Laird v. Wittkowski

O’BRIEN, J. It would seem strange if the application of legal principles would justify sustaining this judgment; for the dealings of the parties and the sale of the property have given to the plaintiff, Laird, the consideration paid by the defendants when they bought the property from him for $21,500, the property itself, the balance ■of the proceeds of the sale in the partition action, the mortgage which it is claimed is still in force, and in addition a judgment against the defendants for $1,800. In the suit in which the property constituting the collateral security given with the bond was sold, and in which, as claimed, the defendants’ right to redeem, or, upon payment of the mortgage debt, to be subrogated to the security, was lost, the defendants were not parties, and, without their day in ■court, have lost ■ all rights, except to pay the bond. And in the present action, if the ruling made upon the trial is sustained, they cannot tender the amount due upon the bond and mortgage, and be subrogated to plaintiff’s right under the mortgage as against the property itself, or the estate of Bryant; and their only recourse, if any, is to pay this judgment, and then seek to have the Bryant estate reimburse them in another action brought to enforce the agreement made by George Wallace Bryant, by which he assumed to pay the mortgage. The legal effect of the sale to plaintiff, as contended by his counsel, is that with respect to the property itself he has acquired the same status as would a bona fide purchaser for value, and that the defendants have lost all right to be subrogated to the collateral security. The learned trial judge, as stated, sustained this contention; thus, in effect, holding that the defendants’ right to subrogation ended at the sale, and that the tender made upon the trial of the amount due under the mortgage, with the request to be ■subrogated, came too late. It remains, however, to be determined whether the results mentioned, and the manner in which they have been accomplished, can, upon legal principles, be sustained. When the defendants sold the property to Bryant under the agreement by which he assumed the payment of the mortgages, and notice thereof was given to Laird, the mortgagee, the premises became, as between the defendants and Bryant, the primary fund for the payment ■of the mortgage. This, however, left entirely unaffected the plaintiff’s right to resort to the bond for the collection of his debt, and the ■defendants could not compel him to proceed upon the bond, or resort in the first instance to the land; and it did not change the defendants' relation to the debt, for, upon paying such debt, either voluntarily or by compulsion, upon the doctrine of equitable subrogation they would be entitled to be substituted to the mortgage security as it originally existed, with the right to proceed immediately against the land for their indemnity. The plaintiff could not deal with Bryant or his estate (he being the grantee of the equity of redemption), to the prejudice of the defendants’ right of subrogation, without discharging them from liability for the debt, either wholly or pro tanto. These [1118] views are fully supported by the case of Calvo v. Davies, 73 N. Y. 215, 29 Am. Rep. 130, from which we have taken the language, transposing it merely so as to apply to the present litigants. That case is also authority for the proposition (as summarized in the headnote) that: “Where- a deed contains a covenant upon the part of the grantee to pay a mortgage upon the premises executed by the grantor, the relation of principal and surety Is created between the parties; and an agreement by the holder of the mortgage with the grantee to' extend the time of payment,, made without the consent of the grantor, discharges the grantor.” And this rule is well stated in Marshall v. Davies, 78 N. Y. 421, wherein Calvo v. Davies, supra, is cited, as follows : “We have held that where the mortgagor conveys to a third party, who-assumes the mortgage, the relation of principal and surety arises between the mortgagor and his vendee, and that after notice of this relation the mortgagee is bound to observe it, and abstain from doing any act to the-prejudice of the mortgagor, or which would impair his recourse against the mortgaged premises in case he should be obliged to pay his bond and be subrogated to the mortgage. The mortgagee, in such a' case, after notice, cannot with impunity release the land, or extend the time of payment, or do any other act to the prejudice of the mortgagor; and the prohibited acts are-determined by the law of principal and surety.” According to the arrangement made between the plaintiff and the Bnrant estate in the partition suit, the property was to be sold free from the mortgage, the plaintiff electing to take the proceeds of the sale in lieu of his claim under the mortgage itself; and although such an arrangement may not legally have had the effect, as between the defendants and the Bryant estate, of .releasing the latter from payment of the debt,—which question we reserve,—it effectually released' the land from the mortgage. That arrangement did more, because the debt was not then due, and by it the plaintiff precipitated the maturity of the principal, and obtained title to the property at the sale free from the mortgage.- In giving his consent, he, in terms, reserved his rights under the bond and mortgage; but, as all this was without the defendants’ consent or knowledge, he did not thereby destroy the-legal effect of his act in dealing with the principal debtor without the assent of the defendants who were sureties, and the legal consequences could not be affected by an agreement between the plaintiff and the principal debtor to which the defendants were not parties. Our attention has been called to a line of cases, of which Vose v. Railroad Co., 50 N. Y. 369, is a good illustration, holding that a sale by a creditor of collateral securities placed in his hands by the principal debtor, in violation of his stipulation to give a particular notice of sale contained in the contract under which they were pledged, does not per se discharge in toto the surety, who is liable for the debt, but by such sale the creditor makes the securities his own,, to the extent of discharging the surety to an amount equal to their value. If, however, that rule were applied in the case at bar, this judgment could not be sustained, because, if we should hold that all that was done by the plaintiff was merely to deal with the collateral security as his own, it here appears that evidence offered by the defendants (in addition to what appears from the referee’s report, [1119] and from the consideration paid by the respective purchasers) to show just what was the actual value of the property was excluded; due exception being taken to such ruling. Under the plaintiff’s theory, therefore, this judgment cannot stand, because, having by the arrangement between himself and the principal debtor, in the absence of the sureties, released the property, and permitted it to be sold free from the mortgage, he treated it as though it were his own; and, under the rule to which we have referred, -it was entirely competent for the defendants to show what the property was really worth, and to that extent have it applied pro tanto in payment of the mortgage debt. It follows that the judgment should be reversed, if for no other reason than because of the rulings excluding the evidence offered of the value of the mortgaged premises. We think, however, that the legal consequences of the manner in which the plaintiff dealt with the property and the debt were even more serious; for, after notice that the Bryant estate was the principal debtor, in arranging with it that the debt should be considered as immediately due, and should not be enforced against that estate, and in releasing the land from the mortgage, he thereby discharged the defendants, who, as stated, stood in the position of sureties. We have assumed in this discussion that as the defendants were not parties to the partition action, and, so far as appears, in no other way received actual notice of the arrangement made by the plaintiff therein, or of the proceedings themselves leading down to and including the sale, they were deprived of all opportunity to protect their rights, either by paying the debt and being subrogated to the collateral security, or, upon the sale, seeing to it that the property brought its full value. Upon a new trial the facts may be brought out more fully, and we think, therefore, that the proper disposition to make is to reverse the judgment and order entered, and to order a new trial, with costs to the appellant to abide the event. All concur.