Hone v. Fisher , 2 Barb. Ch. 559 ( 1848 )

The Chancellor.

The decree in this case is erroneous ; even if the vice chancellor is right in supposing that neither party intended to discharge the original indebtedness upon the notes, and that the deed and defeasance were a mere collateral security for the payment of that original indebtedness. For the decree charges the defendant Whitmore, as well as G. Fisher, with the balance which may remain dire upon all three of the notes, if the proceeds of the sale of the premises shall not be sufficient to pay them in full; although Whitmore was not indebted to Brown & Hone for any part of two of those notes, md merely signed the name of his firm to the third note as security for his father-in-law. And certainly he cannot be charged as on an implied covenant, to pay the debt of another, by the execution of the deed. For, under the provisions of the revised statutes there is no implied covenant for the payment of the debt intended to be secured thereby. But on the contrary, the statute declares, that where there is no express covenant for such payment, contained in the mortgage, and no bond or other separate instrument to secure such payment has been given, the remedies of the mortgagee shall be confined to the lands mentioned in the mortgage. (1 R. S. 738, § 139.) And no covenant can now be implied in any conveyance of real estate, whether such conveyance contains special covenants or no.. (Idem, § 140.) Where a mortgage, therefore, is taken for the security of a pre-existing indebtedness, without any intention of discharging the original debtor from personal responsibility upon his former security, his liability upon that security will remain, notwithstanding the debt is further secured by such mortgage. But if tlie original indebtedness is intended to be discharged, and a mere mortgage is taken to secure the amount, without any express covenant to pay the same, and no bond or separate instrument is giyen to secure such payment, the mortgagee has no remedy upon any implied agreement of the mortgagor to pay the amount secured by the mortgage ; but must resort to the land alone, or the proceeds thereof, for payment. The result will be the same where an absolute deed is taken as a mere security for the repayment of the consideration of such deed, instead of an ordinary mortgage j and where there is no covenant, or other instrument, rendering any one personally liable for the debt intended to be secured.

In the present case there is no. covenant, in the deed executed by Whitmore, binding him to refund the consideration money, mentioned in that deed, in any event; or to pay the notes which yvero given pp PPd cancelled by the grantees in the deed at the time it was givep. Nor did he or his father-in-law execute any bond, or other separate instrument, binding them or either of them to such payment. And, as Whitmore was not personally liable for the payment of two of these notes, he wmuld not have been liable for the deficiency, so, far ás those two were concerned, if the no.te.s themselves had pot been cancelled, and he had signed a written agreement that the notes should remain as a collateral security for the payment of the amount of the consideration money expressed ip the deed, in case the proceeds, of the lanc| itself shopM not be sufficient to pay the amount.

From a careful examir. ation of the documentary evidence in this case, in connection with the positive answer of the defendant Whitmore, responsive to the bill, and after giving all due weight to fhe testimony in behalf of fhe complainant^ I capnot. resist the conclusion that the deed of May, 1838, was intended to be received as a substitute for, and in full discharge of, the, individual liability of G. Fisher upon two, of the notes, and of the liability of him and his copartner jointly upon the other note. The cancelling of the notes by Brown & Hone, and giving them up to Whitmore, and the malting put of a formal statement or account against Fisher & Whitmore, in which that firm was charged with the three notes, together with the interest and costs of protest, amounting to the exact consideration expressed in the deed, and then formally receipting that, account and delivering it to Whitmore, appear, to be acts which are wholly inconsistent with the idea that Brown <fc Hone expected or intended to reserve to themselves the right to sue G. Fisher, or the firm of Fisher &• Whitmore, on either of those notes, in case the amount mentioned in the deed and agreement of May, 1838, was not paid by the first of September thereafter; or if the proceeds of the house and lot, upon a sale thereof, should not be sufficient to pay the same.

From the testimony in the case, I have very little doubt that Brown had received such information as to the value of the. property, either from Whitmore and Hepburn, or from those to whom he had been referred, in the county where it was situated, as to induce him to suppose it to be worth much more than, the amount then due upon the notes ; and that the house and lot would unquestionably be redeemed within the time specified in the written agreement given by himself and his partner to, Whitmore. He also probably supposed that if the money was not paid by the day, he and his partner would be the absolute owners of the property, so. that they could sell it and pay themselves. In this view of the case, he may have considered the deed a mere security for the amount which was d,ue upon the notes before they were gi.ven up and cancelled. And it may not have been considered necessary by him to examine the question whether the grantees in the deed would have a personal claim against any one for the del ciency, if the premises should not be redeemed, and could not be sold for enough to pay the amount intended to be sectored by this conveyance.

As I have arrived at the conclusion- that neither of the appellants is liable for the deficiency, or any part of it, it is perhaps a matter of very little consequence to them whether the deed is to be considered an absolute conveyance, with an agreement to re-sell to Whitmore upon certain conditions, or as a security for the payment of money merely, so as to require a foreclosure to give to the complainant a perfect title to the land. If the value of the house and lot had been so much greater than the amouin, of the three notes as Brown & Hone supposed it to be, at the time they took the deed, as a substitute for the prior indebtedness, I should think the transaction was intended as a mere security; and that Whitmore would have the same equity of redemption as if be had given a mortgage in the ordinary form to secure the same amount, without personal liability to pay the debt if the mortgaged premises should prove to be insufficient for that purpose. And the conclusion that in equity the grantor had a redeemable interest in the premises, is strengthened by the fact that there was a verbal agreement that he should retain possession of the house and lot until the time fixed for the payment of the money arrived, and without paying rent in the meantime. In this respect, as well as in some others, this case is like that of Roach v. Cozine, (9 Wend. Rep. 228,) where the supreme court held that the grantor had an equity of redemption, notwithstanding his conveyance was absolute on its face. The defendant Whitmore also states, in his answer, that he applied for an extension of credit on giving security upon the property; but that Brown declined to take it except in the form of an absolute deed. I am therefore of opinion that if the premises had been as valuable in fact as they were represented to be, and Whitmore had applied to redeem after the first of September, 1838, and the complainant had insisted upon holding the property, this court would have held that the transaction was in fact a security for the consideration money mentioned in the deed, and the defeasance or agreement to re-convey.

The proper course therefore is to reverse the decree of the vice chancellor, and to declare that the deed was a security in the nature of a mortgage, but without personal responsibility on the part of either of the defendants for the payment of the amount intended to be secured thereby; and directing a strict foreclosure, unless Whitmore and wife redeem, by paying the $1726,73, and interest from the first of September, 1838, within thirty days after the entry of the decree upon this appeal. Or, if the complainant prefers it, he may have a decree declaring that the deed was an absolute conveyance, as the defendants have insisted in their answer; and not a mortgage. And in the latter case, the complainant will be entitled to the rents and profits of the premises, while the defendant Whitmore has occupied them as a tenant at will, at least for six years. If the complainant elects to have such a decree entered, the bill will be dismissed, upon that ground ; and without prejudice to his right to bring an action at law for the recovery of the rents and profits of the premises.

In either case, I shall not give the appellants costs, either upon this appeal or in the suit before the vice chancellor. For I am satisfied, from the testimony, that Brown & Hone were very greatly deceived in relation to the real value of the property ; and that they were induced, by the representations of Whit-more, to believe that he would redeem the property, and thus enable them to obtain the amount justly their due, when he in fact knew that the premises, subject as they were to the state mortgage, were not worth in cash any thing like the amount of. their debt.