Hoyt v. Martense

Hoyt v. Martense. [n order to secure a debt due to M., H. assigned to him a mortgage, executed by a third party, ol several village lots. An action for the foreclosure of the mortgage was alterwards commenced, in which H. and M. joined as plaintiffs. At the sale, under the decree in such action, M. became the purchaser of all the lots mortgaged, and claimed to hold the same for his own benefit, discharged of any trust or equity in favor of H.; Held, that H.’s equity of redemption in the mortgage, assigned by him to M., attached to the lands purchased by the latter under the foreclosure, and to the proceeds of such lots as he sold, and that H. was entitled to any surplus which might be found, upon an- account, to be in his hands, after satisfying the indebtedness for which the mortgage was assigned to him as security. The effect of the foreclosure was simply to bar the equity of the mortgagor and his grantees in the land, and it had no operation upon the rights of the plaintiffs as between themselves. The equitable rule, therefore, which forbids a trustee or person acting in a fiduciary capacity from speculating out of the subject of the trust, applies as well after the foreclosure and sale as before. The case of Slee v. Manhattan Company (1 Paige, 48 ) approved, Appeal from the Supreme Court. The plaintiff brought his action to compel the defendant to account for the money-received by him upon the sale of certain lots of land'in .Wiliiamsburgh, and to convey to 'the plaintiff other lots remaining in his hands unsold, claiming that the lots, and the proceeds of such as had been sold, were held by the defendant as security for the payment of a debt by one Charles Hoyt. On the trial, at the Kings county circuit, before Mr. Justice Basculo, without a jury, the following facts appeared: On the 15th of August, 1840, Charles Hoyt, being indebted to the defendant in the sum of $3000, with interest from May, 1839, assigned to him a bond executed by one Corbitt, on which there was due $3500, with interest from May 1, 1836, and also a mortgage, executed by said Corbitt as collateral to. said bond, of thirty-six lots in the then village of Williamsburgh; the defendant, by a written instrument of the same date, acknowledged that he had received such assignment from Charles Hoyt as collateral security for Hoyt’s indebtedness to him, and agreed to reassign the bond and mortgage on the payment of certain notes, also assigned to him, by the plaintiff, at the same time and for the same purpose, “accounting to him for the principal and interest which may be collected thereon.” In 1842 a bill was filed in the late Court of Chancery for the foreclosure of Corbitt’s mortgage, the defendant, Mar-tense, and Charles Hoyt, being complainants therein. Under the decree made in that suit, the thirty-six lots were sold in parcels, at three sales made by masters in Chancery, in 1842 and 1844, and all of the lots were bid in by Martense for sums amounting in the aggregate to $2785. In 1847 Charles Hoyt assigned his interest and right of action, arising out of the transactions, to the plaintiff, who brought this action; the defendant having, as the complaint averred, in the mean time made sales of some of the lots, bid in by him, for sums exceeding by several thousand dollars the debt as security for which the Corbitt mortgage was assigned to him, and having actually received on account of such sales more than enough to cancel Charles Hoyt’s indebtedness. Upon the plaintiffs closing, his proof, the court decided, under exception by the plaintiff, that the decree and sales in the suit in Chancery, and the masters deeds in execution thereof, vested an absolute estate, in the lands described in the masters ’ deeds, in the defendant for his own use, discharged of all the equity of redemption and interest which Charles Hoyt had in the bond and mortgage before the foreclosure. Judgment was ordered for the defendant, which, upon appeal, was affirmed by the Supreme Court, at general term in the second district, and the plaintiff appealed to this court. Nicholas Hill, for the appellant. John A. Lott, for the respondent. [MAJORITY — Bowen, J.] Bowen, J. This case cannot be distinguished, in principle, from Slee v. Manhattan Company (1 Paige, 48). In that case, as in this, the plaintiff, being the holder of a bond and mortgage, assigned them to the defendant, as security for a debt owing by the former to the latter, which mortgage was foreclosed by the assignee, and the mortgaged premises were bid in by him for a sum less than the amount secured by the mortgage, and less than the amount of the debt which the assignment was made to secure; and the assignee was required, on receiving the amount of his debt and interest, to convey the mortgaged premises to the assignor. That case was decided in 1828, and the correctness of the decision has not, that I am aware of, been called in question until the decision of the case at bar in the Supreme Court; and, as transactions may and probably have occurred, and rights been acquired, with reference to the rule there adopted and enforced, the case should not now be overruled, unless a palpable error was committed. The doctrine stare decisis is a salutary one, and should not ordinarily be departed from, where the decision is of long standing and rights have been acquired under it, unless considerations of public policy demand it. That decision was made after full consideration; and I am by no means' prepared to dissent therefrom, but, on the contrary, think that the case was a proper one for the application of the equitable rule which prohibits a trustee, or person acting in a fiduciary capacity, from speculating out of the subject of the trust. In the case cited the foreclosure was' by advertisement, mder the statute, while in this case it was by action, the assignor and assignee being the plaintiffs; and it is claimed that these circumstances, especially the fact that the plaintiff in this action was a party plaintiff to the foreclosure suit, distinguish the two cases. But I do not understand how or upon what principle the rights of Hoyt, the plaintiff in this action, are affected by his being made a party to the foreclosure suit. The assignment to Martense was, in effect, a mortgage of the mortgage. The object of the action in favor of Hoyt and Martense was solely to foreclose the equity of redemption of Corbitt, the original mortgagor, in the mortgaged premises,- and had no reference whatever to the right of Hoyt to redeem the mortgage by the payment of his debt to Martense. Hoyt’s right of redemption was wholly unaffected by the foreclosure and sale. Had the premises been purchased at the sale, under the decree in the foreclosure suit, by a third person, for an amount exceeding the debt due to Martense, the latter would have been liable to account to Hoyt for the excess, or at least for such -an amount of the excess as, together with the amount of the debt to Martense, would be equal to the amount the original mortgage was given to secure. But as Martense purchased the premises at the sale, he, after the purchase, held the land, in place of the mortgage, as security for his debt. He held the mortgage, and the proceeds and avails of it, as trustee for Hoyt, after what was due him was paid, and equity will not permit him to purchase in the premises for his own benefit, and speculate therefrom at the expense of his cestui que trust. It is true that, prior to the foreclosure and prior to the assignment, Hoyt held the mortgage only as security for the mortgage debt, and payment of this debt would have extinguished his interest in the mortgaged premises, when, by this action, he seeks to compel Hártense to convey the whole premises, or account for the proceeds thereof, after payment to the latter of the debt due to him, and that, too, without reference to the amount secured by the mortgage to Hoyt. But Hártense held the assignment of the mortgage only as security for the debt due to him from Hoyt, and his relations to Hoyt were wholly unaffected by the foreclosure and sale, while the equity of redemption of Corbitt in the mortgaged premises was barred thereby. I think that the judgment of the general and that of the special term of the Supreme Court should be reversed, and a new trial be granted, with costs to abide the event. Comstock and Brown, Js., not having heard the argument, expressed no opinion. All the other judges concurring, Judgment reversed.