Murray v. Fox

Bradley, J.: The bond in this case made by Arthur W. Fox was secured by mortgage made by him and Horace Williams. The trial court found that this bond and mortgage were made to secure the indebtedness of the partnership composed of Arthur W. Fox and Horace Williams, then doing business in the firm name of Arthur W. Fox. And this is supported by the evidence. After the death — 110 — of Arthur W. Fox, the plaintiff compromised with Williams and made to him a release duly executed under seal, which by its terms discharges and releases him from all several liability on account of such bond and mortgages, notes, and all other dealings whatsoever, and from all joint liability on account thereof, notes and other dealings in connection with said firm for any cause whatsoever jointly with Arthur W. Fox, or otherwise, “but not intending hereby to affect or discharge the liability of said Arthur W. Fox or his estate therefrom or to affect or discharge any other security for any of said demands other thari the personal liability of said Horace Williams.” If the liability of the representatives of the deceased partner Fox, and that of Williams upon the bond given to secure the payment of the partnership debts were several and concurrent at the time the release was made in such sense that an action might then have been brought against them together or severally, the release of the personal liability of Williams in view of the reservation clause would not have operated to the discharge of the Fox representatives from liability. The rule in England is that on the death of a member of a partnership there is in equity a several liability of the survivor and the representatives of the deceased partner, so that the latter may in the first instance be sued although the survivor is solvent (Wilkinson v. Henderson, 1 Myl. & K., 582), and the proposition is so stated by Judge Story in his Equity Jurisprudence (§ 676). But in this State the law is otherwise. On the death of a partner, the survivor, for all practical purposes, takes the legal title to the partnership property and the place of the firm in respect to its assets and liabilities, and is vested with the possession and management of the property for the purposes of closing up its affairs. (Egberts v. Wood, 3 Paige, 517; Nehrboss v. Bliss, 88 N. Y., 600; Holbrook v. Lackey, 13 Met., 132, 134; Adams v. Hackett, 27 N. H., 289; 29 Am. Dec., 376; Kinsler v. McCanty, 4 Rich. L. R., 46; S. C., 53 Am. Dec., 711; Andrews v. Brown, 21 Ala., 437 ; 56 Am. Dec., 252.) And the primary liability to pay the firm debts is that of the survivor. The remedy of a creditor at large of the partnership is against him alone unless he is insolvent. (Lawrence v. Trustees, etc., 2 Denio, 577, affirming, Trustees, etc., v. Lawrence, 11 Paige, 80; Slatter v. Carroll, 2 Sandf. Chy., 573 ; Voorhis v. Baxter, 18 Barb., 592 ; Voorhis v Child’s — 111 — Executors, 17 N. Y., 354; Pope v. Cole, 55 id., 124.) And in that event, or when the legal remedy has been unsuccessfully exhausted against the survivor, the creditors may proceed in equity against the representatives of the deceased member of the firm and his estate. (Haines v. Hollister, 64 N. Y., 1, and cases before cited.) The burden is upon the creditor to establish the facts which afford the right to so proceed. It is assumed that the survivor Williams was solvent at the time of Fox’s death and has remained so, and that as survivor he had the partnership property and effects. His primary liability to pay the debts of the firm would seem to give to the representatives of the deceased partner the quasi relation of sureties in respect to remedy against them. And when the plaintiff’s right to proceed against Williams, who alone was so primarily liable, was voluntarily surrendered by her, and such surrender consummated by compromise with and release of him in respect to such liability, the right of the Fox representatives to have those debts collected of Williams was violated and cut off, and it would seem they cannot be subjected to liability for such debts. (Fogarty v. Cullen, 17 J. & S., 397, 398 ; Millerd v. Thorn, 56 N. Y., 402; Colgrove v. Tallman, 67 id., 95; Dodd v. Dreyfus, 17 Hun, 600.) It is contended that the terms of reservation in the release of remedy against all parties other than Williams, enables the plaintiff to obtain relief as against the Fox representatives, although their relation is that of sureties. There may be no difficulty in cases where the liability of a surety is concurrent and several with that of the principal debtor to suspend or release the remedy of the creditor against him, when the legal rights of the surety are not prejudiced, but saved by proper words of reservation. In such case the release may be treated as a covenant not to sue the principal. (Price v. Barker, 4 Ell. & Black, 760 ; Couch v. Mills, 21 Wend., 424; Matthews v. Chicopee M. Co., 3 Robt., 711; Bateson v. Gosling, L. R., 7 C. P., 9.) And the remedy of the surety over against his principal by way of subrogation or otherwise being preserved, no legally recognized prejudice results to him. (Morgan v. Smith, 70 N. Y., 537, 545 ; Calvo v. Davies, 73 id., 211, 217; Hubbell v. Carpenter, 5 id., 171; Boaler v. Mayor, 19 C. B. [N. S.], 76; Green v. Wynn, L. R., 7 Eq., 28; affirmed, L. R., 4 Chy., 204.) But here there was a primary liability of the survivor. — 112 — And the failure of a completely successful remedy against him, is a condition precedent to the liability of the representatives of the deceased partner for the partnership debts, which distinguishes this case from those cited. (Miller v. Fenton, 11 Paige, 18, 20.) This proposition depends upon the fact that the liability of the partners was joint only, which may not be entirely free from doubt here. The name of the firm when the bond was made was-Arthur W. Fox, and in that name it was executed. The instrument does not, in terms, describe the name as that of the firm as distinguished from the name of the individual. The debts and liabilities intended to be and in fact secured by it were those of the firm, and it referred to the understanding that the mortgage as collateral was to be executed by both Fox and Williams, which was d-one. No reason is apparent other than that the name of the firm was Arthur W. Fox, for the execution of the bond in that name for its benefit. And it will be observed that the liabilities secured by the bond were for loans before then made and thereafter to be made and for such paper as Murray should thereafter sign, accept or indorse of and for Arthur W. Fox. The trial court in its decision did not express the finding that the bond was executed by the firm, but in support of the conclusion of the trial court it may be implied as found by the expression of the fact that such was the name of the firm and that the bond was made for its benefit. There is no presumption that the partnei’ship property in the hands of the survivor is insufficient to pay the debts of the firm or that his responsibility is inadequate. The personal liability was that of Williams only. By releasing him the plaintiff has defeated her right to do in the first instance that which is requisite to charge the Fox representatives personally. On the assumption that the bond was only the joint obligation of the firm it follows, if these views are correct, that the Fox representatives were by the release to Williams relieved from personal liability on it. The Fox heirs have an interest in making the defense as they took by descent land of their ancestor, and if the mortgage continues an existing incumbrance they will have to pay it to protect their title. (1 R. S., 749, § 4.) And they rest such defense on the charge that the plaintiff has voluntarily defeated their right to have the fund primarily chargeable in the — 113 — hands of Williams, as survivor of the firm, applied in satisfaction of the mortgage debt for which purpose the latter would otherwise be personally liable. (Robinson v. Robinson, 1 Lansing, 117.) There may be cases of release of personal liability to pay a debt secured by mortgage without impairing the latter as a lien. That is so where the premises are conveyed by the obligor and mortgagor subject to the mortgage and he is released from personal liability. The mortgaged premises are then the primary fund to pay the debt and the mortgage remains effectual for that purpose. (Tripp v. Vincent, 3 Barb. Chy., 613; Bentley v. Vanderheyden, 35 N. Y., 677.) And without such release the grantor, if required to and he does pay the debt, has the right of subrogation as against his grantee and those holding under him (Johnson v. Zink, 51 N. Y., 333), although there is no personal liability of the grantee to pay it. (Dey Ermand v. Chamberlin, 88 N. Y., 658.) But here no relation has been assumed to the premises which separates the mortgage from the debt secured by it, and the Fox representatives and heirs have not in any manner consented to such severance and continued lien of the mortgage. The right to enforce the security is dependent upon the preservation of the debt secured by it. The mortgage is collateral to and the mere incident of the debt, and depends upon the subsisting vitality of it. (Merritt v. Bartholick, 36 N. Y., 44.) The difficulty in the defense founded upon the release to Williams is that it did not discharge the mortgage debt but was, in legal effect, a covenant not to sue him, and therefore is not available to defeat the action to foreclose the mortgage. (Price v. Barker, 4 E. & B., 760; Couch v. Mills, 21 Wend., 424.) The other ground of defense was that of payment, and the trial court found that the bond and mortgage were in fact paid. The objections and exceptions taken to the admission of evidence hereafter referred to on that question, require the consideration of the relation of the Fox representatives and heirs, arid the Buffalo Grape Sugar Company, in respect to the mortgage debt. The latter defendant purchased of Fox and Williams a portion of the mortgaged premises subsequent to the mortgage and took from them a full covenant warranty deed, and afterwards released Williams and the personal representatives, heirs and next of kin of Fox, from liability, past ' — 114 — and future, on the covenants in the deed. The contention on the part of the plaintiff is that this release from the covenants operated. ..to make the deed a conveyance of the equity of redemption only, and changed the relation of the company as that of surety, in respect <to the mortgage debt and lien, to that in the nature of principal of ■its grantors. A conveyance made without covenant on the part of the grantor is not as between the parties necessarily taken subject to an existing mortgage on the premises, in such sense as to make the land conveyed the.primary fund for its payment. In such case the question ás one of intent and understanding of the parties to the deed. The (payment of the estimated value of the premises conveyed, without -deduction of the amount of the incumbrance, is a fact which renders .a covenant unnecessary to show that the purchase was not of the equity of redemption only. The consideration expressed in the •deed to the company was $120,000, which may, if necessary, ibe presumed to have been the consideration, paid. ( Wood v. McClughan, 4 T. & C., 420 ; Peck v. Mallams, 10 N. Y., 528.) The covenants in the deed in that respect are only evidence of intent. (Cooper v. Bigly, 13 Mich., 474, 475.) When made, the deed contained a covenant against incumbrances, which is very satisfactory ■evidence that the consideration paid was treated as the full value of (the property, and that the duty was that of the grantors to discharge the land from the mortgage lien. ( Wadsworth v. Lyon, 93 N. Y., 201.) There is nothing in the release of the personal .liability of the grantors from the covenant tending to reduce the •quantum conveyed, or intended to be conveyed, by the deed, or to show that the purpose was to make the conveyance subject to the mortgage or to change the relation of the parties in respect to it. The release left all remedies except that which the covenants gave. ' It is, therefore, fair to assume that as between those parties the mortgage debt still remained that of the grantors, and the primary •duty to relieve the premises of the lien continued with them-. And that the right and remedy of the sugar company in the event it should be required to and did pay it, were that of subrogation and indemnity. (Cole v. Malcolm, 60 N. Y., 363.) It is otherwise when a conveyance is subject to a mortgage. 'Then the equity is with the grantor to have it paid from the land, — 115 — and although his relation is not strictly that of surety where the grantee has not assumed its payment, yet he has the equitable right of subrogation for his protection. (Murray v. Marshall, 94 N. Y., 611.) If the view taken is correct, the mortgage debt is that of the grantors, and the grantee has for protection and reimbursement a complete remedy over against the former if required to pay the mortgage debt. The fact of payment, as found, rested somewhat upon the evidence of Cicero J. Hamlin, who was the owner of stock of the Buffalo Grape Sugar Company. His evidence in this respect had relation to communications and transactions of the witness with the plaintiff’s intestate, and was incompetent in behalf of the company defendant, by reason of his interest in the event as to that defendant. (Code Civil Pro., § 829; Stall v. Catskill Bank, 18 Wend., 466, 473.) This evidence was received in behalf of the Fox parties. And the question arises whether it was admissible as to them. If the defense of the Fox heirs prevails on the ground of payment of the mortgage debt, the adjudication will inure to the benefit of the Buffalo Grape Sugar Company, so far as to be effectual, to remove an apparent incumbrance, prior to the conveyance to it, and thus relieve the title of the company from it. In that view the adjudication in favor of the Fox heirs will go directly to its benefit. And unless there is some countervailing interest or right in support of his competency, it would seem that the interest of the witness was such as to render his evidence referred to inadmissible for the purpose for which it was received. (1 Greenl. Ev., § 390; Doe v. Tyler, 6 Bing., 390; Church v. Howard, 79 N. Y., 415, 420; Hill v. Hotchkin, 23 Hun, 414; Hadsall v. Scott, 26 id., 617; Barton v. Scramling, 31 id., 467.) But the right of the Buffalo Grape Sugar Company to seek reimbursement from Williams and the estate of Fox, for any amount it might be required to pay to discharge the lien of the mortgage in question upon the land conveyed by Fox and Williams to it, would seem, in the legal sense, to render the company and the witness, as its stockholder, indifferent as to the result of the action, and therefore give competency to his evidence as to the Fox heirs within the rule declared in Benedict v. Hecox (18 Wend., 490, 503). So far as appears Williams and the estate of Fox are solvent. The motion to strike out evidence of the witness Damon was founded — 116 — on tbe fact that on his cross-examination it was made to appear that his evidence in chief was of facts not within his personal knowledge and therefore incompetent. The motion to strike it out called upon the discretion of the trial court, and the denial of it was not error. (Gawtry v. Doane, 51 N. Y., 84; Stokes v. Johnson, 57 id., 673; Marks v. King, 64 id., 628; Platner v. Platner, 78 id., 90; Miller v. Montgomery, Id., 282.) It will not be presumed that the evidence was considered, and the contrary appears by the opinion of the trial court. And although the opinion is no part of the record, it may be referred to for some purposes. (Snyder v. Snyder, 96 N. Y., 88; Allen v. Allen, 18 Week. Dig., 184.) The judgment should be affirmed. Smith, P. J.,' concurred; Haight, J., not sitting.