
    ANDREW KOCH v. MARGARET PURCELL.
    I. Referee’s report.
    1. Varying by affidavits not allowed.
    
      (a) Report of sale.
    To sustain a report of sale as against exceptions filed to it, affidavits showing that the terms of sale were different from those reported are inadmissible.
    H. One not a party to action.
    1. Standing in court, when.
    Assignee of mortgage made after Us pendens filed for the foreclosure of a prior mortgage, has when.
    
      Before Sedgwick and Van Vorst, JJ.
    
      Decided April 7, 1879.
    
      {a) Such assignee can come into court to assert a right TO THE SURPLUS.
    1. E. G. To move that referee pay into court a surplus, shown by the judgment and report of sale to exist, although he reports a deficiency.
    HI. Referee to sell.
    1. Mortgage cases.
    
      (a) Payment by, of surplus shown by the judgment, and his report of sale compelled, although he reports a deficiency.
    1. Where the report of sale shows that the deficiency was caused by the allowance of a prior mortgage which was not authorized by the judgment (the report not showing that by the terms of sale such allowance was to be made), and that but for such allowance there would be a surplus, the surplus thus ascertained will be ordered to be paid into court.
    Query. Whether a referee, without being thereunto authorized by the judgment, can, by making it a part of the terms of sale that a prior mortgage will be deducted from the purchase-money, entitle himself to be credited with the amount of the deduction.
    IV. Appeal.
    1. Correct decision below—power of general term in respect to.
    
      (a) Affirmance absolute does not always follow.
    1. Where the form in which the matter is presented in the court below, and on the appeal, is such that, although the order below made in such form is correct, yet it does present a question of vital importance to the appellant, and an absolute affirmance would bar the presentation of such question, the general term has power to make an order giving leave to the appellant to apply to the court below for leave to present the matter in such shape as to raise such question, and ordering that in ease no such application is made to the court below, or if made, then in case it is denied, the order appealed from be affirmed; and further ordering that in case the application be made and granted, then, that the order appealed from abide the decision to be made de novo in the proceedings then to b& taken.
    
    
      
      Appeal by the referee appointed to sell in a foreclosure suit, from an order, made on the application of one who, though not a party to the action, yet is the owner of a mortgage made subsequent to the filing of notice of lis pendens, compelling him to pay surplus moneys into court, and sustaining exceptions to the report of sale.
    This action was to foreclose a mortgage for $5,000, upon land. The owner, a party defendant, after the filing of the notice of Us pendens, made a mortgage, which was afterwards assigned to Johanna Lewniski, who was the person for whom the motion for the order appealed from was made.
    By the judgment, the referee was directed to sell the premises, and out of the proceeds to deduct certain things. He was not authorized to deduct from the proceeds the amount of any prior mortgage. He sold, and reported, that he had sold the premises to the plaintiff for $8,000, that he had allowed the plaintiff, .the purchaser, for a first mortgage on the premises, $6,290.50, and after deducting certain amounts directed by the judgment, that there was a deficiency of $4,689.
    Upon this report being filed, Lewniski, the moving party below, not being a party to the action, filed and served exceptions to the report, and gave notice bringing on the exceptions for hearing, and that at same time, &c., a motion “will be made that the report of the referee, in the particulars excepted to, be set aside, and said referee be directed to pay into court the sum of $1,400, and interest.’’
    On the hearing the exceptions to the report, it was argued that the referee had no power to pay out of the proceeds the amount of the prior mortgage, and that the amount he did pay for that, should have been applied to the mortgage in action, and that there would be left, instead of a deficiency, a surplus of more than $1,400. In opposition to the motion, affidavits were read in substance that before the bidding it was announced by the referee that there was a prior mortgage, and' the amount of it would be allowed to the purchaser out of his bid. These affidavits are more fully stated in the opinion. It also appeared that there was a prior mortgage, on which was due the amount deducted. The court sustained the exceptions, confirming the report as to matters not covered by the exceptions. It was ordered, among other things, that “ that part of the report of sale of said referee, in which he credited himself with the sum of $6,290.50, allowed to the plaintiff on account of the alleged first mortgage on the premises described in the complaint, be, and the same hereby is set aside and vacated, and said credit is disallowed . . . that part of the réport .... which states that there is a deficiency of $4,689.92 is hereby vacated and set aside . . . it is furthermore ordered and adjudicated that there is now in the hands of the said referee, for the purposes of sale, a surplus, over and above the claim of the plaintiff ... of $1,400.33 . . . and the said referee is hereby ordered and directed to pay into this court, to the chamberlain of the city of New York, to the'credit of this action, the sum of, &c. . . . subject to the further order of this court.”
    
      Ambrose Monell, attorney, and of counsel, for appellant, urged:
    I. The applicant has no standing in court, first, because she is not a party to the action, and, second, because she has not shown that she was damaged by the course pursued by the referee. 1. The total amount due on the first and second mortgages at the time of sale was about $11,600, which, together with $666 unpaid taxes, made an incumbrance upon the property of $12,266, which had to be paid before the lien of the third mortgage became of any value. 2. The proof is uncontradicted that these two mortgages were actual bona fide liens, and also that the value of the property sold did not exceed $8,000, which was the sum bid. It follows then that the premises not being worth as much as the amount due on the mortgages, the lien of the third mortgage was of no value, and so remains (Root v. Wheeler, 12 Abb. Pr. 294).
    II. The referee did not err in allowing to the purchaser the amount due on the first mortgage. 1. Assuming that no mention was made at the time of sale, of the existence of the first mortgage, and that the premises had sold for $8,000, the purchaser would have been entitled to a conveyance free and clear of all incumbrances, or else to have been relieved of his purchase. Suppose plaintiff did not know of the existence of this first mortgage, and the premises had been sold for $8,000, upon ascertaining this fact, would not the referee have had to discharge this lien before he could have enforced the purchase % (a) This first mortgage was a prior lien to that of the mortgage in suit. The rights of the first mortgagee could not be foreclosed in this action, and he was entitled to be paid before any other liens. Hence, practically," it made no difference whether the premises were sold subject to this mortgage or whether the amount of it was allowed to a purchaser out of his bid. 2. The case of Bache v. Doscher (67 N. Y. 429), is claimed to be decisive on this question, and as warranting the granting of the order appealed from. That case differs from this. In that case there was nothing before the court but the report of sale. It did not even appear that the referee, in terms, sold the land free of the prior mortgages, or that it was one of the terms of the sale that the purchaser was to assume any prior mortgages. And it did not appear who held the mortgages, nor how much was due upon them, nor even that there were any prior mortgages, or that the plaintiff paid them. All these facts are supplied by the proofs submitted by the referee, and hence we bring ourselves directly within the line laid down by the court of appeals to entitle the plaintiff to recover.
    
      Barrett & Patterson, attorneys, and of counsel, for respondent, on the points determined and suggested by the court, urged:
    I. The referee for the purposes of sale had no right to allow to the purchaser the $6,290.50, or any sum, for prior mortgage. He was a ministerial officer, bound to follow the commands of the judgment (People ex rel. Day v. Bergen, 53 N. Y. 404). The referee was plainly prohibited from applying any portion of the proceeds of sale in any other manner. In Bache v. Doscher (67 N. Y. 429), precisely this question was before the court of appeals upon the same facts, and it was held that the referee had no right to make any such allowances for prior mortgages. It is apparent, therefore, that the referee disregarded his duty in allowing the sum of $6,290.50, to the purchaser.
    II. The referee is not assisted by the fact (if such be the fact) that he agreed upon the sale to allow the sum of $6,000 and interest out of the purchase-money. He could not vary the judgment in prescribing the terms of sale, nor relieve himself thereby from the performance of the duties enjoined upon him (53 N. Y. 404). His duty was to sell the mortgaged premises subject to prior mortgages, if any. He could only sell such title as the parties to the action had (67 N. Y. 432; 2 Rev. Stat. 192, § 158, marg. paging). The referee had no authority even to announce upon the sale that the premises were subject to a prior mortgage for $6,000, and that the title conveyed would be subject to such mortgage, because no such fact had been determined against the defendants. His duty was to make the simple announcement that the sale would be subject to prior mortgages, if any. If the plaintiff desired to have the sale made subject to the first mortgage for $6,000, and interest, he should have made the prior mortgagee a party. The court could then determine the interest of such mortgagee, the amount of the lien, &c., and would decree the sale to be made subject to such lien, stating its amount (Weston Ins. Co. v. Eagle Fire Co., 1 Paige, 284). Or the prior mortgagee could be made a defendant, and the sale could be made free of the lien of such prior mortgage—the proceeds of sale being applied to its payment as far as necessary (Haines v. Beach, 3 Johns. 459; Vanderkemp v. Shelton, 11 Paige, 28). In either case the defendants would have an opportunity of contesting the existence, validity and amount of such prior lien. Without such opportunity the land of defendants could not be applied either directly or indirectly to the satisfaction of such alleged prior mortgage. The defendants are thus cut off from any defense they may have to this alleged lien. The mortgage may be a forgery, or it may be void for usury, or there may be nothing due upon it; but defendants have had no opportunity for a hearing on those points.
    III. A conveyance of the land in pursuance of the judgments would vest the title, subject to the rights of prior incumbrancers. Hot being parties to the action their rights against the land would not be affected by the conveyance. But as between the purchaser at this sale and Margaret Purcell, the primary obligation to pay this alleged $6,000 mortgage rested on Mrs. Purcell, and if the purchaser was obliged to pay it to relieve his land he would be entitled to recover from Mrs. Purcell the amount paid. For the purpose of determining the equities between the purchaser of the land and Margaret Purcell, the mortgage in suit is to be regarded as an alienation of the land jpro tanto at its date (Kellogg v. Brand, 11 Paige, 60; La Farge Ins. Co. v. Bell, 22 Barb. 67). The purchaser at the foreclosure sale acquires the title which the mortgagor had at the-date of the mortgage (De Haven v. Landell, 31 Penn. 120; White v. Evans, 47 Barb. 186). In addition, he acquires all the rights of the mortgagee given by the mortgage in respect to the land (Hart v. Wandle, 50 N. Y. 381). It would be different if the judgment expressly directed the sale to be subject to the first mortgage and the deed conveyed expressly subject to such mortgage ; that would be a dedication of the land in the first instance to the incumbrance, and would render it primarily liable. This was the distinction upon which Hart v. Wandle (50 N. Y. 381) turned. If the deed recite nothing as to a prior incumbrance, the land will be subject to the right of the prior incumbrancer. But the land will not be the primary fund for its payment. If the deed expressly recite that the sale is subject to prior incumbrances, then the land is primarily liable for their payment; but the deed in a foreclosure sale could not contain this clause except in pursuance of a direction contained in the judgment, and such judgment would make proper provision for the protection of the rights of subsequent incumbrancers against Mrs. Purcell (50 N. Y. 381).
    IV. The referee was properly directed to bring into court the surplus which would have been realized had he done his duty. The referee is a trustee of the title of the land for the parties to the cause; if he parts with the title without receiving the purchase money, he is clearly responsible for the amount of it. In this regard the order of the special term simply carried to its logical conclusion the principle decided in Bache v. Doscher (67 N. Y. 429).
    V. Upon the settlement of the order before the judge at special term, counsel for the referee suggested that a re-sale would help the referee out of his difficulty. No motion for a re-sale was made upon the hearing of our exceptions, and it was never suggested until after the decision of the special term. The respondent objected to any re-sale, and Judge Speir declined to grant it. As a re-sale may be urged here we make this point in opposition to it. (1.) No motion for a re-sale was made upon-the hearing of this motion ■ at special term. The affidavits on the part of the referee were introduced in opposition to our relief upon the exceptions, we had therefore no notice of the contents of those affidavits, and no opportunity to answer them. If any suggestion of a re-sale had been made on the hearing of the exceptions, we might have obtained leave of the special term to file affidavits in opposition (a discretionary matter on that hearing). As no such suggestion was made on that hearing, the general term on this appeal cannot in justice make any such order. The referee chose to attempt to justify his conduct, and he should be held to that course upon this appeal. Affirmative relief cannot be granted to a party opposing a motion, upon matter appearing in his papers, which the other party has had no opportunity to answer (Garcie v. Sheldon, 3 Barb. 232). (2.) A re-sale is only ordered in case of surprise, fraud, or well-grounded misapprehension or mistake (30 N. Y. 80; 1 Abb. N. S. 424; 62 Barb. 280; 25 How. 403). In addition, the party desiring such a re-sale must move promptly, and if any damage arise to any party by his delay, it is clear that the re-sale ought not to be granted. There was no well-grounded mistake here ; the law and the facts were plain to the comprehension of any person. But the inexcusable neglect and delay of the referee, and the consequent damage to the parties to the cause, is a complete answer to the motion for a re-sale. The report of sale was not filed till May 6, 1878, nearly three years after the sale. The referee says it was given to the plaintiff’s attorney to file about the time of the sale, but the referee was not directed to report to the plaintiff’s attorney, but to the court. He should have filed the report himself ; by giving it to the plaintiff’s attorney he made such attorney his agent for that purpose, and he is responsible for the neglect. The respondent’s attorneys requested the referee to file his report February 2, but no notice of that filing was served upon them till July 18, 1878. On February 2, 1878, the referee was informed of our mortgage, and on July 24,1878, our exceptions apprised him fully of our claim, yet he never suggests a re-sale till December 19, 1878—more than three years after the sale. Since the sale, property in New York city has depreciated fully one-third. The resumption of specie payments has reduced all values. If a re-sale had been suggested on the hearing below non constat, but that we might have shown that Margaret Purcell, who was primarily bound for the alleged $6,000 mortgage, was solvent in September, 1875, and had become insolvent since; this would prevent any re-sale. No case can be found where a re-sale was ordered to relieve the officer from the result of his own negligence, to the prejudice and against the objection of the injured party.
   By the Court.—Sedgwick, J.

I think there is no doubt that the directions of the court, which concerned matters stated in the report of sale, must rest upon the report- itself, and that the report could not be sustained against exceptions by affidavits, which tend to show that the referee made the sale on other terms than the report specified. In a proper case, the court would allow the referee to make and file another report, if an application for that were made. No such application was made in this case. It was clear from the report that the referee had made a payment out of the purchase-money, to protect the purchaser against the first mortgage, when the judgment had not allowed him to make it. If this payment had not been made, and the purchase-money had been applied according to the judgment, there would have been the surplus that the learned judge below found did really exist.

If there be any question as to the form of the proceeding to redress the departure from the judgment, it was not made on this appeal, and there was no suggestion of a more proper form than the one used. The claims made by the counsel for the appellant were, that on the case shown by the affidavit the referee was not liable for the amount of surplus which the report showed, after correcting the irregularities that appeared on its face, and that the person making the motion below had no standing in court, because she was not a party to the action. On the report, apart from the affidavits, which cannot be heard against it, I think there was a liability of the referee to the amount of the surplus. Although the applicant was not a party, it appeared that she had become an assignee of a mortgage made pendente lite by the owner of the equity of redemption. To the extent of the mortgage she had the same right to the surplus that the owner would have had. To assert this right, it was not necessary, as I understand the practice, for her to be made a party. In fine, on these points I am of opinion that the order below was right, and should be affirmed. And a strict regard to the disposition of the case, as the parties have chosen to shape it, would leave the matter here. Strictness, in particular instances of this kind, leads to a better administration of justice in the aggregate. It is the strongest incentive to an exact and thorough exposition of the rights of parties in other cases, in the first instance, and hence to prompt justice in a sound form. But it is, sometimes, the practice to look after the equity of' the case on appeal, if justice demands it, even where it has not been presentecL in due form to the court below. I think the affidavits, read for the referee, disclosed facts which would have suggested to the court a modification of the order, if it had been requested, and would not have weakened the sound rule stated by the court in the opinion.

The affidavit of the referee showed that immediately before the sale it was “publicly announced to the persons present at said sale, that there was upon said premises a mortgage, upon which there was due the sum of $6,500 and interest, and which was a prior lien to the mortgage under which the premises were then being sold,” which would be allowed to the purchaser out of his bid ; and that “ said premises were then and there fairly struck off to the plaintiff for the sum of $8,000, he being the highest bidder, and that being the highest sum bidden for the same.” The affidavit of the auctioneer is to the same effect. The plaintiff and his attorney make like statements severally by affidavit. These say the matter orally announced was in or noted on the terms of sale, although these terms were not presented on the motion, the recollection of plaintiff’s attorney being “that only one copy was made out, and that was left with the referee the probability of the announcement being made is confirmed by the situation and value of the property and the liens upon it. There was no testimony to the contrary.

I find that these facts are singularly like those in Hotchkiss v. Clifton Air Cure (4 Keyes, 170), which, as it was not cited to us on the argument, I believe was not to the judge who heard this motion.

The action in the case cited was for the foreclosure of a mortgage. Prior to this mortgage was another for $2,500, with interest. The prior mortgagee was not a party, nor did the pleading or judgment refer to his mortgage. On the day of sale, the property was put up for sale, subject to the prior mortgage, and the person who afterwards purchased bid $16,000. Then the plaintiff’s attorney said to the referee .that the judgment permitted the land to be sold free and clear of the prior mortgage, and the referee thereupon announced to the bidders that he would pay off the prior mortgage and give a clear title. The property was then sold for $20,000. The referee executed a deed of the premises free from incumbrance, and the purchaser paid him the amount bid, less $2,562, the amount of the prior mortgage. Parties in interest then moved that the purchaser complete his purchase by paying the sum that had been deducted. The special term granted the motion that the purchaser pay the additional sum ; but the general term^reversed it.

In the court of appeals, the counsel urged that the referee had uo power under the judgment to sell the property in the way he did, or to make the deduction, and that the purchaser had constructive notice of the judgment; that the prior mortgagee was not a party, and its existence or amount had not been determined as to the parties to the action ; that under any circumstances the whole amount should have been paid to the referee, so that he might pay over the amount of the first mortgage and present the receipt for it with his report. Judge Hunt, after saying that it was possible that the referee erred in undertaking upon the sale to provide for the payment of the first mortgage, continued (p. 178): ‘ ‘ Assuming the law to be as claimed by the appellants, the relief asked for is a non-sequitur. If the sale was irregular or unauthorized, it by no means follows that the purchasers should be compelled to pay $2,500 more than they bid for the premises. On the contrary, the plain remedy would.be to vacate the sale, and again to offer the premises for sale. This the appellants do not ask, and apparently do not desire. While they insist that the sale was irregular, they also insist upon its confirmation. While they say that the referee had no right to sell upon the promise of giving a clear title, they still insist that the purchasers shall be held to their purchase, and shall pay $2,500 more than they undertook to pay when they bid on the property. This claim is in violation of every sound principle. The purchasers never made the contract which the appellants seek to impose upon them. They have fully performed the bargain they did make.” Judge Clerke said: “This may be deemed an application seeking the equitable interposition of the court. The application is that the purchasers should be compelled to complete their purchase. The answer is that they have already done so. The referee expressly told them, at the time of the sale, that at the suggestion of the plaintiffs’ attorney in the foreclosure suit he would pay off the prior mortgage, and give a clear title. The premises were then sold under that announcement for $20,000, and thereupon such an arrangement was made that the referee executed and delivered a deed, and the purchasers paid him $20,000, less $2,562, which was the amount of the prior mortgage on the day of sale, and which, unless since paid by the purchasers, is still an incumbrance on the premises. The effect of granting this application would be to compel the purchasers to pay $2,562 more than they contracted to pay. This would be inequitable.”

I do not mean to decide that these propositions are to be applied, as the case stands at present. As against the applicant, there was no case before the court on which there could be a hearing, irrespective of the face of the report. When the case is presented, the court may have an opportunity to pass upon the obligations of the referee. I think, however, that before the present order is carried into effect, or rather, before it is to be held or be deemed a final adjudication, the referee should have an opportunity to present to the court below, an application for leave to file a new and correct report, and for the decision of the court to be stayed upon the principal motion until such new report be filed and exceptions thereto made and argued. Of course, such application will not be granted, unless it is properly made and supported. In case such application is denied, the present order appealed from is afiirmed, with costs. If it be granted, the present order is to abide the decision to be made de novo, in the proceedings then to be taken. The costs of this present appeal, and disbursements to be taxed, are to be paid, in any event, by the referee.

Van Vorst, J., concurred.  