
    Brody, Adler & Koch Company, Respondent, v. Bella W. Hochstadter and Herman Kratzenstein, Appellants.
    First Department,
    December 5, 1913.
    Real property—marketability of title purchased on foreclosure sale — service by publication — irregularities in order of reference—equity — when court will not decree specific performance — return of earnest money — failure of proof.
    Where defendants in a suit of foreclosure have been duly served by publication and do not appear, the title of a purchaser on the foreclosure sale is marketable although the order of reference did not direct the referee to take proof of the facts and circumstances stated in the complaint, pursuant to rule 60 of the Greneral Rules of Practice, and although upon application for judgment such proof was not presented pursuant to section 1316 of the Code of Civil Procedure. Said defects were at most irregularities which in no way affected the jurisdiction of the court or its judgment. Especially is this so where the referee did in fact take proof as to the facts set forth in the complaint.
    Whether a vendee will be directed specifically to perform a contract to purchase lands must in each case be determined from all the facts and circumstances. A court of equity will not exercise its power to direct specific performance unless satisfied that justice requires it.
    Thus, where a contract to purchase land required the vendee to erect a twelve-story building upon the premises if he could obtain a building loan for a certain sum from a certain company by a certain date (which loan was refused), and the contract was to be null and void if the loan were not obtained, in which case the earnest money was to be returned, the court will not decree specific performance.
    But the court cannot direct judgment that the vendee recover the earnest money where there is no proof that the company which refused to make the loan did so before the date stated in the contract, and so must order a new trial when the necessary proof may be given.
    Appeal by the defendants, Bella W. Hochstadter and another, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 2d day of May, 1913, upon the decision of the court after a trial at the New York Special Term, and also from an order entered in said clerk’s office on the 6th day of May, 1913, denying the defendants’ motion for a new trial made upon the minutes, with notice of intention to bring up for review the decision of the Special Term dismissing the defendants’ counterclaim for specific performance.
    
      Morgan J. O’Brien of counsel [Henry M. Bellinger, Jr., attorney], for the appellants.
    
      Lewis M. Isaacs, for the respondent.
   McLaughlin, J.:

On the 18th of December, 1911, the parties entered into a written contract by which the plaintiff agreed to purchase, and the defendants to sell, for $185,000, certain real estate in the city of New York. At the time the contract was executed $5,000 of the purchase money was paid; $5,000 agreed to be paid when the deed was delivered; $110,000 by taking the property subject to a mortgage for that amount then thereon; and the balance by the vendee giving back a purchase-money mortgage for $65,000, payable on the 1st day of February, 1916, or sooner, at the option of the holder if the purchaser did not, within four months after title passed, commence the erection of a twelve-story loft building upon the premises. The contract further provided that if the Metropolitan Life Insurance Company, on or before the 11th of January, 1912, refused to make a building loan to the purchaser for $235,000, then the contract was to be “null and void ” and the $5,000 paid should be returned. Four days later the contract was modified by reducing the amount to $230,000, and increasing the purchase-money mortgage to $10,000.

At the time fixed for closing the contract, February 1, 1912, defendants tendered a deed, which the plaintiff refused to accept, on the ground that the title was not marketable and the Metropolitan Life Insurance Company, some time prior thereto — just when does not appear — refused, for the same reason, to make any loan.

This action was subsequently brought to recover the $5,000 paid at the time the contract was executed and expenses incurred in examining the title, the theory of the recovery being that it was not marketable. The answer put in .issue the allegations of the complaint in regard to the defect in the title and alleged, affirmatively, it was marketable, and as a counterclaim asked that plaintiff be directed to specifically perforin the contract. The issues raised by the counterclaim and reply were, by direction of this court (Brody, Adler & Koch Co. v. Hochstadter, No. 1, 150 App. Div. 527), first tried at Special Term and a decision rendered in favor of the plaintiff dismissing the counterclaim, with an extra allowance of costs. Thereafter the plaintiff’s right to recover the $5,000 paid when the contract was executed, and its expenses in examining the title, was brought on for trial at a Trial Term, and a verdict directed for the amount claimed, and from the judgment entered thereon defendants appeal.

The defendants’ title is based upon a sale under the foreclosure of a mortgage. The defendant Kratzenstein and defendant Hochstadter’s deceased husband held a mortgage upon the premises and in April, 1908, commenced an action to foreclose it. .That action was prosecuted to and resulted in a judgment of foreclosure - and sale, and they became the purchasers. Defendant Hochstadter has since succeeded to her husband’s interest. Among the defendants in that action were one Walters and wife, who were the owners of record of an undivided one-fourth interest in the premises. They were both duly served by publication, but did not appear in the action. No issue having been raised by any of the defendants, a referee was appointed “to ascertain and compute the amount due on the bond and mortgage.” He took the proof and thereafter filed a report, but without the testimony taken, merely stating in the report that he had “ computed and ascertained the amount due to the plaintiffs,” which he found to be $94,734.41. The report was duly confirmed, a sale directed, the plaintiffs bid in the property, and accepted the referee’s deed.

The contention is and has been that the title is unmarketable because of defects in the foreclosure proceedings, in that the order of reference and the application for judgment did not comply with rule 60 of the General Rules of Practice and section 1216 of the Code of Civil Procedure, because the order did not direct the referee to take proof of the facts and circumstances stated in the complaint, and, when the application was made for judgment, such proof was not presented; in other words, it is claimed that the defects referred to rendered the judgment, so far as the Walters were concerned, absolutely void. The claim has nothing to sustain it. The summons was properly served upon them. The court, therefore, had jurisdiction of the person and of the subject-matter. The judgment and the sale made in pursuance of it were conclusive and binding upon them. The defects referred to were, at most, irregularities which in no way affected the jurisdiction of the court or its judgment. The judgment being valid, the sale made in pursuance thereof gave good title to the purchaser. (Parish v. Parish, 175 N. Y. 181; Sproule v. Davies, 171 id. 277; Corbin v. Baker, 167 id. 128; Lauder v. Meserole, 148 App. Div. 739; Ames v. Danzilo, 158 id. 232.)

The referee’s deed is as valid as if it had been executed by the mortgagor and mortgagee, and by express provision of the statute it is a bar against each party to the action “who was duly summoned.” (Code Civ. Proc. § 1632.) The fact is not disputed that the Walters were “ duly summoned.” The judgment, therefore, notwithstanding the irregularities referred to, completely extinguished their title, and if aggrieved their remedy is confined to the proceeds of the sale.

The referee did in fact take proof as to the facts set forth in the complaint. He did in this respect comply with both the section of the Oode and the rule referred to, notwithstanding the defect in the order appointing him. It was proper, therefore, for the court to amend the order of reference by requiring the proof to be taken and permitting what had been taken to be filed. This was done by an order nunc pro tune prior to the day fixed for closing the title, so that on that day there was no defect whatever in the foreclosure proceedings. The irregularities, therefore, existing had been cured.

If the foregoing views be correct then it follows that the title is good and the plaintiff was not justified in refusing to accept the same on that ground.

Notwithstanding the'title was good, I am of the opinion that the court properly refused to direct the plaintiff to specifically perform. Whether a party will be directed to specifically perform a contract must in each case be determined from all the facts and circumstances presented. A court of equity will not exercise its powers in directing specific performance unless satisfied that justice requires it.

In the present case the contract, as we have seen, provided for the erection of a twelve-story loft building upon the premises, for which purpose the plaintiff was to obtain a building loan of $230,000. It is perfectly evident from the terms of the contract that the obtaining of this loan for the construction of the building was an inducing cause to the plaintiff to enter into ' it. The building was not to be erected unless he obtained the loan, and if he did not do so on or before January 11, 1912, then the contract was to be null and void and the money which had been paid returned. It does not appear whether the insurance company refused to make the loan on or before the date specified, but it does appear that it refused before the time fixed for closing. The court, therefore, might very properly take that fact into consideration and say, even though the title were good, that specific performance ought not to be decreed. I am of the opinion, therefore, that the court, even though the defendants offered at the conclusion of the trial to relieve the plaintiff from the obligation to construct the building, was right in refusing to direct plaintiff to specifically perform, and for that reason the counterclaim was properly dismissed.

But under the circumstances an extra allowance of $2,000 costs ought not to have been granted or the defendants compelled to pay expenses incurred in examining the title.

But one other question remains to be considered, and that is whether the court was right in directing a verdict in favor of the plaintiff for the amount paid at the time the contract was executed. The title tendered, as we have seen, was good. Whatever rights the plaintiff has in this respect must be determined from the contract itself. The contract provided that if the insurance company refused to make the loan on or before the 11th of January, 1912, then “and in that case this agreement shall be null and void and the Five thousand dollars ($5,000) paid on the execution of this contract shall be returned to the purchaser.” The record does not show that the insurance company refused to make the loan on or before the date named. There is a complete failure of proof in this respect. All that appears on this branch of the case is that it refused to make the loan on or before the 1st of February, 1912. Plaintiff, therefore, by express provision of the contract was not entitled to recover unless it proved what the contract provided, viz., that the insurance company refused to make the loan on or before January eleventh. It is possible that this proof can be supplied, and for that reason a new trial should he ordered.

The judgment, in so far as it dismissed the counterclaim, is affirmed, without costs to either party, and the balance of the judgment and order denying a motion for a new trial is reversed and a new trial ordered, with costs to appellants to abide event.

All concurred.

Judgment in so far as it: dismissed counterclaim affirmed, without costs; residue of judgment reversed and new trial ordered, with costs to appellants to abide event. Order to be settled on notice.  