Spencer v. Executors of Harford

By the Court, Savage, C. J. The defendants plead four pleas, the object of which seems to be to set up the same defence, to wit, a satisfaction of the debt by an extinguishment of a mortgage which was given as collateral security at the same time the bond was executed. The effect of a foreclosure of a mortgage given to secure a bond debt, has been fully considered by Mr. Justice Story, in Hatch v. White, (2 Gallison, 152,) who comes to the conclusion that in all the cases there is no difference of opinion among the learned jurists whose decisions had been considered, “ that at law a foreclosure of the mortgage is no bar to an action on the attendant bond.” In the case of The Globe Ins. Co. v. Lansing, (5 Cowen, 380,) the question was whether a foreclosure of the mortgage, and a sale under it, operated as an extinguishment of the debt, and it was there held that it was an éxtinguishment no further [385] than to the amount produced by such sale. The same point has been so decided in the court for the correetion of errors, in the case of Lansing v. Goelet, (9 Cowen, 346, 403.) At the last October term the question was presented upon demurrer, whether a foreclosure of the morígaged premises without a sale operated as an extinguishment of the debt, and we held that it did not without an averment that the mortgaged premises were of sufficient value to pay the debt. It was there intimated that the usual and proper course in such case is to apply to chancery to restrain the creditor from proceeding at law. But in pursuance of principles heretofore recognized it seems to follow that if the mortgagee prefers a simple foreclosure of the mortgaged premises, he should account for them to the mortgagor to the amount of the debt. If the mortgagee sells the mortgaged premises, and they produce less than the amount of the debt, the balance may be recovered on the bond. If upon the sale the produce equals the debt, the debt is paid; and if more than the debt is produced from the sale, the balance belongs to the mortgagor. I can see no reason why the same principal is not applicable to a foreclosure without sale. The mortgagee should give credit, to the value of the mortgaged premises in his possession. But if such value exceed the debt, a case which seldom happens, the mortgagee is under no obligation to refund. It was the fault of the mortgagor to have left Ms debt unpaid, and the mortgagee was compelled to take the premises instead of the money. These I understand to be the settled principles applicable to the nature of the defence intended to be set up, and by them the pleas in question must be tested. The defects in tire first plea are, 1st. It does not appear whether the sale to Fellows was by virtue of an older or a junior lien to that held by the plaintiff. 2d. It does not appear whether the purchaser had notice of the mortgage. 3d. It does not appear what was the value of the mortgaged premises; nor is there an averment to shew any thing in this whole transaction which looks like a connection of the estates of mortgagor and mortgagee. The same defects are [386] found in the second as in the first plea, and the additional fact does not show a disclosure by the mortgagee. The third plea states that Fellows, by the sheriff’s deed became seised of the equity of redemption; and that being requested by the plaintiff either to pay the debt due him or to assign to him the equity of redemption in the mortgaged premises, Fellows conveyed for the consideration of one dollar, whereby the plaintiff became seized thereof, and the debt became paid and satisfied. The fourth plea is like the third, except it contains the additional averment that the plaintiff on the 17th November, 1825, sold the premises in fee for $650 to John Harford. We thus learn in these pleas, by way of inference, that Fellows purchased the equity of redemption in the mortgaged premises, and that the plaintiff became the assignee of the same for a nominal consideration; and that he sold the premises in fee for $650. Had the third plea contained an averment that the value of the premises when the equity of redemption was conveyed to the plaintiff was equal to the amount due on the bond, or had the fourth plea contained an averment that the property was of the same value when the equity of redemption was conveyed to the plaintiff as when he sold to Harford, or was of value equal to the amount due on the bond, I should think the pleas good in substance, though in some respects informal. The only effect of the sheriff’s sale was to substitute Fellows in the place of the mortgagor; when, therefore, the mortgagor released his equity of redemption for a nominal consideration to the mortgagee, the latter had the whole estate. Whether this effect is produced by a technical merger of the equitable into the legal estate, according to 2 Cowen, 246, or whether he holds the legal estate discharged of the condition, according to 2 Mason, 539, it is not important to enquire. The mortgagee becomes absolute owner, as he would by a foreclosure; and if the property when he thus receives it is equal in value to the debt for which it was mortgaged, it is payment in full; otherwise, not; but, in any event, is payment, pro tanto, according to its actual value. [387] The pleas do not contain the necessary averments. It may be that the property was well worth $650 or more when sold to J. Harford; and not worth $100 when the title was vested in the plaintiff; the difference may have been . r --i caused by improvments or a rise m the value ot the land. The value therefore should appear by proper averments. The pleas are all bad, and the plaintiff is entitled to judgment upon them, with leave to the defendants to amend, on payment of costs.