Riordan v. Ferguson

• Citation: 147 F.2d 983
• Decision Date: 14 February 1945
• Docket Number: No. 109.,109.
• Parties: RIORDAN v. FERGUSON, Federal Housing Administrator, (INTER-COUNTY TITLE GUARANTY & MORTGAGE CO., Third-Party Defendant).
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

147 F.2d 983 (1945)

RIORDAN v. FERGUSON, Federal Housing Administrator, (INTER-COUNTY TITLE GUARANTY & MORTGAGE CO., Third-Party Defendant).

No. 109.

Circuit Court of Appeals, Second Circuit.

February 14, 1945.

Herbert Noble, Jr., of New York City (Irving M. Engel and Dan Gordon Judge, both of New York City, on the brief), for plaintiff-appellant.

Stuart Z. Krinsly, Asst. U. S. Atty., of New York City (John F. X. McGohey, U. S. Atty., of New York City, on the brief), for defendant-appellee.

James G. Mitchell, of New York City (Mitchell & Phelan, of New York City, on the brief), for third-party defendant-appellee.

Before SWAN, CLARK and FRANK, Circuit Judges.

PER CURIAM.

Plaintiff, as ancillary administrator with the will annexed of his father, John J. Riordan, Jr., who died in 1939, sued in the Supreme Court of the State of New York for the foreclosure of a mortgage given his father June 30, 1924, by Merchants & Manufacturers Exchange of New York. The mortgage covered, among other things, several pieces of real estate in Westchester County, New York; and the action involves one of these pieces, which had been acquired by defendant Ferguson as Federal Housing Administrator upon default of an insured F. H. A. loan secured by a mortgage on the property. The Administrator removed the action to the District Court, and then brought in, as third-party defendant, Inter-County Title Guaranty & Mortgage Company, which had insured the title of the property in the sum of $8,600. Both defendants answered and defended on the merits. After a trial the court dismissed the action and this appeal followed.

The mortgage in question, which was duly recorded in the land records, recited that it was made to secure a loan of $215,000, "payable $100,000.00 in 30 days, balance thereafter on demand, with interest at 6 per cent." With the mortgage Riordan received the mortgagor's promissory note, reciting these same terms, but adding also that the mortgaged property was to be held as security not only for the payment of the note, but also for "all other present or future debts, claims or demands of any and all kind of the holder against the maker." The note was not recorded, and no reference to the mortgage appears in later deeds in defendant's chain of title. On December 10, 1925, the mortgagor gave to Philso Estates, Inc., a New York corporation, two full covenant warranty deeds, neither making mention of the mortgage, both executed on behalf of the mortgagor corporation by its president "by order of the Board of Directors." One of these deeds included, among other parcels, the land now in suit; the other conveyed other property covered by the mortgage. The latter property was thereafter involved in litigation on which is based the defense of res judicata, discussed below. The execution of the deeds also is made the ground of the defense of estoppel, since Riordan at that time — indeed from 1923 until late 1926 — was a director of the mortgagor-grantor.

In addition to the two defenses just noted, the defendants had raised the defense of lack of jurisdiction of the person of the Administrator and of the subject of the action, and the further defenses of the statute of limitation and laches, and of payment. Prior to the trial the court ruled that it had jurisdiction and declined to enter summary judgment on the other defenses, D.C.S.D.N.Y., 42 F.Supp. 47. Thereafter the case came on for trial before another district judge, where all the defenses were reiterated, with the issue of payment naturally occupying the most space in the printed record. That issue involved subordinate questions as to whether there was an account stated, as claimed by plaintiff, as to how far payments made were to be applied to the mortgage note or to other indebtedness, and as to the reconciling of detailed and involved accounts, covering not only loans and discounts, but also agency commissions, and illuminated by the conflicting testimony of expert accountants. The mortgagor had gone into bankruptcy in 1927, receiving its discharge the following year. Its books and papers have been destroyed, but certain transcripts of the Riordan account, together with a personal account book and other material of Riordan, were introduced and were a fruitful source of conflict between the parties. The court overruled all defenses but that of payment; on that it made detailed findings supporting its conclusion that the mortgage was paid in full.

The claim of lack of jurisdiction is based upon the well-known immunity of the United States and its instrumentalities from suit, Cunningham v. Macon & B. R. Co., 109 U.S. 446, 3 S.Ct. 292, 609, 27 L. Ed. 992; Federal Land Bank of St. Louis v. Priddy, 295 U.S. 229, 55 S.Ct. 705, 79 L.Ed. 1408; Missouri Pac. R. Co. v. Ault, 256 U.S. 554, 41 S.Ct. 593, 65 L.Ed. 1087; The Lake Monroe, 250 U.S. 246, 39 S.Ct. 460, 63 L.Ed. 962, buttressed by the contention that here the land transferred on the mortgage default is really owned by the United States and hence is not subject to execution or suit. The National Housing Act, 12 U.S.C.A. § 1702, expressly authorizes the Administrator "to sue and be sued in any court of competent jurisdiction, State or Federal"; but appellees rely on statements in Federal Housing Administration, Region No. 4, v. Burr, 309 U.S. 242, 250, 60 S.Ct. 488, 493, 84 L.Ed. 724, where the Court, in holding the Administrator subject to garnishment by a judgment creditor of the wages due his employee, went on to say: "That does not, of course, mean that any funds or property of the United States can be held responsible for this judgment." This claim is not without force. For all substantial purposes the land is now an asset of the United States; and United States v. Summerlin, 310 U.S. 414, 416, 60 S.Ct. 1019, 1020, 84 L.Ed. 1283, holds directly that a claim against the estate of a deceased assigned to the Administrator "became the claim of the United States, and the United States thereupon became entitled to enforce it." And where the United States is the owner of record, 28 U.S.C.A. § 901, allowing suit to secure an adjudication concerning a mortgage, lien, or other claim on realty of the United States, does not apply. Sissman v. Chicago Title & Trust Co. et al., 303 Ill.App. 620, 25 N.E.2d 599.

But such a conclusion would seem at variance with the purposes of the Act. It would make the business carried on by the Administrator subject to various complications and restrictions of a hampering nature; and it would definitely prejudice prior lienors, who had not been able to foreclose their liens before the United States acquired full title to the property, by leaving them to remedies at best uncertain, indefinite, and undetermined. As said by the Court in the Burr case, supra, 309 U.S. at page 245, 60 S.Ct. at page 490, 84 L.Ed. 724: "* * * it must be presumed that when Congress launched a governmental agency into the commercial world and endowed it with authority to `sue or be sued,' that agency is not less amenable to judicial process than a private enterprise under like circumstances would be." The Court also said: "Claims against a corporation are normally collectible only from corporate assets. That is true here. Congress has specifically directed that all such claims against the Federal Housing Administration of the type here involved `shall be paid out of funds made available by this Act (chapter).' § 1 12 U.S.C.A. § 1702. Hence those funds, and only those, are subject to execution." And it is to be noted that the Housing Act itself gives recognition to "real property acquired and held by the Administrator" under the Act, in its careful provisions that such real estate shall not be tax exempt, 12 U.S.C.A. § 1714 of the original Act, and the added section of 1941, 12 U.S.C.A. § 1706b, dealing with property held in connection with the payment of insurance granted under the Act. We think the construction made by the court below more consistent with practical needs of the Administration and more probably the Congressional intention. See Reconstruction Finance Corp. v. J. G. Menihan Corp., 312 U.S. 81, 61 S.Ct. 485, 85 L.Ed. 595.

The defense of res judicata is based upon an action brought by Philso Estates, Inc., in the Supreme Court of New York for Westchester County in April, 1930. Riordan in 1928 asserted a claim on the mortgage in the sum of $60,000, and Philso, who then had agreed to sell the land acquired by it by the second deed of December 10, 1925, to purchasers for $55,000, bought its release from Riordan on October 26, 1928, for $29,631.32.¹ Philso thereupon brought the state suit against Riordan and the New York Title and Mortgage Company, insurer of the title, for a declaratory judgment that the amount paid was for a valid lien, and for consequential damages from the title company of this amount and interest. The trial court held that a declaratory judgment would not lie; but this was reversed on appeal. Philso Estates, Inc., v. Riordan, 240 App.Div. 998, 268 N.Y.S. 265. Thereafter the action went to trial February 8, 1934, on answers of Riordan supporting Philso's claim and of the title company opposing it. In due course the trial court rendered its decision finding that the mortgage had been fully paid long prior to the settlement of 1928 and directing judgment for the title company dismissing the complaint; and judgment was so rendered February 4, 1935, from which both Philso and Riordan appealed. But a stipulation of the parties dated March 10, 1936, provided for discontinuance of the appeals by the Appellate Division, Second Department; and on May 15, 1936, there was entered the order of the Appellate Division discontinuing the appeals on consent of both appellants.

Notwithstanding the fact that only the appeals were discontinued, plaintiff relies on other facts to show an intent of the parties for abandonment of the entire action and vacation of the judgment. While the appeals were...