New York Co-operative Building & Loan Ass'n v. Brennan

PATTERSON, J.

This is an appeal from a judgment entered In an action for the foreclosure of a mortgage made by the defendant Teressa Brennan to the plaintiff upon property situated on 27th street, in the city of New York. The plaintiff is a corporation organized and carrying on business under an act of the legislature of the state of New York passed in the year 1851. The purpose of its incorporation is, by co-operation, to accumulate a fund to be loaned to its members for the purchase of real estate, the erection •of buildings, making improvements on lands or paying off incumbrances, and to accumulate a fund to be returned to its members who do not obtain loans. The defendant Teressa Brennan became ■a member of the plaintiff corporation in November, 1895, and in January, 1896, obtained from it a loan of $20,000 on the 27th street premises; she on January 7, 1896', executing and delivering her bond and mortgage on said premises to secure the same and other indebtedness to accrue. At the same time she executed and delivered to the plaintiff a mortgage for $1,500 on lots in 184th street, in the city of New York, which was given as additional security for the loan of $20,000. In May, 1897, the $1,500 mortgage was satisfied. The sum of $1,400 was paid to the plaintiff to apply to the payment of interest and premiums on the loan of $20,000. Thereupon Mrs. Brennan executed another collateral mortgage on the premises in 184th street, as additional security for the $20,000 loan, to the extent of $1,000. At the time the $20,000 mortgage to foreclose which this action is brought was given, there was an ■existing mortgage of the same amount which was the first lien •on the premises in 27th street. It was a lien for $20,000 only. At the same time there was a second mortgage upon the same property made by Mrs. Brennan to the defendant Minnie Daniel for the sum of $1,200. 0‘n January 8, 1896, the plaintiff paid to Mrs. Brennan the full amount of the loan of $20,000, and that money was used io satisfy the prior $20,000 mortgage upon the premises. On the day .on. which the $20,000 was executed, Mrs. Brennan delivered • into the possession of the plaintiff a satisfaction piece of the Daniel mortgage for $1,200, and executed a new mortgage to the defendant Daniel for $1,200, covering the same premises, and reciting that it was subject to a first mortgage upon said premises for the sum of $20,000 and interest. This second mortgage was drawn by the attorney for Mrs. Brennan, and was taken, fully executed, to the office of the plaintiff on the 2d of January, 1896. So far as appears, the defendant Daniel was not a party to any of the interviews or negotiations between the plaintiff and Mrs. Brennan, nor was she aware of the details thereof. It would appear that the mortgage to the defendant Daniel was fully executed and ready for delivery on the 2d of January, and the reference in that mortgage to the prior mortgage of $20,000 is distinctly to one for that sum then existing upon the property, which is described as “a straight mortgage,” differing essentially in its terms from the $20,000 mortgage to foreclose which this action is brought. On January 8, 1896, the signature and acknowledgment of Mrs. Brennan upon the new Daniel mortgage were stricken out, and it was resigned and reacknowledged on the 8th of January, 1896, by Mrs. Brennan. The $20,000 mortgage to the plaintiff was given at the same time, and the Daniel mortgage was put upon record a few minutes later than the mortgage to the plaintiff. It is evident that the satisfaction piece of the first and the substitution of the second Daniel mortgage were intended to be in aid of a transaction by which Mrs. Brennan would be enabled to borrow $20,000 from the plaintiff. But there is nothing in the record to show that Mrs. Daniel was cognizant of the fact that any other mortgage was intended to be given by Mrs. Brennan to the plaintiff than one which should, in its terms, correspond with the prior $20,000 mortgage existing upon the property on the 2d day of January, 1896, or that Mrs. Daniel in any way consented to the subordination of her lien to all the claims and demands to secure which, in addition to the $20,000 loan, the mortgage sought to be foreclosed in this action was given. That it was intended by Mrs. Daniel that the new mortgage for $20,000' should take precedence of her claim to the amount of $20,000 and interest we think is clear, and her contention that her lien is altogether prior to that of the plaintiff cannot prevail. It is not set up as a defense in the answer that she is entitled to absolute priority. The discharge of her old mortgage was undoubtedly given for .the purpose of making her lien subordinate to a new mortgage to the plaintiff, and the satisfaction piece of her existing mortgage and the making of a new mortgage were doubtless sanctioned by her for the purpose of clearing the record.

It is claimed by the defendant Daniel that the plaintiff, having, the security of a mortgage upon the 184th street lots, should be compelled to resort first to that security, before foreclosing the mortgage in suit. No such issue is raised by the averments of her answer, and it is not one that could be raised by a counterclaim. A right of the character asserted is a distinct cause of action, and cannot be presented by counterclaim, because it does not arise out of the transaction set forth in the complaint, and is not connected with the subject of the action. But, at all events, such relief could not be granted, because it is not made to appear that the 27th street property subject to the two liens is an adequate security for both, or that the plaintiff could realize its debt out of the collateral security. Neither of these facts was alleged, nor was there any attempt to prove them. Woolcocks v. Hart, 1 Paige, 185; Evertson v. Booth, 19 Johns. 496. And the burden would have been upon the defendant Daniel to prove facts entitling her to such relief. Herriman v. Skillman, 33 Barb. 378. The circumstance alone that the plaintiff has two securities, upon only one of which the defendant Daniel has a lien, is not sufficient to give her an absolute right to compel the plaintiff to resort primarily to the security upon which she had no lien.

The principle upon which the referee computed the amount- due upon the mortgage, and the provision of the judgment with respect to the payment of the plaintiff’s lien out of the proceeds of sale, present the most serious matter arising on this appeal. As between the plaintiff and Mrs. Brennan, the principle followed by the referee is undoubtedly correct; but, as respects the rights of the defendant Daniel, it is erroneous. Mrs. Brennan was a borrowing member of the plaintiff society, and the $20,000 mortgage was given to secure not only the loan of $20,000 and interest thereon, but also premiums, dues, and. fines, according to the articles of association, at the rate of $206.72, to be paid monthly on the 7th day of each month, beginning the 7th day of February, 1896. They aggregate a large sum. Thus the indebtedness of Mrs. Brennan to secure which the mortgage was given was greatly enhanced from month to month. In computing the amount due upon the mortgage, the referee allowed interest at 5 per cent, from January, 1896, for 4 years, 10 months, and 12 days, amounting to $4,866.66, and also the premium on the loan from January, 1896, to the time of the commencement of this action, at $40 per month, as provided for in the mortgage, amounting to $2,080, and fines unpaid on arrears and an item of insurance, making a total amount due of $27,267.53, from which he deducted interest and premium paid by the defendant Mrs. Brennan of $5,446.17. membership dues paid by Mrs. Brennan of $119.30, withdrawal interest on dues, $152.25, and rents collected by the plaintiff of $494.89, making a balance due the plaintiff $20,054.92. As between the plaintiff and Mrs. Brennan, this computation is correct, with the exception that there is an item of $280, which, according to the .terms of the mortgage, should not have been allowed. It was for $20 a week for dues of a nonborrowing member for 14 weeks previous to the date at which Mrs. Brennan became a borrowing member of the association. This $280 was a debt due by her under the terms of her membership in the plaintiff’s association, ■ for it is provided in one of the rules of that association that a member shall pay from the date at which the series to which such member belongs began; but the provision of the mortgage is distinct that the items, in addition to the amount of the loan for which it was given, should be chargeable as of the 7th day of February, 1896. While the computation of the referee, with the exception indicated, is correct, and the mortgage is enforceable against Mrs. Brennan for the amount found due, with the exception indicated, the equities of Mrs. Daniel must be considered; and, as the holder of the second mortgage for $1,200, her claim is not to be postponed in payment to anything more than the amount due upon the mortgage to the plaintiff, irrespective of those charges against Mrs. Brennan not included in the $20,000 loan. We have seen that she has not been shown to be a consenting party to the making of a mortgage to the plaintiff which should be anything more than “a straight” mortgage for $20,000, to be substituted for the prior incumbrance upon the premises to that amount. As said before, from all that appears, she knew nothing of the additional claims of the plaintiff that were to go in enhancement of the amount to be secured by its mortgage; and, under such circumstances, it would be inequitable to postpone her claim to share in the proceeds of sale to demands which it was not shown were within her contemplation when she consented to the satisfaction of her superior lien.

We think the equities of the parties should be adjusted, under the evidence, by providing that out of the proceeds of sale there shall be paid to the plaintiff the amount of $20,000, and interest at 5 per cent., to be reduced by such sums as have been paid to il on account of the principal of the mortgage and interest; that after such payment the defendant Daniel be paid out of the proceeds of sale the amount due on her $1,200 mortgage; and that after such payment to the defendant Daniel the balance of the amount due upon the plaintiff's mortgage be paid. The elements upon which the computation can be made, including, as they do, the question of the application of payments made by Mrs. Brennan, are not before this court, so that the proper computations might be made by us; and therefore the case must be sent back to the referee, to make computations in accordance with the views herein expressed. After the computations are made as directed, the judgment must be modified in accordance with the changed computations, on application to the special term, and meantime all proceedings on the judgment are stayed.

Mrs. Brennan has served a notice of appeal in this case which is entirely ineffectual for any purpose, she not having answered in the action; and, there being nothing to review upon her appeal, such appeal must be dismissed, with costs. The defendant Daniel is allowed the costs of this appeal. All concur.