Mehlhop v. . Central Union Trust Co.

One Haebler was the owner of a parcel of real estate in the city of New York. A past due mortgage for $30,000 held by the Central Union Trust Company, the defendant, was a lien upon the land. Haebler was not liable upon the bond, but he was anxious to prevent the foreclosure of the lien. To that end, he obtained the assurance of the defendant's representative that the mortgage would be extended for three years if a payment of $3,000 was made upon account. The understanding then reached was indefinite and inchoate. Details were left to be settled upon the signing of the written contract which was to be drawn by the defendant's lawyers. Duplicate instruments were thereupon prepared and forwarded, unsigned, to Haebler. They were dated January 6, 1916. They called for an extension, not for three years from their date, but for three years from January 8, 1915, when the mortgage had matured. They required Haebler to assume the payment of the debt, and provided that payment should be accelerated in a number of contingencies. The debt was to become due, for illustration, if two or more fire insurance companies should refuse to issue policies of fire insurance covering the mortgaged property, or if Haebler or any subsequent owner of the premises should fail to furnish the mortgagee or any proposed assignee of the mortgage with a certificate showing the amount then due upon it, and whether there were any offsets or defenses thereto. None of these terms had been part of the informal understanding.

In the interval between the preliminary arrangement and the preparation of the documents, Haebler made a conveyance of the mortgaged property to the plaintiff. Both men were represented by the same attorney, Mr. Cohn. The documents, when received, were changed by inserting the plaintiff's name and address for those of his grantor, and his signature was added. They were then left with the defendant together with a certified check for $3,750 drawn by Mr. Cohn to the defendant's order, and another check, uncertified, made out in like form, for $29.50, the fees and disbursements of the defendant's lawyers. The larger check was for accrued interest, $750, as well as for the agreed installment of the principal. Both checks were retained by the defendant and collected. Till then, it had not observed that the plaintiff had been substituted for Haebler as a party to the contract. On learning of the change, it wrote to the attorney that it would not sign the extension without the signature of Haebler and his assumption of the debt. Mr. Cohn called a few days later at the defendant's office and saw the man in charge of the real estate department. He gave notice that the $3,000 had been paid in fulfillment of one of the terms of a proposed contract of extension, and that if the company was not satisfied with the contract as tendered, the money must be returned. The defendant refused either to sign or to repay.

An action of foreclosure followed. The plaintiff in that action, the defendant here, alleged in its complaint that $3,000 had been paid on account of the principal, and that the residue of the debt was due. The defendant, the present plaintiff, denied that the payment had been made on account of a past due mortgage, and alleged that in accepting it the mortgagee had consented to an extension of the mortgage, and that the suit was premature. The court upon the trial of that action found against the defense. It found that "no agreement purporting to extend the time of payment of said principal sum of said bond and mortgage was ever executed and delivered by plaintiff, and the time of payment of said principal sum was never extended." It found also that "the payment of $3,000 made on January 7, 1916, was a payment on account of said past due bond and mortgage." Judgment of foreclosure followed. The plaintiff, deprived by that judgment of the benefit of the extension, brought this action to recover the $3,000 as paid upon a consideration which had failed. The trial judge gave judgment in his favor. The Appellate Division reversed, and dismissed the complaint. The plaintiff has thus lost both the extension and the money.

We think the money should be repaid. Neither Haebler nor the plaintiff was personally liable for the payment of the mortgage debt. Each of them was free, if he chose to make tender of something in reduction of the lien, to affix to the tender such conditions as he pleased (Nassoiy v. Tomlinson, 148 N.Y. 326,331). A condition was affixed, but the defendant has ignored it. The money was tendered, not in fulfillment of an existing duty, but as the price of a promise to be given in exchange for it. When the promise was withheld, the consideration for the payment failed (2 Williston on Contracts, § 814). The defendant, upon rejecting the condition, should have restored what it received. We see no force in the suggestion that restitution, if due at all, is due to Haebler and not the plaintiff. The money came to the defendant through the certified check of the attorney, Mr. Cohn, who tendered it in behalf of the plaintiff, the owner of the property. How the plaintiff came by it, whether through a loan from Haebler or otherwise, is irrelevant (Garr v. Martin, 20 N.Y. 306;Matter of Dunfee, 219 N.Y. 188, 190). The tender was his, and to him is owing the return.

The judgment in the foreclosure suit is pressed upon us as a bar. We cannot give it that effect. The only question at issue in that suit was whether the transaction had resulted in an extension of the mortgage. If it had, the suit was premature. The adjudication was that the treaty for an extension had never ripened into a contract. The plaintiff, far from questioning that fact, stands upon it to-day as the basis of his action. His grievance is that although the contract was inchoate, the money is retained. The grievance is not shown to be unreal by the finding that the money was a payment on the mortgage. A payment undoubtedly it was, though in consideration of something else. The question now is whether the payment is to be surrendered or withheld. No such question was before the court in the foreclosure suit. There was no attempt to answer it, and the attempt, if made, would have been abortive. "The rule is that a judgment does not work an estoppel as to unessential facts, even though put in issue by the pleadings and directly decided" (Silberstein v. Silberstein, 218 N.Y. 525, 528; cf. Cauhape v. Parke-Davis Co., 46 Hun, 306; 121 N.Y. 152; Campbell v.Consalus, 25 N.Y. 613). We do not forget that the plaintiff has been credited, upon foreclosure, with the amount of the payment which is the subject of this action. The credit was not of his seeking. He did his best to avoid it by exhibiting the true agreement. If the creditor persisted in allowing it, the debtor is not to blame. An answer denying payment, and alleging the understatement of the sum due upon the lien, would have been disregarded as a frivolous attempt to halt and hinder judgment. The owner was not even in a position to interpose a counterclaim, since he was not the maker of the bond (Lipman v. Jackson Architectural IronWorks, 128 N.Y. 58, 63). The upshot may be unfortunate for the holder of the mortgage. The retention of money which in good conscience should have been returned is the cause of its misfortune.

The defendant seems to be impressed with the belief that the maintenance of this action by the plaintiff rather than by Haebler has subjected it to a burden that it would otherwise have escaped. That would be an inadequate reason, if it were true, for the denial of the plaintiff's right. We cannot see, however, that it is true. Haebler was not in default in the performance of any contract which he had made with the defendant. The preliminary understanding, as we have seen, was imperfect and uncertain. The papers, when put in shape, embodied many provisions which had never up to that time been the subject of discussion. Haebler was then free either to withdraw altogether or to go forward upon new conditions. If the plaintiff's right of action were derivative, as Haebler's assignee, or if Haebler were himself the plaintiff, the result would be the same.

The judgment of the Appellate Division should be reversed, and that of the Trial Term affirmed, with costs in this court and in the Appellate Division.

HISCOCK, Ch. J., HOGAN, POUND, McLAUGHLIN, CRANE and ANDREWS, JJ., concur; CRANE, J., not voting.

Judgment accordingly.