Goldsmith v. Brown

By the Court, Brown, J. The obligation of the defendants was to pay the deficiency upon the mortgage debt, whenever the remedy against the lands mortgaged should have been exhausted and the deficiency ascertained; not that the debt was collectible by a diligent pursuit of the remedies to recover it at the command of the holder. The written contract bears date February 10th, 1855, between the plaintiff of the first part and the defendants Augustus J. Brown and Henry Warren of the second part, and it recites the existence of the mortgage made by David Worcester to the General Theological Seminary of the Protestant Episcopal Church in the United States, upon certain premises in the 6 th ward of the city of Brooklyn, to secure the payment of $2000, with the interest, and the assignment thereof by the Theologi-. cal Seminary to Augustus J. Brown by indenture, dated January 15th, 1855. It .also recited that the latter had duly assigned over the bond and mortgage to Jeremiah Goldsmith, and that Henry Warren, at the request of Brown, had agreed to join with him in a covenant, whereby the party of the second part, Goldsmith, should be protected and reimbursed the money advanced in purchase of the mortgage and the interest, as thereinafter mentioned. The defendants therein covenanted that “whenever the money secured by the mortgage shall become due and payable, and a foreclosure of the same shall be had for the non-payment of principal or interest, and a sale of the premises therein described, a deficiency shall occur, and a decree or judgment had for such or any deficiency, that then and in such case the parties of the first part will pay unto the party of the second part, or his assigns, the amount of any deficiency, and the decree entered or to be entered therein, with interest, the parties of the first part hereby agreeing to demand and accept an assignment of the [492] said decree.” The letter of the covenant, it will he seen, is to pay the amount of any deficiency, whenever there should be a foreclosure and sale of the mortgaged premises and a deficiency shall occur and be ascertained. This word deficiency, as used in this contract, has a technical meaning, and signifies that part of the debt or sum of money which the mortgage was made to secure, and which is not realized and collected from the subject mortgaged, and which is chargeable under the practice of our courts in the form of a personal judgment against the debtor. The defendants were sureties for the payment of Worcester’s debts, to the extent of any sum or balance which the proceeds of the mortgaged premises, upon a sale thereof, failed to pay; and the contingency, upon the happening of which their duty and obligation arose, was the entering of the decree or judgment for the deficiency upon the referee’s or sheriff’s report of the sale. The omission of the plaintiff to institute proceedings to foreclose the mortgage for more than 14 months after the money secured thereby became due and payable, did not discharge the defendants from their liability upon the covenant to pay the deficiency. “ A mere omission by the creditor to collect the debt due by the hypothecated property, so that it is lost by his laches, will not discharge the sureties. The creditor must be guilty of some wrongful act, as by a release or fraudulent surrender of the pledge, in order to discharge the surety.” (Story’s Eq. Jur. 501, 639.) “If the creditor does any act injurious to the surety, or inconsistent with his rights; or if he omits to do any act, when required by the surety, which his duty enjoins him to do, and the omission proves injurious to the surety; in all such cases the latter will be discharged, and he may set up such conduct as a defense to any suit brought against him, if not at law at all events in equity.” (Id. 325. Schroeppell v. Shaw, 3 Comst. 446. Merritt v. Lincoln, 21 Barb. 249.) if or is it any part of the plaintiff’s duty to pursue his remedy against David Worcester, the mortgagor, personally, [493] or his grantees who may have assumed and become liable to pay the debt secured by the mortgage. Whenever he had exhausted his remedy against the lands mortgaged, and obtained his decree or judgment for the deficiency, his right to receive and collect the amount thereof from the defendants became consummate and complete. Such was the legal effect of their contract with the plaintiff. They undertook to pay the deficiency whenever it should occur upon a foreclosure and sale of the mortgaged premises, and a decree or judgment should be had therefor. The contract provides for an assignment by the plaintiff to the defendants, of the judgment or decree, and it evidently intended to put it into the power of the defendants themselves to take such remedies as might be had against the mortgagor and his grantees to recover the deficiency. The proof before the referee showed that the plaintiff paid to the defendant Augustus J. Brown, for the bond and mortgage, the sum of $1800, being $200 less than the principal sum secured to be paid thereby. The deficiency of $1430.13, found by the report of the sheriff, is made up as against David Worcester, the mortgagor, and shows the sum unpaid upon the principal sum of $2000 and interest thereon, secured to be paid by the mortgage after the application of the proceeds of the sale. The defendants insist, as a bar to the plaintiff’s action against them, that the contract to pay the deficiency is usurious .and void, because it is in effect a contract to guaranty the payment of $2000, with the interest, when in fact but $1800 was paid and received by the defendant Augustus J. Brown. This would certainly prove a formidable objection to the plaintiff’s right of action, if the transaction could be made to assume the form and character of a loan of money. A loan of $1800, with an agreement at the same time to repay $2000 with the interest, or that a like sum should be realized from any specific fund or property assigned as security for the repayment of the money loaned, with the interest, would be a plain and palpable infraction [494] of the statute of usury. It would be so because the transaction would be a loan of money at a rate of compensation, for the use, forbidden by law. The ingenuity of the circumstances and contrivances by which the real character of the transaction might be apparently covered up and concealed, would not protect it from the consequences denounced by the statute. If found in reality to be a loan of money, with an agreement for a greater rate of interest for the use and forbearance than the law allows, it could not be enforced in a court of justice; for the law would not aid in its recovery. The distinction between a loan of money to be repaid, with the interest, and the sale and assignment of a chose in action of the class known as bonds, mortgages and promissory notes, for a sum of money less than the sums expressed upon the face of the instrument, with a guaranty by the assignor or vendor to pay the principal sum expressed in the instrument, with the interest, was recognized in Rapelye v. Anderson, (4 Hill, 472.) The complainant, Anderson, filed his bill against the defendant, Eapelye, to set aside an assignment made by him to the defendant of a bond and mortgage to secure $3000 with the interest. The defendant paid to the complainant for the bond and mortgage $400 less than the principal sum secured thereby, and at the same time took from the complainant and one Eemsen a bond in the penal sum of $6000, conditioned that if the mortgagor paid to the defendant the sum of $3000, and interest on the day it fell due, the bond should be void; otherwise of force. The deed of assignment also contained a covenant that $3000 was due and owing upon the bond and mortgage. It was claimed by the complainant that the transaction was a loan of money, and usurious. The chancellor affirmed this view, making a decree that the bond and deed of assignment were inoperative and void. The court for the correction of errors, upon appeal, entertained a different opinion. It reversed the decree of the chancellor; holding the transaction a sale of a chose in action, and not a loan of money, and therefore not usurious [495] jper se. It was also intimated that the assignee’s recovery upon the bond of guaranty would be limited to the actual sum paid for the bond and mortgage, notwithstanding the consideration expressed in the deed of assignment. Jones v. Stienbergh (1 Barb. Ch. Rep. 250) is to the same effect ; the complainant taldng a decree in the action to foreclose the mortgage, against the assignors who had guarantied the payment of the principal sum of money with the interest, for the deficiency, to the extent of the sum of money paid upon the sale and assignment of the bond and mortgage. [Kings General Term, December 9, 1861. The referee who heard and determined this action has committed no error in his report, except that he has charged the defendants with the whole amount of the deficiency. Upon the authority of the cases to which I have referred, their liability is limited to the sum of money actually paid to them by the plaintiff for the bond and mortgage, with the interest. There must be a new trial, with costs to abide the event, unless the defendant consents to remit and deduct from the judgment the sum of $200, with the interest thereon from the 10th day of February,1855,'the date of the instrument upon which the action is brought. In which event the judgment is affirmed for the residue, and without costs to either party. Emott, Brown and Scrugham, Justices.]