Murray v. . Fox , 104 N.Y. 382 ( 1887 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The most important question in these cases grows out of the release executed by the plaintiff, which purports to discharge the party primarily liable for the mortgage debt from all responsibility for its payment. The bond in the first action was executed by Arthur W. Fox, and secured by the mortgage of Fox Williams. The bond in the second action was executed by both and secured in like manner. The mortgages incumbered parcels of land which had been conveyed by Fox Williams to the Grape Sugar Company by a full covenant deed, and for a price which covered the full value of the unincumbered fee; a fact which the trial court found upon sufficient evidence, and which is inferable from the character of the conveyance and the scope of the covenants contained in it. Fox Williams were partners when the bonds were given; doing business at first in the name of Arthur W. Fox and later in that of Arthur W. Fox Company; and each of the bonds was given for and represented an indebtedness of the partnership. That fact is also found by the trial court upon evidence quite sufficient to sustain it. The mortgages covered other lands of Fox in addition to that conveyed to the Grape Sugar Company, which, upon the death of Fox, descended to his heirs, who were named among the parties defendant in the foreclosure actions. Williams, as survivor of the firm, in possession of its assets and liable for its debts, was thus left a primary debtor for the bonds in suit. An action upon two notes of the firm was brought in another State where he chanced to be, and resulted in negotiations for a settlement of his liability, which culminated in the payment by him to the administratrix of the mortgagee of $13,500 upon an agreement of release and discharge, put in writing and formally executed, the construction of which is to be ascertained and determined.

That instrument recites the two bonds and mortgages now sought to be enforced; the execution by Fox and Williams of two other collateral mortgages; the delivery of two notes of the firm to the plaintiff's intestate, one for $6,500, and one for $610; the existence of other dealings between the parties; and the willingness of the administratrix to release Williams without discharging any other party or liability; and then provides that Williams is discharged and released from "all several liability on account of said bond, mortgages, notes, and all other doings whatsoever," and from "all joint liability on account of said bond, mortgages, notes, and other dealings and demands in connection with said firms," and concludes thus: "But not intending hereby to affect or discharge the liability of said Arthur W. Fox or his estate therefrom, or affect or discharge any other security for any of said demands other than the personal liability of said Williams." Previous to the execution of this release the Grape Sugar Company had discharged the Fox estate and Williams from all liability on their covenants of warranty; and assuming, what is denied and must later be considered, that the corporation stood in the attitude of a grantee buying for a full consideration, but without covenants, land incumbered by a mortgage, and so entitled on payment of the mortgage debt to enforce the bond against the mortgagor (Wadsworth v. Lyon, 93 N.Y. 201 208), it follows that the release of Williams, by plaintiff, cut off and destroyed the equitable right of subrogation belonging to the surety, unless the latter right is saved by the reservation. It is undoubtedly true that one of several debtors, jointly, or jointly and severally, liable for the same debt, may be released in such manner and with such reservation as will preserve the right of recourse against the others, even though sureties, when their rights and equities can be said to have been also preserved and left unaffected, the release becoming a mere covenant not to sue. It is strenuously insisted that such a rule of construction cannot possibly apply to the release of a sole debtor, not jointly liable at the time with any one, and that a covenant not to sue him must necessarily discharge and release the debt. (Brown v. Williams, 4 Wend. 360, 365) But there is room for debate as to whether the liability of Williams, originally joint with Fox, has become in all respects sole and several within the meaning of the authority cited, and we prefer to proceed with the inquiry as to the construction of the reservation. If, by its terms, the equity of the Grape Sugar Company to pay the debt in exoneration of its land, and then recover that amount from Williams, is preserved, then the release did not affect the surety and left its liability unchanged. However astonishing such a result would be upon the facts proven in the case, and however difficult it may be to believe that Williams meant and intended to pay $13,500 for a mere covenant not to be sued by Murray, leaving himself liable for the full mortgage debt to the Grape Sugar Company, and so paying that large amount for a mere choice of plaintiffs, that must be the effect of the reservation unless something in it indicates a different intent and admits of a construction more in accord with the obvious purpose and understanding of the parties. There are such expressions. The release discharges "all liability" "on account of" such mortgages. Not merely some liability, as, for example, that to a specific person, but "all" liability "on account of" the mortgages, evidently meaning every possible liability of Williams which could in any manner or at anybody's suit spring from the existence of the securities. And this meaning is sedulously preserved and carefully guarded in the peculiar phraseology of the reservation. As we read it, that reservation of the right to enforce other securities is not absolute and unconditional, and so inconsistent with what precedes it, but is limited and restrained precisely as we should expect to find it, having in view the situation and expressed purpose of the parties. The intent is declared to be "not to affect or discharge any other security for any of said demands,other than the personal liability of said Williams." That qualifying clause was inserted to preserve the full scope of the previous provision releasing Williams from all liability on account of, that is, originating in or springing from the mortgages. The obvious meaning is that the releasor discharges no security which may be enforced without involving the liability of Williams, and preserves all such as can be enforced without bringing, as a result, recourse against him. He was to be entirely discharged at all hazards from every liability, direct or indirect, and those securities were to be preserved, and those only whose enforcement was consistent with that primary and dominant purpose. Both parties may have believed that since Fox was sole obligor in one bond, Williams would stand as a surety mortgagor as to that, and so remedy could be had against he Fox heirs without a recourse over to Williams. Both parties, too, may have thought, what indeed is now asserted, that the mortgages could be enforced against the Grape Sugar Company without peril to Williams by reason of its release of covenants, and so it is easy to see why the reservation was made and its existing form. At all events it is limited and restrained, and the presence of the concluding phrase can have no force or explanation except to preserve the consistency of the instrument and its full effect as a discharge of Williams. This construction seems to us not only natural and reasonable, but fairly explains the large payment made by Williams and redeems it from the level of a marvelous and absurd folly.

But the appellant contends that even upon this construction the rights of the Grape Sugar Company were not infringed because it had already parted with those rights by its release of the Fox heirs and of Williams, previously executed. That release contains substantially two classes of provisions. It discharges the liability of the Fox heirs and of Williams upon the covenants in the deed, and then from all existing debts matured and unmatured. A large number of these, resting in notes of $5,000 each, are specifically mentioned, and a final covenant relating to the liabilities intended to be released, that the releasor has not parted with or impaired its title "to any such debts," indicates clearly that debts existing and to which the company had title were those referred to. It is not admissible to construe the release as operating upon debts non-existent, but possible to arise in the future. The argument on behalf of the appellant is, that a release of the covenants ipso facto discharged the equities possible to arise in favor of the covenantee against the covenantor. If that be true, the bare act of releasing the covenants made the land principal debtor for the mortgage, and amounted to an assumption by the Grape Sugar Company of the mortgage debt. No such agreement or intent is contained in the terms of the release, and must exist, if at all, as an inference, from the bare fact of a discharge of the covenants for a valuable consideration. I think that fact standing alone does not justify or compel the inference. If the actual consideration had been shown, and it had appeared that the covenantors paid to the covenantee the amount of the outstanding mortgages, or that for a less sum they agreed to take the peril of a foreclosure, the inference would follow. But, where the consideration is unknown and unexplained, and may have been merely adequate to cover the technical breach of covenant already existing, and no agreement or purpose of assumption is proved, I think the asserted inference does not follow, the equitable duty of payment is not shifted, the debt remains the debt of Fox Williams, and the land chargeable only as surety. It is said that an express covenant destroys or restrains an implied one. That is true, but there are no implied covenants in a deed to be destroyed or restrained. The statute forbids them, and that fact demonstrates that the equities of a grantee whose land has been sold for another's debt, rest not at all upon any implied covenant, but upon the just needs of the situation as they appeal to the conscience of the court. Unless, then, the equities of the situation are changed by the fact of the release, they must necessarily remain. That the taking of covenants does not impair or destroy the equitable right of the grantee to be protected against the forced payment of a debt which he has not assumed has been often decided, and is established by the cases which on a foreclosure have preserved to the grantee, although holding covenants of warranty, the equitable right to have the lands of the grantor covered by the mortgage first sold and applied to its payment. If one equitable right survives the taking of covenants (Clowes v. Dickinson, 5 Johns. Ch. 235; Skeel v. Spraker, 8 Paige, 182), why may not another? It is possible that an equitable right precisely equivalent to the legal right on the covenants might prove to be suspended during the existence of such legal right, simply because equity does not waste its resources or act without necessity, but the equity would be merely suspended, and not killed. Its death could only come from such a change in the relation of the parties as would throw justly upon the grantee the burden of the debt. And so the question comes back and seems to me to be the ultimate inquiry whether the bare fact of a release of covenants of warranty for a valuable consideration compels an inference that the releasor assumed as his own a mortgage debt of the grantor. I think not. Something more must appear to warrant the inference. In the present case, other and entirely different purposes may have occasioned the release. There may have been defects in the title not here disclosed and which the parties had principally in view; it may have had reference to the technical breach which already existed; or, what is more probable, it may have been given and received on the supposition that the grantors had already paid and settled the mortgage debt, or if not, that the releasors would have ample protection against loss in the very equities which they now invoke. For these reasons I cannot accede to the inference sought to be drawn, and since the equity remained and the necessity for its protection has come, I think it may be enforced.

* * * * * * * * The judgment should be affirmed with costs.

All concur, ANDREWS, J., on second ground set forth in opinion.