Kramer v. Relgov Realty Co.

Townley, J. On June 28, 1926, Amalie A. Dilg executed a bond and mortgage to the Relgov Realty Co., Inc., in the amount of $125,000, with interest payable semi-annually at six per cent. The principal sum could be declared due at the option of the obligee after default in the payment of interest, taxes or assessments. Five years later, on June 12, 1931, in consideration of the receipt of $100 and other valuable consideration, Relgov Realty Co., Inc., assigned this bond and mortgage to the plaintiff, Louis Kramer. On the same day, Relgov Realty Co., Inc., and the defendant Vogler “ in order to induce Louis Kramer to purchase from the Relgov Realty Co., Inc., in which said company the said Edward C. H. Vogler has a large financial interest, a prior participation interest to the extent of Twenty-five thousand ($25,000) Dollars ” in the bond and mortgage above mentioned, jointly and severally guaranteed to Louis Kramer the payment of the principal and interest of the bond and mortgage in accordance with its terms. The guaranty, however, was limited in amount to the principal sum of $25,000 and interest representing the prior participation in the mortgage purchased. There was a default in the payment of interest due July 1, 1933, and after this had continued for thirty days plaintiff elected to call the entire bond due and payable. No part of the $25,000 has been paid. The plaintiff brought this action, not to foreclose the mortgage and collect on the bond, but to recover on the wholly independent undertaking of these defendants. The answer sets up as a first complete and also as a partial defense and counterclaim that under section 1083-b of the Civi [100] Practice Act, as extended by the Laws of 1934, chapter 277, “ the fair and reasonable market value of the mortgaged property, less the amounts owing on prior liens and encumbrances, is in excess of -the amount sought to be recovered in this action.” As a second complete and partial defense, the defendants say that consideration for the assignment was the sum of $20,000 paid by plaintiff to Relgov Realty Co., Inc., that the plaintiff is still the owner and holder of his interest in the mortgage and no action to foreclose the mortgage has been brought, and that by reason of the premises the defendants’ liability, if any, is limited to the $20,000 paid by plaintiff and then only after he has exhausted his security and found the balance uncollectible, and then subject to the relief given by section 1083-b of the Civil Practice Act. Section 1083-b of the Civil Practice Act, in so far as applicable, provides that “ In any action * * * to recover a judgment for any indebtedness secured by a mortgage on real property and which originated simultaneously with such mortgage and which is secured solely by such mortgage, against any person or corporation directly or indirectly or contingently liable therefor, any party against whom a money judgment is demanded, shall be entitled to set off the fair and reasonable market value of the mortgaged property less the amounts owing on prior hens and encumbrances.” The above-quoted provisions clearly have no application to this situation. The action is not brought to recover a judgment for the indebtedness secured by the mortgage. The obligation of the defendants did not originate simultaneously with the execution of the mortgage but some five years thereafter. It arose not as an incident of the original debt but out of a wholly independent transaction. The defendants wanted to sell a participation in their rights under the mortgage and made the contract in suit to induce the plaintiff to make the purchase. The provision requiring that the indebtedness should originate simultaneously with the mortgage was clearly intended to exclude from the operation of the section collateral, incidental and subsequent obligations arising during the life of the mortgage. The protection afforded by section 1083-b of the Civil Practice Act to one directly or indirectly hable on the indebtedness is granted only to those who become bound at the time the mortgage was made. The word “ indebtedness ” must refer to the claim on which the complaint is grounded. The statute does not cover the situation at bar and cannot be enlarged by reference to other sections which depend upon different states of fact. The second defense is insufficient since a foreclosure of the mortgage was not made a condition precedent to an action for [101] a recovery under the agreement. No substantial defense is set up either in the answer or in the affidavits in opposition to the motion. The order, accordingly, should be reversed, with twenty dollars costs and disbursements, and the motion granted. Finch, P. J., Merrell and Glennon, JJ., concur; Untermyer, J., dissents and votes for affirmance.