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Frank v. Davis

29 Abb. N. Cas. 294 Court N. Y. Court of Appeals ; English

Delivered by Earl, Ch. J.

Contents

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p. 294
FRANK v. DAVIS.
N. Y. Court of Appeals ;
October, 1892.

Headnote

[Reversing 61 Hun, 496 .]
1. Foreclosure ; deficiency.] Under- Code Civ. Pro. § 1627—provid-ing that a judgment in foreclosure may award payment by the mortgagor “ of the residue of the debt remaining unsatisfied after a sale of the mortgaged property, and t-he application of the proceeds pursuant to the directions contained therein,”— a deficiency judgment may be entered, although there may have been no sale of the premises in the action in which it is rendered, by reason of the sale of the premises pending such action in an action to foreclose a prior mortgage, if the proceeds of such sale are not sufficient to satisfy the second mortgage.
2. Statutes; interpretation.] The purpose of 2 R. S. p. 191, § 152, substantially re-enacted in Code Civ. Pro. § 1627,—providing that in foreclosure a personal judgment against the mortgagor
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may be ordered for the balance of the mortgage debt that may remain unsatisfied after the sale of the premises,—was to bring the practice in foreclosure within the general chancery rule, that where a court of equity obtains jurisdiction of an action, it will retain it and administer full relief both legal and equitable so far as it pertains to the same transaction or subject matter; such statute should not, therefore, receive the limited construction that a deficiency judgment can only be had where the deficiency is ascertained by a sale in the action in which it was rendered, but in view of the purpose of the statute, should be held to apply where the deficiency has been ascertained by a sale in an action to foreclose a prior mortgage, had pending the action of foreclosure in which the deficiency judgment is sought.
Appeal from an order of the General Term of the Supreme Court, First Department, which reversed an order granting an application by the plaintiff for leave to enter a deficiency judgment in an action of foreclosure.
Action for the foreclosure of a mortgage brought by Julius J. Frank against Edward A. Davis.
The ordinary judgment of foreclosure and sale was given, containing the usual provision for a deficiency judgment and execution thereon. The defendant appealed from the judgment to the General Term and to this court, and the judgment was here affirmed ( 127 N. Y. 673 ). During the pendency of the appeals, proceedings on the judgment were stayed. After the appeal had been taken to this court, an action was commenced to foreclose a prior mortgage upon the same premises, to which the parties to this action were made defendants, and that action resulted in a foreclosure judgment, and the premises were sold under that judgment while the appeal in this action was pending in this court, and a surplus was produced after satisfying the prior mortgage. In a proceeding for the distribution of such surplus upon the application of this plaintiff, about the sum of $4,000 was applied upon his judgment, and there was still left unpaid thereon upwards of $3,000.
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The Special Term., upon the authority of Siewert v. Hamel ( 33 Hun, 44 ), granted plaintiff’s motion for an order directing the clerk to enter and docket a judgment in his favor for the amount of such deficiency, and granting him execution therefor.
The General Term reversed the order made by the Special Term upon the ground that no deficiency judgment could be entered under Code Civ. Pro. §§ 1626, 1627, because the lien sought to be foreclosed had been destroyed by virtue of the foreclosure of the prior lien, and there could, therefore, be no sale of the mortgaged property ; following Loeb v. Willis ( 22 Hun, 508 ), and disapproving Siewart v. Hamel (33 Id. 44). [Reported in 61 Hun, 496 ; S. C., 16 N. Y. Supp. 496 .]
The plaintiff appeals to this court.
Julius J. Frank (Samuel W. Weiss, attorney), for appellant.
I. Where a court of equity once obtains jurisdiction it will give such relief as the facts require in order to terminate the litigation between the parties (citing McGean v. Metropolitan Elevated R. R. Co., 133 N. Y. 9 ; Lynch v. Metropolitan Elevated R. R. Co., 129 Id. 274).
II. The surplus over the prior mortgage must be regarded as land (citing Matthews v. Duryee, 4 Keyes, 525 ; Dunning v. Ocean National Bank, 61 N. Y. 497 ).
Benjamin M. Cardozo (Donohue, Newcombe & Cardozo, attorneys) for respondent.
I. A foreclosure in equity is not intended to act in personam, but is in the nature of a proceeding inrem ; and without the aid of some statutory authority, the only proper' remedy for a deficiency is by an action at law upon the bond (citing Dunkley v. Van Buren, 3 Johns. Ch. 330 ; Sprague v. Jones, 9 Paige, 395 ; Burroughs v. Tostevan, 75 N. Y. 567 ; Orchard v. Hughes, 1 Wall. 73 ; Noonan v. Lee, 2 Black. 499 ; 2 Jones on Mortgages, §§ 1709, 1711 ; Code Civ. Pro. §§ 1626, 1627).
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II. The order of the General Term was discretionary, .and is, therefore, not appealable to this court (citing Withers v. Morrell, 3 Edw. Ch. 560 ; North Am. Fire Ins. Co. v. Handy, 2 Sandf. Ch. 492 ; Schell v. Mayor, 128 N. Y. 67 ; Farmers’ Loan & Trust Co. v. Bankers’ & Merchants’ Telegraph Co., 109 Id. 342).

The judge at Special Term granted plaintiff’s motion upon the authority of the case of Siewert v. Hamel ( 33 Hun, 44 ). The General Term disapproved of the decision in' that case and held that the jurisdiction of an equity court to enter a deficiency judgment in an action to foreclose a mortgage is strictly statutory, and that such a judgment can be entered only after a sale under the foreclosure judgment and a deficiency thus resulting and ascertained.

In England, and in this State, prior to the revised statutes, the court of chancery, in an action to foreclose a mortgage, was not supposed to have jurisdiction to render a personal judgment against the mortgagor upon his bond or covenant to pay the mortgage debt, and such a judgment could only be obtained by an action at law (Noonan v. Lee, 2 Black. 499 , 501 ; Orchard v. Hughes, 1 Wall. 73 ; Dunkley v. Van Buren, 3 Johns. Ch. 330 ; Jones v. Conde, 6 Johns. Ch. 77 ; Globe Ins. Co. v. Lansing, 5 Cow. 380 ; Sprague v. Jones, 9 Paige, 395 ; Equitable Life Ins. Soc. v. Stevens, 63 N. Y. 341 , 344; Burroughs v. Tostevan, 75 N. Y. 567 , 572). This was an exception to the general rule that where a court of equity obtains jurisdiction of an action it will retain it and administer full relief both legal and equitable, so far as it pertains to the same transactions or the same subject matter (Lynch v. Metropolitan Elevated Railroad Co., 129 N. Y. 274 ; McGean v. Same, 133 Id. 9). The purpose of this rule was to relieve parties from the expense and vexation of two suits, one equitable and the other legal,

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where the whole controversy could be adjusted in the one suit. There was no reason, so far as we can perceive, for taking the case of a mortgage foreclosure out of this convenient and beneficial rule; and the lawmakers of this State took early occasion to change the law by providing that a personal judgment for a deficiency may be given in the foreclosure action against any party liable for the mortgage debt (2 R. S. 19, §§ 151, 154). They went further than the equitable rule and authorized a personal judgment, not only against the mortgagor, as to whom equitable relief could be had, but also against any other-person who was obligated for the payment of the same debt. It was early held that a contingent decree for the payment of the deficiency could be made before the sale-under the foreclosure judgment (McCarthy v. Graham, 8 Paige, 480).

The position taken by the defendant (in which the court below sustained him), is extremely technical. It was provided in the Revised Statutes that a personal judgment against the mortgagor might be ordered “ forth e balance of the mortgage debt that may remain unsatisfied after a sale of the premises,” and the Code is substantially the same (§ 1627). His claim is that as there has been and could be no sale upon the judgment in this-action, the deficiency could not be ascertained in the-mode mentioned in the statute, and that therefore a deficiency judgment is unauthorized and that the plaintiff must bring an action at law to obtain such a judgment.

The purpose of the provisions contained in the Revised Statutes and re-enacted in the Code was to change the-chancery rule as it had before been understood and to-bring the practice in foreclosure actions within the general chancery rule above referred to, and even, as we have-seen, to extend that rule. The deficiency was to be ascertained by a sale of the mortgage premises, and not by the estimates of witnesses or other less satisfactory-evidence. We are asked to hold that enough of the old

p. 299
chancery rule is left to prevent a deficiency judgment unless the deficiency be ascertained by a sale in the actions in which the judgment is asked. We think we are justified in holding that that rule has been entirely swept away, and that the general rule in equity practice above referred to, except as it is modified by the provisions of the Code,, governs foreclosure as other equitable actions. Where-there is a sale under the foreclosure judgment, and after-the application of the proceeds there is a balance unpaid upon the mortgage, the deficiency is thus ascertained.. But the full purpose of the statute has been accomplished if the deficiency be ascertained as in this case by a sale in an action to foreclose a prior mortgage to which the-defendant was a party.

The surplus arising from the sale under the prior-mortgage is as to this plaintiff, for the purpose of the-lien of his mortgage, to be treated as real estate (Moses v. Murgatroyd, 1 Johns. Ch. 119 ; Dunning v. Ocean National Bank, 61 N. Y. 497 ). The surplus money took the place-of the real estate, and the plaintiff’s lien was transferred' to that. He could not sell it under his judgment, but he-had the right to have it applied upon his judgment, and such application took the place of and was in lieu of a sale of the real estate. The deficiency was thus ascertained and we cannot hold that a court of equity could not in such a case give a personal judgment for the defi-ciency without going against the prevailing practice under the general rule above referred to, without unnecessarily shortening the arm of equity and sacrificing substance for-mere form. The plaintiff properly obtained his equitable-judgment and as part of the relief to which he is entitled,, to do complete justice between the parties, he should have-the deficiency judgment which he asks.

The order of the General Term should be reversed and that of the Special Term affirmed, with costs in this court- and the supreme court.

All the judges concurred.

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