James M. Halsted, Appellant, v. Elizabeth S. Halsted et al., Asa Stevens, Trustee, etc., Respondent

James M. Halsted, Appellant, v. Elizabeth S. Halsted et al., Asa Stevens, Trustee, etc., Respondent. (Argued December 15, 1873; decided January 20, 1874.) Where, in a partition suit, actual partition cannot be made and a sale is decreed, the question as to the distribution of the proceeds of the sale of any undivided share of the premises between the owner and incumbrancers is collateral to the main purpose of the action; the court, having jurisdiction of the fund, adjudges how distribution shall be made. Where, therefore, in such case, in accordance with the practice (Sup. Court, Buie 77), an order of reference is granted directing the referee to ascertain and report the amount due to any party to the action who has any general or specific lien upon the premises, the referee is authorized to . take proof and pass upon the question of the validity of a mortgage upon an undivided share, claimed by one of the parties, although the question' is not raised by any formal issue in the pleadings. Appeal from judgment of the General Term of the Supreme Court in the second judicial department, affirming a judgment entered upon the report of a referee. This was an action for partition of certain real estate situate in Westchester county. The defendant Asa Stevens was made a party, as assignee, for the benefit of creditors of defendant Augustus M. Halsted, one of the tenants in common. Stevens put in an answer alleging that he is such assignee, and claiming all the interest of said Augustus in the premises. The usual order of reference, as in case of default, was made as required by Supreme Court Rules 79 and 80. In case the referee should deem a sale necessary, the order required him, among other things, to ascertain and report the amount due to any party o the action who has either a general or specific lien upon the premises to be sold, or any part thereof. The referee decided a sale to be necessary. Plaintiff held a mortgage of $4,000, executed by said Augustus M. Halsted, upon his undivided share. This mortgage defendant Stevens contested before the referee, claiming it to be fraudulent as to the creditors of said Augustus. The referee received evidence upon this question and found that the mortgage was fraudulent and void as to creditors. The plaintiff excepted to the said finding upon the coming in of the report and application for judgment; the exceptions were overruled and the report confirmed; a sale of the premises was ordered, and a distribution of the proceeds in accordance with said report. Plaintiff appealed from that portion of the judgment overruling exceptions and confirming the report as to said mortgage. Ralph .S’. Prime for the appellant. The referee erred in entering at all upon the investigation concerning the validity or invalidity of the mortgage in question. (Sup. Ct. Rules 79, 80 ; Wright v. Delafield, 25 N. Y., 266; Garvey v. Jarvis, 54 Barb., 179; Bullwinker v. Riker, 13 Abb., 311; Thomas v. Austin, 4 Barb., 265 ; James v. McKernan,, 6 J. R., 543.) There being no issue in the pleadings raising the question it was error to consider it. (Lawrence v. Trustees, etc., 2 Den., 588 ; Voorhies' v. Childs, 17 N.Y., 357.) The insolvency of Halsted & Putnam, and the making of the mortgage by one of that firm individually, cannot invalidate or make it void. ( Wilder v. Keeler, 3 Paige, 167; Payne v. Matthews, 6 id., 19; Aub. Ex. Bk. v. Fitch, 48 Barb., 344.) 8. F. Cowdrey for the respondent. The court was authorized to adjust by its decree the equitable rights of every party to the action and to the fund. (Willard’s Eq., 48; Story’s Eq. Jur., §§ 64, K. 655 ; Green v. Putnam, 1 Barb., 509 ; Scott v. Gurnsey, 60 id., 178.) [MAJORITY — Andrews, J.] Andrews, J. I think the referee was justified, by the order of reference and by the practice of the court, in taking proof, and passing upon the question of the validity of the mortgage from Augustus M. Halsted to the plaintiff, although it was not raised by any formal issue in the pleadings. Prior to the Revised Statutes, an incumbrancer upon the undivided share of an estate was not a proper party in the suit for the partition of the whole property. . (Harwood v. Kirby, 1 Paige, 470.) His interest was not affected by the partition. The lien attached to the divided share in case of actual partition, and in case of sale the purchaser took the land subject to the incumbrance. Hnder the Revised Statutes, creditors, having specific liens upon an undivided share of the premises sought to be partitioned, can be made parties to the proceedings (2 R. S., 318, § 10); and persons holding general liens or incumbrances be brought in by notice, so as to bind them by the sale. (§§ 42, 43-62.) In this way the purchaser acquires a perfect title, and a lien upon the fund derived from the sale is substituted for a lien upon the land. Provision was made by the 178th Rule of the Court of Chancery for ascertaining, by a reference to a master, the existence and amount of any liens or incumbrances on any undivided share of the premises, in case actual partition could not be made. The object of this rule was to enable the court to make a distribution of the proceeds among the persons interested. (Dunham v. Minard, 4 Paige, 441.) The inquiry as to the existence and amount of the lien involved the further question as to its validity, if the party against whose share it was claimed to exist contested it. In case the master reported against the lien claimed, exception could be taken to the report, when it was presented for confirmation. (Dunham v. Minard, supra.) It was in the power of the court to order a feigned issue to try the question, if it should deem it proper; but I find no authority for holding that the question of the validity of a lien claimed must be raised by the pleadings, or by a formal issue in any stage of the proceedings. The question of the distribution of the proceeds of the sale .of any undivided share of the premises, as between the owner and incumbrancers, is collateral to the main purpose of the action. The court, having possession of the fund for distribution, directs proof to be taken upon the reference as to the liens, upon notice to the parties interested, and, upon the coming in of the report, adjudges how the distribution shall be made. The 80th Pule of the Supreme Court, providing for an order of reference in partition cases, is substantially like the 178th Eule in chancery. The order of reference in this case directed the referee to ascertain and report “ the amount due to any party to the action who has either a general or specific lien upon the premises, or any part thereofand the referee had the right, under the order, to take proof and pass upon the question of the validity of the plaintiff’s mortgage. The evidence justified the finding of the referee, that the mortgage was fraudulent as to the creditors of the mortgagor. The defendant, Stevens, as general assignee of the mortgagor for the benefit of creditors, was in a position to contest the mortgage upon that ground. The assignment conveyed both the joint and several property of the assignors. The firm of Halsted & Putnam was largely insolvent; and there is .no ground for the inference that the mortgagor, when the mortgage was executed, was individually solvent, or that the copartnership creditors were not prejudiced by the execution of the mortgage. The judgment should be affirmed with costs. All concur. Judgment affirmed.