
    Mutual Life Insurance Company, Plaintiff, v. Gertrude T. Cockerill and Others, Defendants, Impleaded with the Colonial Bank, Respondent. Hamilton M. Dawes, as Trustee in Bankruptcy of John F. Cockerill, Appellant.
    First Department,
    May 3, 1912.
    Mortgage —foreclosure — priority of claims to surplus moneys.
    Upon the application of the holder of a second mortgage an order was made appointing a referee to determine the validity and priority of claims to surplus moneys arising upon the forelosure of a first mort gage. Prior to the hearing the trustee in bankruptcy of the owner of the mortgaged property appeared before the referee and claimed that a judgment recovered against the owner on April 14, 1909, was a lien superior to the second mortgage which was executed May 38, 1909. The referee found that since the owner was insolvent at the time the judgment was recovered the holder of the mortgage had a first lien. The court confirmed this report and directed payment to the holder of the second mortgage. Thereafter the trustee in bankruptcy obtained an order from the United States District Court that the lien of the judgment be preserved by the bankrupt’s estate. Upon appeal from an order denying a motion by the trustee in bankruptcy that the surplus moneys be paid to him,
    Held, that the court could not, so long as the order confirming the referee’s report and directing payment to the holder of the second mortgage remained, direct payment to the trustee.
    The court could, however, have vacated the order confirming the report and referred the same back to the referee for further proof, which should have been done.
    So long as surplus moneys- remain under the control of the court it has power over the entire proceeding which it will not hesitate to exercise in order to enforce the legal rights of the parties.
    Appeal by Hamilton M. Dawes, as trustee in bankruptcy of JohnF. Cockerill, one of the defendants, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 20th day of March, 1912, denying a motion in surplus money proceedings.
    
      Jacob J. Lesser, for the appellant.
    
      Henry G. Sanford [Richard G. Babbage with him on the brief], for the respondent.
   McLaughlin, ¿T.:

This action was brought to foreclose a mortgage upon real estate. The plaintiff had a judgment and at the sale had therexmder more than sufficient was realized to pay off the mortgage and the surplus was deposited with the city chamberlain to be paid to such persons as might he entitled thereto. Upon the application of the respondent — the Colonial Bank, the holder of a' second mortgage — an order was made appointing a referee to determine the validity and priority of claims to the surplus moneys. Prior to the hearing before the referee a trustee of the owner of the equity of the property covered by the mortgage was appointed in bankruptcy proceedings. He appeared before the referee and claimed to have a lien superior to that of the respondent. His claim was based upon a judgment recovered against the owner of the equity of redemption and others by the National Surety Company on the 14th of April, 1909. The Colonial Bank claimed to have a prior lien by virtue of a mortgage executed by the owner of the equity of redemption on the 28th of May, 1909. The referee found as a fact that the owner of the equity of redemption was insolvent at the time the National Surety Company recovered its judgment, and as a conclusion of law that it was null and void because it was recovered within four months of the filing of the petition in bankruptcy, for which reason the Colonial Bank had the first lien. Subsequently the report of the referee was confirmed on motion of the Colonial Bank. After the confirmation the trustee in bankruptcy obtained upon notice from the United States District Court for the Southern District of New York an order that the lien acquired by the surety company under its judgment be preserved by the bankrupt’s estate and that the trustee be subrogated thereto. Upon this order and the order confirming the referee’s report the trustee moved that the surplus moneys be paid to him. The motion was denied and the appeal is from such order.

The court could not,, so long as the order confirming the referee’s report and directing payment to the Colonial Bank remained, direct payment to the trustee. That was a final order. It determined the right to the fund and terminated the proceedings instituted for that purpose The court, however, did have the power to vacate the order confirming the report and refer the same back to the referee for further proof. (Mutual Life Ins. Co. v. Salem, 3 Hun, 117.) The learned justice sitting at Special Term, as appears from his opinion, reached the conclusion that if the trustee had a valid lien prior to that of the Colonial Bank, the same had to be established in an action in equity.. This conclusion was erroneous, because the money still remains in court, and so long as it there remains the court has undoubted power over the entire proceeding which it will not hesitate to exercise in order to enforce the legal rights of the parties. The court, upon the facts set out in this record, should, in addition, have vacated the order confirming the referee’s report and sent the matter back for further proof.

The order, in so far as appealed from, therefore, is modified by vacating the order confirming the referee’s report and sending the matter back to the referee to take further proof upon the claim represented by the appellant, and as thus modified affirmed, without costs to either party.

Ingraham, P. J., Clarice, Scott and Dowling, JJ., concurred.

Order modified as directed in opinion, and as modified affirmed, without costs. Order to be settled on notice.  