Bryson v. Newtown Real Estate & Development Corp.

• Decision Date: 30 December 1965
• Citation: 216 A.2d 176,153 Conn. 267
• Court: Connecticut Supreme Court
• Parties: Jean BRYSON v. NEWTOWN REAL ESTATE AND DEVELOPMENT CORPORATION et al. Supreme Court of Errors of Connecticut

Page 176

216 A.2d 176

153 Conn. 267

Jean BRYSON v. NEWTOWN REAL ESTATE AND DEVELOPMENT CORPORATION et al.

Supreme Court of Errors of Connecticut.

Dec. 30, 1965.

Domenick J. Galluzzo, Bridgeport, with whom, on the brief, was James L. Galluzzo, Bridgeport, for appellant (defendant Pellegrino).

Raphael Korff, Bridgeport, with whom was Samuel C. Derman, Bridgeport, for appellee (defendant Derman).

Before KING, C. J., and MURPHY, ALCORN, HOUSE and COTTER, JJ.

COTTER, Associate Justice.

The plaintiff took a first mortgage from the named defendant, hereinafter referred to as the corporation, on four contiguous tracts of land, hereinafter referred to as parcel A. The defendant Paul Pellegrino was subsequently given a mortgage by the corporation on one of these four tracts, hereinafter referred to as parcel B. After the Pellegrino mortgage was given and recorded, the corporation granted a mortgage on parcel A to the defendant Edward M. Derman. All three mortgages were properly executed by the corporation and were recorded in the order given.

When the corporation subsequently encountered financial difficulties, two foreclosure actions were begun, one by Pellegrino, on May 18, 1963, and the other by the plaintiff, on August 14, 1963. Both cases were heard together, and a judgment ordering foreclosure by sale was rendered by the Superior Court in each case. Appraisers appointed by the court under General Statutes § 49-25 filed two returns on November 27, 1963, in which they found the value of parcel A to be $74,400 in the Bryson foreclosure and the value of parcel B to be $50,400 in the Pellegrino foreclosure. The four tracts were sold as one for $59,000 at an auction conducted by a court-appointed committee. Subsequently, this price was reduced to $57,000 to compensate for the elimination of a lot which had been mistakenly included in the description of the auctioned property but which was not covered by the mortgages. After the foregoing sale, the attorney who was then representing both the plaintiff and Pellegrino and the attorney representing Derman stipulated that the judgment in the Pellegrino case be opened, that the order for foreclosure by sale in that case be vacated and that the proceeds from the sale be applied to the judgment in the present case. The court vacated the judgment for foreclosure by sale in the Pellegrino case and confirmed the sale of the entire tract for $57,000 in the present case. Thereafter, the expenses of the sale were paid and a supplemental judgment was rendered fully satisfying the plaintiff's claim of $37,100, leaving a balance of $15,173.52 from the proceeds of the sale to be distributed to the junior lienors.

In a case such as this where there is a surplus after satisfying the prior mortgage, the liens of the junior encumbrances are transferred to the surplus fund, and the court determines the claims asserted by the junior encumbrancers. See Markey v. Langley, 92 U.S. 142, 155, 23 L.Ed. 701; Gault v. Bacon, 142 Conn. 200, 203, 113 A.2d 145; Glenn, Mortgages, pp. 519, 520; 59 C.J.S. Mortgages § 800, p. 1529.

The disposition of this surplus represents the real controversy in this case. The only disputants are Pellegrino, who holds the secnd mortgage on one of the four tracts, and Derman, who holds the second mortgage on the other three and in effect has a third mortgage on the single tract upon which the Pellegrino mortgage is a second. The Superior Court, on the motion for a final supplemental judgment, heard testimony as to the respective values of the land on which these two disputants held their second mortgages, in order to apportion the surplus according to these values. Derman was the only party to offer evidence, and from this evidence the court concluded, as indicated by the memorandum of decision, to which we turn for a clarification of the finding, that the single tract on which Pellegrino held a second mortgage had a value of $35,000 and that the three tracts on which Derman held a second mortgage had a total value of $69,000.

In accordance with this valuation, the trial court determined that Derman was entitled to a pro rata share of 66.35 percent of the surplus. Since the amount thus allocated was slightly more than enough to satisfy Derman's claim of $9748.59, the court ordered that Derman be fully satisfied and that the entire balance of the surplus, or $5424.93, be paid toward Pellegrino's claim of $16,343.50. From a final judgment rendered thereon, Pellegrino has brought the present appeal.

The principal claim raised by Pellegrino is concerned with the rule applied by the lower court in disposing of the surplus fund from the foreclosure sale. Essentially Pellegrino claims that a rule of priorities rather than a rule of apportionment should have been applied. He bases this contention on the fact that his mortgage was prior in time to that of Derman, and he argues that the burden of the plaintiff's mortgage should therefore have been attributed, so far as possible, to that portion of the entire tract on which Derman held the second mortgage, thus protecting the security of Pellegrino's prior second mortgage. We cannot agree with this contention, and we believe that the trial court properly employed a rule of apportionment in distributing the surplus in this case.

Pellegrino's only interest was in parcel B and, as to parcel B, he was a second mortgagee. His equity in parcel B was limited to a claim on that portion of the value of the property remaining after the first mortgage had been satisfied. The circumstances did not require that the debtor's assets be marshalled so as to protect the security of Pellegrino's lien. If the first mortgage could have been satisfied by drawing on the debtor's property in such a manner as to assure payment of both mortgages, to the burden of the debtor, equity would have required that it be done; but if the burden is to fall on another creditor, by dissipating his security, the same equitable considerations are not present and the rule does not apply. See Andreas v. Hubbard, 50 Conn. 351, 364.

Pellegrino also cites the rule that a mortgage is to be satisfied, in situations where subparcels of the mortgaged property have been subsequently conveyed by the mortgagor (without an assumption of the mortgage), in the inverse order of alienation. The stated...