Calvo v. . Davies ( 1878 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The mortgaged premises became, on the conveyance by Davies to Leslie of the equity of redemption, as between Davis and his grantee, the primary fund for the payment of the mortgage; but the right of the mortgagee to resort to the bond for the collection of his debt was not affected or impaired by the conveyance. Davies could not, by any dealing or contract with Leslie, change the rights of the creditor to proceed on the bond, or compel him to resort in the first instance to the land. (Marsh v. Pike, 10 Paige, 595.) On the other hand Davies relation to the debt was not changed by his conveyance so as to take away his right as debtor, to pay the debt at any time after it became due, and upon his paying the debt, either voluntarily or by compulsion, he would, upon the doctrine of equitable subrogation, be entitled to be substituted to the mortgage security as it originally existed, with the right to proceed immediately against the land for his indemnity. (Tice v.Annin, 2 J. Ch., 125; Vanderkemp v. Shelton, 11 Paige, 28;Marsh v. Pike, supra.) The mortgagee, after the conveyance by Davies, could not deal with the grantee of the equity of redemption, to the prejudice of his right of subrogation, without discharging Davies from liability for the debt, either wholly orpro tanto. If, for example, he had, pursuant to an agreement with Leslie, without the consent of Davies, satisfied or released the lien of the mortgage, it is plain that he would thereby, as to Davies, have discharged the debt, at least to the extent of the value of the land. The rule that a mortgagee is bound, in dealing with his security and with the bond, to observe the equitable rights of third persons, of which he has notice, has been frequently recognized. (Tice v. Annin, supra; Halsey v. Reed, 9 Paige, 446; Stevens v. Cooper, 1 J. Ch., 425; Howard Ins. Co. v.Halsey, 8 N.Y., 271.) And the doctrine that a surety is discharged by dealings between the creditor and principal debtor, inconsistent with the rights of the surety, has been applied, although the creditor did not know, in the origin of the transaction, that one of the parties was a surety, and also when, by an arrangement between two original joint and principal debtors, one of them assumed the entire debt, and this was known to the creditor. (Pooley v. Harradine, 7 El. Bl., 431;Oriental Financial Corporation v. Overend, Gurney Co., L.R., 7 Ch. App,. 142; Millerd v. Thorn, 56 N.Y., 402;Colgrove v. Tallman, 67 id., 95.)

We think it must be held, upon the authorities, that the rights of the parties in this case are to be determined by the rules governing the relation of principal and surety, and that if the dealings between the mortgagee and Leslie would have discharged Davies, if he had been originally bound as surety only, the action against him cannot be maintained. (Halsey v. Reed, 9 Paige, supra; Burr v. Beers, 24 N.Y., 178; Flower v.Lance, 59 id., 603.)

That an agreement by the creditor with the principal debtor, extending the time for the payment of the debt, without the consent of the surety, discharges the latter, is established by numerous authorities, and the court will not enter into the question, what injury the surety has sustained. (Rees v.Berrington, 2 Ves. Jr., 540; Rathbone v. Warren, 10 J.R., 587; Miller v. McCan, 7 Paige, 452.) The plaintiff, in her complaint in this case, sets forth facts which justify a judgment of foreclosure; but she also demands a judgment for any deficiency against the defendant Davies. The defendant Davies interposed a general demurrer to the complaint. The complaint avers the making of the bond and mortgage by Davies, its assignment to the plaintiff, the conveyance by Davies to Leslie in November, 1871, of the equity of redemption, subject to the mortgage, and his agreement to pay the same, and the amount due and unpaid thereon. If the plaintiff had stopped here a cause of action against the defendant Davies would appear in the complaint; but she further alleges that in November, 1872, by an agreement made by the plaintiff with the defendant Leslie, the time for the payment of the debt was extended from March 8, 1872, to October 15, 1872, "with the express understanding that the bond and mortgage should remain in every other respect unaffected by the agreement."

The agreement, if construed as an absolute agreement for the extension of the time of payment of the mortgage, prima facie operated to discharge Davies from liability on his bond. It was valid and binding between the parties, and the mortgage could not be enforced during the time covered by the agreement, either by the plaintiff or by Davies. Davies, on paying the debt, would be entitled to be subrogated to the security, but he would stand in the place of the creditor, and would take the mortgage subject to the agreement. (Ducker v. Rapp, 67 N.Y., 471; Bangs v.Strong, 10 Paige, 11.) The learned counsel for the plaintiff contends that the agreement as alleged reserves the right of the creditor against Davies. When, in an agreement between a creditor and the principal debtor extending the time of payment, the remedies against the surety are reserved, the agreement does not operate as an absolute, but only as a qualified and conditional suspension of the right of action. The stipulation in that case is treated in effect as if it was made in express terms, subject to the consent of the surety, and the surety is not thereby discharged. (Story's Eq. Jur., § 326; Bangs v. Strong, 10 Paige, 18; Kearsley v. Cole, 16 M. W., 128; OrientalFinancial Corporation v. Overend, Gurney Co., 7 H. of L. Cas., 348; Morgan v. Smith, 70 N.Y., 537.) But we are of opinion that the agreement alleged does not bring the case within the principle of these decisions.

The "understanding" that the mortgage should in all other respects remain unaffected by the agreement, except as to the time of payment, emphasizes the one purpose of the agreement, viz., to extend the time of payment. The other stipulations in the mortgage were to remain in force as if the agreement extending the time had not been made. It would be a forced and unnatural construction to hold that the parties designed to reserve to the creditor a right to proceed at once against Davies, which would enable the plaintiff to defeat the sole purpose of the agreement. The court in Claggett v.Salmon (5 Gill. Jo., 314) affirmed the decree of the chancellor, who held that the extension relied upon in that case was consistent with the obligation entered into by the sureties, and the agreement expressly provided that it should not interfere with or invalidate the liability of the sureties on the mortgage executed by them.

The further point is taken by the plaintiff that the averment of the agreement of extension may be rejected, leaving it for the defendant to bring the agreement to the notice of the court by answer. But we think the whole complaint is to be considered in determining whether it states a cause of action, as well the allegations which tend to discharge the defendant Davies, as those which tend to charge him.

These views lead to an affirmance of the judgment.

All concur, except MILLER, J., absent.

Judgment affirmed.