Phelan v. Downs

Parker, P. J.:

■ It must be conceded that the $6,000 in question comes from the bank account of the American Fur Company. The check given *285 to the referee was paid from that account, and it was so authenticated by the president that such payment could not. have been subsequently repudiated on the part of that company.

On the record, we must further concede that Grillig made such purchase in his own name and for his own benefit; and hence the money was used by him in his own personal venture. Neither the president, nor the other officers acting in the matter, could lawfully authorize him so to do. Therefore, his use of the check was an unlawful appropriation of the company’s funds to his own use.

' But if we assume that he was in reality purchasing the property for the benefit of the company, and with the purpose of transferring the title to the company when it was conveyed to him, nevertheless it was a misappropriation of the company’s funds. Such officers had no right to make such a contract or investment for the company, and no authority to use its funds for such purpose.

Therefore, the $6,000 which went into the referee’s hands and which he still holds, was and is a fund which has been unlawfully withdrawn by its officers and agents from the bank account of the fur company for a purpose to which they had no right to apply it.

If this fund was still in Gillig’s hands, there would be no question but that he could be compelled to restore it to the owner. Has any one in the course of the transaction acquired such a right to it, or such an equity in it, as to prevent .the court from now directing such restoration ?

It is well settled that where a fund so misappropriated has been kept intact and can be identified, it may be recovered by the owner as against any one except bona fide holders for value. (American Sugar Refining Co. v. Fancher, 145 N. Y. 552, 556, 557 ; Roca v. Byrne, 145 id. 182; Rochester & Charlotte T. R. Co. v. Paviour, 164 id. 281.)

The referee Downs makes no claim to the fund, except as an officer of the court. He, personally, parted with no value for it, and still holds it subject to the order of the court. The defending bank, as the mere depository of the referee, makes no claim to it. As between them, it concededly holds it subject to his order ; but it is claimed by such bank that the referee, in his official capacity, became a bona fide holder for value of such fund, and that, therefore, the same cannot be reclaimed from him; that being so held by the *286 referee, as against the fur company, it is a part of the purchase, money received on the- sale of the mortgaged premises and should, be distributed to it as the owner of the equity of redemption.

So the question is presented, whether the referee, or the court, father — for the referee but represents the court — acquired and still holds this fund Under circumstances that make it a bona fide holder for value.

It is argued that it was a sum received in good faith by the-referee upon an indebtedness due from Grillig to him, which had been created by Grillig’s bid of $40,000.

Suppose it to be precisely that. The object of the foreclosures proceedings was to sell the mortgaged premises and apply the proceeds to the mortgage debt, and to distribute the surplus among those entitled thereto. And it was the duty of the referee, acting for the court, to procure upon the sale all that the premises would fairly bring. If Grillig had paid up the balance of his bid and the premises had been conveyed to him, it might be claimed that the-court held the $6,000 as a part of the purchase price, and having received it in good faith, was equitably bound to hold it to the use of those interested ih the mortgaged premises. But when Grillig refuses to pay the balance of his bid, and it appears that the amount: which he did pay was not his money but belonged to his principal, from whom he had unlawfully converted it, was it not the duty of-the court to disregard his bid and resort to a resale of the premises rather than to insist on the steal for the benefit of these defendants ?

Such is substantially the situation here. Grillig makes default; abandons his bid; the court, instead of insisting upon his performing it and enforcing its mandate by proceedings for contempt, orders a resale." Such order does not declare the $6,000 forfeited, nor, as I understand it, does it require .Grillig to pay any deficiency that may arise upon the resale. It does, however, direct the $6,000 to be retainer! by the referee, subject to the further order of the court. Whether or not the court had then discovered' G-illig’s fraud does not appears But that does not affect the. situation. It is clear that, under the proceedings which it took, it did not receive and apply the $6,000 upon the purchase price for which the premises were sold and conveyed by the referee. If it is to hold the $6,000 at all, it holds it as a forfeiture, and not in consideration of premises *287 conveyed. In my opinion, under such circumstances, no such equity accrued to those interested in the premises as requires the court, now that the real ownership of the fund appears, to. insist-that it acquired it for value and in good faith.

But the precise condition claimed by the defendant does not exist. There was no contract of purchase and sale between Grillig and the referee. Grillig made an offer for the premises which the court, on its part, in the exercise of its discretion, might accept or reject. (Camden v. Mayhew, 129 U. S. 73 ; Fisher v. Hersey, 78 N. Y. 387, 388 .) The sole liability on Grillig’s part was to comply with the terms of sale under which he bid. Those terms did not provide for any forfeiture. They did provide for a resale without order of court, or for a sale, at the option of the plaintiff, upon a new order. What would have been Grillig’s liability had they been resold without order, we need not determine. They were, in fact, sold upon a new order which neithef forfeited the $6,000, nor made Grillig responsible for the deficiency. Under such circumstances, within the authority of the following cases, Gillig could, himself, reclaim the $6,000. He would not forfeit the amount, because the terms of sale did not so provide. (Miller v. Collyer, 36 Barb. 250 .) It could not be applied upon any deficiency, because the resale was not had under an order that made him liable for the deficiency. As is said in Goodwin v. Simonson ( 74 N. Y. 133, 136 ): “As the court granted a resale, the purchaser was discharged from liability to make good the deficiency arising in the last sale, by the order of the court.” (See, also, Home Insurance Co. v. Jones, 45 How. Pr. 498 ; Leslie v. Goodhue, 69 Hun, 71 ; Flint v. George, 8 N. Y. Supp. 221 ; Ray v. Adams, 44 App. Div. 177 .)

If Gillig could reclaim the amount from the referee, clearly the real owner may do so in this action, where Gillig is a party and makes no claim. This plaintiff, as receiver, may claim what the fur company could claim, and, hence, I conclude that the judgment restoring to him the fund in question was correct and should be affirmed.

Smith, J., concurred in result.

Judgment unanimously affirmed, with costs.