Wadsworth v. . Lyon

[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.]

[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.] On the 1st day of May, 1868, Bridget O'Day and her husband sold and conveyed certain lands to the defendant, Louisa L. Lyon, and, to secure a part of the purchase-money, she and her husband, James S. Lyon, executed to Mrs. O'Day a bond conditioned to pay the sum of $4,000, and Mrs. Lyon executed and delivered to Mrs. O'Day her mortgage on the lands as collateral security for the payment of the bond. On the 12th of June, 1868, Mrs. O'Day assigned the bond and mortgage to one Fellows, guaranteeing payment thereof. On the 17th day of January, 1873, Mrs. Lyon, by a deed, in which her husband joined with her as grantor, conveyed the lands to Mrs. Beck, wife of John Beck, which deed contained a covenant of warranty on the part of Mr. Lyon alone. The consideration of the conveyance was $10,000, which was the full consideration for the lands. Mrs. Beck did not assume the payment of the mortgage to Mrs. O'Day, and the conveyance was not subject to the payment of the mortgage, which was in no way mentioned in the deed.

After this conveyance Mr. and Mrs. Lyon remained the principal debtors, and the lands were simply security for the debt due upon the bond. Mrs. Beck owned the lands charged with the debt of Mr. and Mrs. Lyon, which, as between her and them, they were bound to pay. (Barnes v. Mott, 64 N.Y. 397, 402; 21 Am. Rep. 625; Thomas on Mortgages, 92, 94.) The primary liability of the obligors to pay the bond could not be shifted to the lands, except by a conveyance of the lands subject to the payment of the mortgage; or by deducting the bond from the consideration of the conveyance, or by some agreement between the grantors and grantee, charging the primary liability upon the grantee or the lands leaving, as between them, the grantors to stand as mere sureties for the bonded debt. If, while Mrs. Beck owned the lands, she had been compelled to pay the debt secured by the mortgage, she could have recovered the amount paid by her of the principal debtors, or she could have claimed subrogation to the rights of the holder of the mortgage, at the time of payment, and then enforced the bond against the principal debtors. She would have had these remedies, not because of the deed to her, nor by virtue of any implied covenant therein, but because, her lands standing as security for the debt of Mr. and Mrs. Lyon, she had been compelled to pay the debt to save her lands. It matters not that the deed was a quit-claim deed. That did not pay the debt of the grantors. It conveyed the lands, it is true, subject to the mortgage, necessarily subject to it, because it was a lien upon the lands, but subject to it only as security for their debt. Until she paid the debt, or her lands were taken to pay it, she would suffer no damage, being in the same condition as any surety for a principal debtor. But the moment she paid the debt to save her lands, she would have a cause of action, not on account of any effect attributable to the deed, but because the principal debtors failed to pay their debt, and she, as surety in virtue of her ownership of the lands, had paid it. The principles of law, applicable to quit-claim deeds, would have nothing, whatever, to do with the case; but the principles of law, governing the relations between principal and surety, would control.

On the 8th of April, 1874, one Stohl recovered a judgment, in the Supreme Court, against John Beck, for upwards of $6,000, and on the 16th day of October, thereafter, he commenced an equitable action against Mr. and Mrs. Beck to charge that judgment upon the lands, on the ground that they had been bought and paid for with the money of Mr. Beck.

On the 1st of December, 1874, Fellows began an action to foreclose the mortgage, and for judgment for deficiency, after applying upon the bond and mortgage the proceeds of the sale of the lands; and on the 25th of March, 1875, he recovered judgment by default, directing a sale of the lands; and the judgment also contained a provision for the entry of judgment against Mr. and Mrs. Lyon for any deficiency which should be shown by the sheriff's report of sale to exist after applying upon the bond and mortgage the proceeds of the sale.

On the 20th of July, 1875, Fellows assigned the bond, mortgage and judgment to one Caldwell, and on the 15th day of August, thereafter, the sheriff offered the lands for sale by virtue of the foreclosure judgment, and the plaintiff bid at the sale some more than the amount due upon the judgment, and the lands were struck off to him; but he never paid any part of the bid, and it was never demanded of him. No note or memorandum of the sale appears to have been made; the sheriff made no report of the sale, and the sale was abandoned. As that sale, even if binding upon Wadsworth, was never consummated, and was abandoned, it can have no effect, whatever, upon the rights of the parties in this action, and may be treated as out of the case; and the foreclosure judgment must be treated as if no attempt had been made to execute it. Mr. and Mrs. Lyon certainly cannot complain that it was not executed, and that Wadsworth was not held to his bid, because they were the principal debtors, bound to pay the bond and mortgage, and they could not ask to have the lands sold to discharge their debt. They were in no way damaged and acquired no equities, because Wadsworth did not pay his bid and take a conveyance of the lands. If he had done so, to the extent of the amount due upon the bond, he would have paid their debt.

Afterward, on the 31st of July, 1876, Stohl recovered a judgment in his equitable action against Mr. and Mrs. Beck, declaring his judgment against Mr. Beck a lien on the lands and directing that a receiver be appointed and the lands sold by him to satisfy the judgment. Thereafter, on the 12th of August, Mrs. Beck sold and conveyed the lands to the plaintiff by a quit-claim deed, for the consideration of $250. On the 15th of August one Deming was appointed receiver, in pursuance of the judgment in the equitable action, and he qualified as such. Afterward, Caldwell demanded of plaintiff the money due upon the bond, mortgage and judgment, and threatened to sell the lands by virtue of the judgment if the money was not paid; and thereupon, on the 19th day of August, at the request of the plaintiff, one Curtiss paid Caldwell the amount demanded, to-wit, $3,000, with interest thereon from August 1, 1875, and Caldwell thereupon assigned the bond, mortgage and judgment to Curtiss. On the 14th of October, 1876, in pursuance of an order of the court, Deming, as receiver, conveyed the lands to the plaintiff for the consideration of $200, which was paid by the plaintiff and applied on the judgment of Stohl v. Beck. After this conveyance, and the prior conveyance to plaintiff by Mrs. Beck, he took Mrs. Beck's position in the title to the lands and had all the title thereto which either she or her husband had previously had. He acquired no equities and no rights from her against Mr. and Mrs. Lyon, because she had no claim of any kind against them. She had not paid their debt and her lands had not been taken to pay it. All plaintiff got from Mrs. Beck were the lands, and they came to him as they came to her, charged with the debt of Mr. and Mrs. Lyon, and in his hands they were as before, simply security for the debt. Mr. and Mrs. Lyon still remained the principal debtors, liable, as between them and the lands, and as between them and the plaintiff and every one else, to pay the bond. It matters not that the plaintiff apparently paid but $450 for the lands. It was of no concern to Mr. and Mrs. Lyon and did not improve their position. Whether the plaintiff paid much or little for the lands did not enhance or affect their legal or equitable rights.

On the 20th of November Curtiss assigned the bond, mortgage and judgment to Mrs. White, and she paid him the full amount due thereon, and on the 22d of August, 1877, she assigned the bond, mortgage and judgment to Nelson K. Hopkins, who paid her the full amount due thereon. All the assignments above mentioned were made at the request and by the procurement of the plaintiff. On the 6th of December, 1877, the plaintiff sold the lands to one McDonough for $4,000, by a deed which contained the usual covenant for quiet and peaceable possession, and at the same time he agreed with McDonough to clear the lands of the lien of the mortgage and judgment; and thereafter, Hopkins, at the request of the plaintiff, released and discharged the lands from the lien of the mortgage and judgment, reserving and retaining the right to enforce the bond against Mr. and Mrs. Lyon.

Out of the $4,000 received from the sale of the lands plaintiff paid to Mrs. White the consideration of her assignment to Hopkins. On the 7th of August, 1878, the Supreme Court gave plaintiff leave to sue the bond, notwithstanding judgment of foreclosure, and thereafter Hopkins made formal assignment of the bond to the plaintiff and then this action was commenced to recover the amount due thereon, to-wit, $3,000, with interest from August 1, 1875.

The defendants do not claim that they have paid their bond or that they have been in any way discharged or released from the payment of the debt created thereby, or that they have been damaged by any thing that has been done with it. Their only defense is that the bond became merged in the foreclosure judgment, and that, therefore, the plaintiff cannot recover thereon against them.

There has in fact been no recovery upon the bond. The judgment simply provides as follows: "That if the moneys arising from said sale shall be insufficient to pay the amount so reported as actually due to the plaintiff, with interest thereon, and the costs, and expenses of sale as aforesaid, that the said sheriff specify the amount of such deficiency in his report of sale; and that on the filing of such report the defendants, James S. Lyon, Louisa L. Lyon and Bridget O'Day, who are personally liable for the payment of the debt secured by the said bond and mortgage, pay to the plaintiff the amount of such deficiency, with interest thereon from the date of said last-mentioned report, and that the plaintiff have execution therefor."

The judgment for deficiency is a mere contingency. It has not been actually entered, and is not a lien upon any property. It cannot be entered until the deficiency has been ascertained; and that can be ascertained only after a sale of the lands. No execution can be issued upon it for any deficiency, as it now stands. If there had been a sale, and the lands had sold for enough to satisfy the judgment and costs, then no judgment for deficiency could have been entered against the defendants. The proceeds of the sale would simply have satisfied the bond and mortgage, and the effect would then have been no other than if the owner of the lands, standing as surety for the debt, had paid the bond; and it is well settled that a surety can pay the principal obligation, and then take the obligation, notwithstanding payment, and enforce it against the principal debtor. (Champney v. Coope, 34 Barb. 539; S.C., 32 N.Y. 543; Harbeck v. Vanderbilt, 20 id. 395; Edgerly v.Emerson, 3 Foster [N.J.], 555.)

The judgment as to the foreclosure is final, but not as to the bond. As to that, it is simply decided that the obligors are liable thereon. The judgment is not as broad as the bond, and not as good as the bond, and hence the bond should not be held to be merged in it. The judgment as to the bond, in a general sense, is merely interlocutory; and while it may for some purposes be regarded as final, it is not so for all purposes. As to the mere holder of the bond, it may be regarded as final and conclusive, and may give him all the remedy and relief which he can ask; but it has determined nothing as to the rights of a surety against the obligors, and such rights were in no way litigated or involved in the determination made by that judgment. To such a case as this, then, the principle upon which the doctrine of merger rests, is in no way applicable.

When the principal and surety are sued upon any obligation securing a debt, as between the plaintiff and the defendants, the obligation becomes merged in the judgment; but it is not necessarily merged as between the defendants. In Clark v.Rowling (3 N.Y. 216), it was held, as stated in the head-note, that "a judgment upon a contract technically merges the demand, but not in so complete a sense that the courts may not look behind the judgment to see upon what it is founded for the purpose of protecting the equitable rights connected with the original relation of the parties;" and HURLBURT, J., in his opinion, said: "A judgment, instead of being regarded strictly as a new debt, is sometimes held to be merely the old debt in a new form, so as to prevent a technical merger from working injustice." In Kelsey v. Bradbury (21 Barb. 531), judgment was recovered against the maker and indorser of a promissory note. The indorser paid the judgment and took up the note and transferred it to Bradbury, and it was held that he could enforce payment of it against the maker, and that the note was not merged in the judgment. In Freeman on Judgments (§ 227), the rule is well formulated thus: "The merger of a cause of action has no effect upon the liabilities of the co-plaintiffs or the co-defendants between each other. Those liabilities are not in issue in the case, and therefore are not affected by the final determination of the action. In extinguishing a demand a judgment has no greater effect than mere payment. It leaves the liability of other parties to the defendant unaffected. A recovery upon a note against the maker and indorsers does not so merge the note as to prevent the indorsers from paying the judgment, receiving the note, and maintaining an action upon it against the maker." In Hanover Fire Ins. Co. v.Tomlinson (3 Hun, 630), it was held that "a judgment of foreclosure directing the sale of mortgaged premises, and the payment by the defendant of any deficiency that might arise upon such sale, is not such a judgment as is contemplated by section 71 of the Code relating to the bringing of actions upon judgments. On such judgments further proceedings, such as the confirmation of the referee's report, etc., must be had before a personal judgment can be entered."

The act of bringing the suit to foreclose the mortgage was not the act of the plaintiff, and it is difficult to perceive how it could have any effect upon his rights. He had the right, as owner of the lands which stood as security for the bond, at any time, to pay the bond, and then enforce it against the principal debtors. He does not occupy simply the position of the assignee of a bond and mortgage, having merely the rights which the mortgagee or assignee had; but he occupies the position as well of a surety, entitled to be subrogated to all the securities which the creditor held for the debt against the principal debtors; and by virtue of that principle of equity he was entitled to take this bond, after payment, and enforce it against the defendants. The right of subrogation in such a case is sanctioned by clear and well-established principles uniformly applied by the courts, and rests upon the broad and deep foundations of natural justice and moral obligation. (Hayes v.Ward, 4 Johns. Ch. 123; Hunt v. Amidon, 4 Hill, 345;Lewis v. Palmer, 28 N.Y. 271; Ellsworth v. Lockwood, 42 id. 89; Cole v. Malcolm, 66 id. 363.)

The defense set up is an extremely technical one; in no way involving the merits of the controversy between these parties. So far as I can perceive, it could make no difference with these defendants whether the plaintiff sued them upon the bond, or for the money, which he was obliged to pay to relieve his land from the lien of the mortgage. The recovery would be just as great in the one case as the other, and governed by substantially the same principles.

We are, therefore, of the opinion that this bond was not so merged in the judgment of foreclosure as to deprive the plaintiff, standing really in the position of surety for the debt, of the right to take it and enforce it against the defendants.

It matters not that plaintiff's equities are not set up, or mentioned in the complaint. He had the right, as surety, to pay the bond, take an assignment thereof, and bring his action thereon. Upon the trial he could prove his equities, in answer to any defense which the defendants attempted to establish, to sustain his right to recover as assignee of the bond. But the whole case was proved on both sides, without any objection to the form of the complaint, and all the facts showing plaintiff's equitable rights were found by the trial judge. Under such circumstances the plaintiff should have had such relief as the facts proved and found entitled him to.

The defendants, Mr. and Mrs. Lyon, are absolutely without any equities. They gave their bond for full value and have never paid it or devoted any property to pay it. If the plaintiff cannot enforce payment thereof, then no one can, and they have become absolved from payment by some strange legerdemain of law and facts as remarkable as incomprehensible.

The judgment should be reversed and a new trial granted, costs to abide the event.