Stokes v. Hoffman House of New York

• Decision Date: 14 May 1901
• Citation: 167 N.Y. 554,60 N.E. 667
• Parties: STOKES v. HOFFMAN HOUSE OF NEW YORK.
• Court: New York Court of Appeals Court of Appeals

167 N.Y. 554

60 N.E. 667

STOKES

v.HOFFMAN HOUSE OF NEW YORK.

Court of Appeals of New York.

May 14, 1901.

Appeal from supreme court, appellate division, First department.

Action by Edward S. Stockes, as receiver of the Hoffman House, against the Hoffman House of New York. From a judgment in favor of plaintiff entered on the report of a referee, and affirmed by the appellate division (61 N. Y. Supp. 821,46 App. Div. 120), defendant appeals. Affirmed.

An action having been commenced by the Farmers' Loan & Trust Company, as trustee, against the Hoffman House, a New Jersey corporation, to foreclose a mortgage covering leases and chattels belonging to the defendant therein, and which were in the possession of this defendant, and with and upon which it was carrying on a hotel and café business in the city of New York, on the 21st of December, 1893, an order was made appointing Edward S. Stokes receiver of the property covered by the mortgage, to foreclose which the action was brought. The said Edward S. Stokes, as receiver, entered into possession of the property mentioned in said foreclosure action, and continued to conduct the business theretofore carried on upon and with said property until the 25th of May, 1894. On the 24th of January, 1894, a judgment of foreclosure and sale was entered, appointing a referee to sell. It appears that there were outstanding 425 bonds, of $1,000 each, which were secured by the mortgage, to foreclose which the action was brought. Three hundred of these bonds were in the possesion and under the control of Edward S. Stokes. The other 125 bonds were in the possession of one William E. D. Stokes, claiming to hold them as collateral security for an indebtedness of said Edward S. Stokes; the latter, however, claiming that the said W. E. D. Stokes had converted them to his own use. On or about the 3d of February, 1894, the present corporation was formed by said Edward S. Stokes, James D. Leary, and E. V. Foote, pursuant to the statute of New York known as the ‘Business Corporations Law,’ with a capital of $200,000. On the 2d of March, 1894, that part of the mortgaged property known as the ‘Hoffman House’ was duly sold by auction by the referee, and purchased for the defendant herein for the sum of $120,000. The terms of sale provided that the property was to be subject to all liens of every kind and description, and that unpaid rent, if any, would be allowed to the purchaser. Said terms of sale also provided that the purchaser, upon payment of the sum bid, was to receive the property free and clear from unpaid rent then due or taxes or counsel fees, or other expenses arising from the receivership. All such claims, if assumed by the purchaser, were to be deducted from the price the property brought. On the 12th of May, 1894, there was a meeting of the incorporators of the defendant, at which by-laws were adopted. Edward S. Stokes was elected president; Mr. Foote, treasurer; and Mr. Cornish, secretary. Thereupon a resolution was adopted confirming the purchase made on March 2, 1894, at said foreclosure sale. Of the amount of the defendant's bid, $5,000 having been paid in cash, and said Edward S. Stokes having delivered to the defendant herein the 300 bonds controlled by him in order that they might be used in completing the purchase, and the state of the case with reference to the other 125 bonds having been reported to the court, on the 15th of May, 1894, an order was entered whereby the referee was directed to deliver to the purchaser of the mortgaged property sold by him, as above mentioned, conveyances and transfers thereof, upon receiving in cash the sum of $5,000 in addition to the sum of $5,000 in cash theretofore paid to him, and also 300 of the bonds of the defendant to secure which the mortgage mentioned in the complaint in the action was given, and also a bond in the penal sum of $35,000, with sufficient surety, conditioned to pay to said referee upon demand the cash value of the remaining mortgage bonds of said defendant corporation as soon as their value could be ascertained, and any further sum or sums which might be necessary to be paid under the decree in the action. On the 18th of May, 1894, a meeting of the directors of the New Hoffman House Corporation was held, at which it was reported that arrangements had been made for the transfer of the property to the corporation on filing the bond directed by the court as aforesaid; and the officers of the corporation were authorized to issue the entire stock of the company (2,000 shares) to Edward S. Stokes, save 5 shares issued to Mr. Foote, and 5 shares issued to Mr. Leary. On the 25th of May, 1894, another meeting of the directors was held, at which a resolution was passed for the execution of the $35,000 bond, and this bond was accordingly executed. Thereafter and upon the same day a deed was delivered by the referee to the New York corporation of the Hoffman House property so purchased by it, and said corporation went into possession. After this date, however, and until the latter part of June, 1894, the receiver kept the accounts of the receipts and disbursements of the New Hoffman House Corporation in his own name, and deposited the receipts in his own bank, drawing checks and making cash disbursements therefrom on behalf of the new corporation. On the 29th of June, 1894, said receiver, finding an apparent balance of $9,282.42 in his account, gave a check for the sum to the New Hoffman House Corporation, and closed his receivership bank account, and thereafter all transactions were had through the bank account of the Hoffman House of New York. During all the time that the said receiver was in possession of the leasehold property known as the ‘Hoffman House’ he paid no rent to the owners of the leases, and no demand was made of him by the landlord for the possession of the property. The landlord insisted, however, that in the terms of sale under which the said leases were to be sold in the foreclosure action he should be protected so that the purchaser at said foreclosure sale might be required to pay the rent which had accrued from the 1st of December, 1893. Accordingly the terms of sale were submitted to the landlord, and he was assured by Edward S. Stokes, one of the incorporators of the new corporation, the proposed purchaser, that the purchaser, upon going into possession of the property, would pay all the back rents. As soon as the Hoffman House Corporation went into possession, the landlord made a demand for the payment of the rent, and threatened that, unless a substantial payment was made on account thereof, he would take proceedings to recover the possession of the leased property. Thereupon the said Stokes, as receiver, out of the moneys in his hands as receiver, wrongfully, as is claimed by the plaintiff, paid to the landlord the sum of $10,000 on account of rent; and subsequently the defendant paid all the balance of the rents, amounting to many thousands of dollars. In January, 1898, after Edward S. Stokes had sold out his interest in the defendant corporation, he, as receiver, commenced this action, claiming the right to recover various items, among which was the sum of $10,000 paid by him, as above stated, to the landlord for rents. The action was referred to a referee, who has reported in fover of the plaintiff, and the judgment entered thereon has been affirmed by the appellate division.

Haight, O'Brien, and Landon, JJ., dissenting.David McClure and John H. Rogan, for appellant.

Charles E. Hughes, for respondent.

CULLEN, J. (after stating the facts).

The foregoing statement of the case is taken from the opinion of the presiding justice of the appellate division, and adopted by us. The principal questions argued on this appeal relate to the award made by the referee to the plaintiff of the sum of $10,000 paid by the receiver to the landlord on account of the rent after the defendant entered into possession of the leasehold premises, and to the refusal of the referee to allow the defendant its counterclaim for some $19,000 paid by it on account of the rents accruing during the period of occupation by the receiver. The appellate division was unanimous in its approval of the disposition made by the referee of the defendant's counterclaim; but his ruling, that the plaintiff was entitled to recover the payment made by him on account of rent, was affirmed by a divided court. The judgment in the foreclosure action directed that the mortgaged property be sold ‘subject to all liens of every kind and description.’ The terms of sale under which the property was sold by the referee, after enumerating the various leases under which the property was held, stated, ‘Unpaid rent, if any, will be allowed to the purchaser.’ An addendum contained the following provisions: ‘The purchaser, upon payment of the sum bid, shall receive the property free and clear from unpaid rent now due, or taxes or counsel fees or other expenses arising from the receivership. All such claims, if assumed by the purchaser, shall be deducted from the price the property brings.’ It is claimed by the counsel for the respondent that the defendant, after the purchase at the foreclosure sale, assumed the payment of the back rents, and that this fact materially affects the rights of the parties in this litigation. We are of opinion that no agreement to assume such rents was established by the evidence, and our disposition of the case will proceed on that theory. But, though the defendant did not personally assume the back rent, it necessarily took the leasehold premises subject to the burdens of such rent, and under the hazard of being dispossessed by the landlord and losing the demised term in case the rent was not paid. It is clear that under the terms of the sale the purchaser was to receive the leaseholds free from any back rent, or to have the amount of the back rent allowed him out of the purchase money, which, in effect, was...