completing his purchase, became entitled to a deed of the whole land embraced in the mortgage. If, on the day of the purchase, the deed had been executed, the subsequent award would unquestionably have belonged to the purchaser. The deed, when executed, operated, we think, to carry the award which, at that date, represented a part of the land purchased. It was a part of the mortgage contract that on default the mortgaged premises could be sold and the title transferred by a public judicial sale. The defendant's agreement was subject to this right. The deed, when executed, confirmed the sale previously made, and transferred the award to the purchaser free from any claim either of Denninger or the defendant. All parties interested in the land, or claiming liens thereon, could have protected their rights by seeing that the premises upon the sale brought their full value. So, also, if they had inadvertently omitted to protect their rights on the sale, or other circumstances had occurred after the sale which made it inequitable to complete it, they could have applied to the court for a re-sale or other equitable relief. We think, however meritorious the claim of the defendant may be, the sustaining of the judgment in this case would furnish a dangerous precedent, affecting the security of mortgages on land. The case of Home Insurance Company v. Smith (28 Hun, 296) arose between the plaintiff, who claimed under an assignment of an award in street opening proceedings from the purchaser on the foreclosure of a mortgage, which covered part of premises subsequently taken for a street, and the defendants, who claimed a lien on the award under an agreement similar to the one in this case, made with the owner of the mortgaged premises. The sale on the foreclosure was made after the report of the commissioners of assessment and estimate had been confirmed, and brought enough to satisfy the mortgage. It was held that the title of the owner to the part of the mortgaged premises taken for the street having been divested by the confirmation of the report prior to the sale on the foreclosure judgment, the sale operated only upon the remaining land, and that the part of the land for which the award was made was as "completely excluded by the proceedings from the mortgage as though it had never been incumbered by it," and that, consequently, the purchaser acquired no title in law or equity to the award and could transfer none. It was held that, under the circumstances, the award belonged to the owners of the land taken and was subject to the lien created by their agreement. This case has no analogy to the present one.

The judgment of the General and Special Terms should be reversed and the demurrer of the plaintiff to the answer sustained, with leave to the defendant to answer on payment of costs.

All concur.

Judgment accordingly.