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Russell v. Weinberg

2 Abb. N. Cas. 422 Court City Court of Brooklyn; Special Term, English

Delivered by Reynolds, J.

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p. 422
RUSSELL v. WEINBERG.
City Court of Brooklyn; Special Term,
August, 1877.

Headnote

Defense in Foreclosure of Mortgage of Real Estate.—Mortgage.—Principal and Surety.
If a creditor omits to do an act, on the requirement of a surety, which equity and his duty to the surety enjoins on him to do, and the
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surety is actually injured by the omission, the latter should be exonerated, but only to the extent of such injury.
The solvency of the debtor or the sufficiency of the fund at the time when a surety requests the creditor to collect from the principal debtor, and subsequent insolvency or insufficiency, are essential parts of the defense of the surety, and must be alleged and proved by him.
If the present insufficiency of the mortgaged fund is shown, the insolvency of the principal debtor need not be shown.
Where a mortgagor conveyed the mortgaged premises to one who assumed the payment of the mortgage, and upon the maturity of the mortgage he requested the mortgagee to foreclose immediately, on the ground that the premises, which were then sufficient to satisfy the mortgage, might depreciate so as to become inadequate security, but the mortgagee neglected so to do, and the property became in adequate,—Reid, on foreclosure of the mortgage, that the mortgagor was not liable for a deficiency.[1]
Trial by the court.
This suit was brought by John Russell against Hannah Weinberg, John J. McCrum and others, to foreclose a mortgage on certain real estate in the city of Brooklyn. The defendant McCrum was the mortgagor. After making the mortgage in suit, he conveyed the mortgaged premises to the defendant Wein-: berg, she assuming the payment of the mortgage. Upon the maturity of the bond and mortgage, McCrum, having ¿then come into the position of surety, requested the plaintiff (the mortgagee) to proceed immediately to foreclose and collect the debt, on the ground that the premises, which were then sufficient-to satisfy the mortgage, might depreciate so as to become an inadequate security. The plaintiff neglected for a year to commence his suit, and the proof at the trial showed that although the premises were of sufficient value to pay the mortgage debt and costs of foreclosure at the time the request was made, they had since so far depreciated as to make it altogether-
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probable that there would be a deficiency after applying the proceeds of the sale. The question was whether the defendant McCrum should be made liable for such deficiency.
Rufus L. Scott, for plaintiff.
Roger H. Lyon, for defendant McCrum.
I. The defendant Weinberg, having assumed the payment of the mortgage executed by the defendants Mc-Crum, became a principal debtor. And the relation created between her and her grantors was that of principal and surety (Calvo v. Davies, 8 Hun, 222 ; Lawrence v. Fox, 20 N. Y. 268 ; Burr v. Beers, 24 N. Y. 178 ; Billington v. Wagoner, 33 'N. Y. 31; Smith v. Townsend, 25 N. Y. 479 ; Garnsey v. Rogers, 47 N. Y. 233 ; Comstock v. Drohan, 8 Hun, 373 ). (a) The record of the deed of the McCrums to Weinberg was notice of this relation to the plaintiff Russell, who was mortgagee (Calvo v. Davies, supra.) (b) A grantee assuming a mortgage is liable as a principal debtor upon the principle: 1. That the grantor, being himself personally liable to pay the mortgage and conveying to a grantee assuming it, the covenant of the latter is for the benefit of the grantor, who has a right to see it enforced, and in default of the grantee performing the covenant, the mortgagee is entitled by an equitable subrogation to all the rights of the grantor (the surety), and hence the mortgagee can enforce the right. So it has been held that in a case where the grantor was not personally liable, and the grantee had made such a covenant, that the mortgagee could not enforce it, because the grantor himself could not, and there was no such right to which the mortgagee could be subrogated (King v. Whitely, 10 Paige, 465; Trotter v. Hughes, 12 N. Y. 74 ; Flagg v. Munger, 9 N. Y. 483 , 501; Ford v. David, 1 Bosw. 599 ; Doolittle v. Naylor, 2 Id. 225; Wright v. Storrs,
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6 Id. 610). 2. That the grantee, making such a covenant or promise to the grantor, makes it for the benefit of the mortgagee, and the latter can enforce it (Ricard v. Sanderson, 41 N. Y. 179 , and cases cited above).
• II. The neglect of the plaintiff when requested by the sureties to foreclose or prosecute the principal debtor, with a notification that they would not be responsible for any deficiency if he did not, discharged the sureties (Remsen Beekman, 25 N. Y. 552 , and cases cited there and above); or even if there had been no notice (Remsen v. Beekman, supra). A depreciation so as to render the McCrums liable, having occurred between the time of the request and the suit to foreclose, a discharge results from the operation of the law governing principal and surety. If it does not result by operation of law, it certainly does upon a rule of equity founded upon the obligation of the creditor to act justly towards the surety. The effect of the plaintiff’s neglect to foreclose was an extension of the mortgage without the consent of the sureties, which operated to discharge them.
III. The McCrums, being sureties and having parted with the land, the primary fund, were no longer bound in the first instance to pay the debt; they could only give the notice and request they did to the plaintiff, whose duty it was to act with due diligence in compliance therewith.

[After stating the facts.]—The rule seems to be that if the creditor omits to do an act, on the requirement of the surety, which equity and his duty to the surety enjoins on him to do, and the surety is injured by the omission, the latter ought not to be held. That duty enjoins upon the creditor to enforce payment from the party primarily liable, and if, being requested by the surety to collect the debt when it is

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collectible from such party by measures of active diligence, the creditor refuses or neglects to do it, until it becomes uncollectible from the principal, such conduct ought to be a defense in equity to any suit brought against the surety to charge him with the payment of the debt. But failure on the part of the creditor to comply with the request of the surety to enforce payment of the debt will not exonerate the surety, unless it result in actual injury to him, and then only to the extent of such injury. The solvency of the debtor, or the sufficiency of the fund, at the time when the request to collect was made, and subsequent insolvency or insufficiency, are essential parts of the defense of the surety, and must be alleged and proven by him (Thomas on Mortgages, 70-71; Remsen v. Beekman, 25 N. Y. 552 )'.

Plaintiff claims, however, that defendant McCrum has not brought himself within the rule releasing sureties, he not having shown that the defendant Weinberg is insolvent; and that, as it does not appear but that plaintiff may be able to collect any deficiency out of her, defendant McCrum is not shown to have sustained any injury from the plaintiff’s delay.

The answer to this is, that if it turns out that the deficiency can be collected from Weinberg, it will be the duty of the- plaintiff to so collect it, and in that case there is no occasion for a decree holding the defendant McCrum ; but if it cannot be collected from Weinberg, and the defendant McCrum should be made liable, he would be thereby damnified through' the plaintiff’s neglect to the precise extent of the payment which he would thus be compelled to make. The mortgage having been collectible out of the property when the surety requested its collection, he ought not now to be called upon to make up for the subsequent depreciation of the property, and therefore there should not be any such direction against him in the

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judgment. Such direction, if effectual, would compel him to meet a deficiency which would not have existed if the creditor, the plaintiff, had complied with his reasonable request.

There must be judgment for a sale of the premises, and making the defendant Weinberg liable for any deficiency.

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