Hamlin v. Klein — 8 A.D. 413

Majority

p. 413

Frank H. Hamlin and Mary D. Wright, as Trustees under the Will of Alfred Wright, Deceased, from Marian H. Wright,, Respondents, v. Frederick Klein and Others, Appellants, Impleaded With the Jennings Park Homestead Association and Others, Defendants.

Headnote

Release of pao't of mortgaged premises—when procured by fraud it does not discharge a surety of the mortgagor.

A mortgage contained, among others, the following provision: “The party of the first part may pay thereon at any timo any sum not less than $300, to be applied on the principal thereof,” and ‘ ‘the party of the second part hereby agrees to release from the lien of the mortgage * * * each and every lot of said tract, according to a map thereof, on payment of the assessed valuation of the said lot, and all taxes and interest and insurance on such lot as fixed by said.

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association.” The map filed did not show the valuation of each of the lots as assessed hy the association.

’The treasurer of the association, the mortgagor, on mating a certain payment on the mortgage, stated to the assignee of the mortgage that the amount of the payment entitled the mortgagor to a release of a certain number of lots; and that all taxes and interest due on the same, as well as their assessed valuation, had been paid to the association and by it to the assignee, and procured from him a release of certain lots from the lien of the mortgage. The assignee, subsequently discovering that this statement was false, brought an action against the mortgagor and one Klein, the mortgagee, who had guaranteed the payment of the mortgage when he had assigned it, asking that the release be adjudged to be void, and be set aside.

.Held, that as the release of the lots had been procured from the plaintiff by fraudulent representations made by the treasurer of the mortgagor, the plaintiff was entitled to be restored to the same position as against Klein that he would have been in had the release in question never been executed;

'That Klein could not invoke the doctrine that where a creditor, by a valid agreement between himself and the principal debtor, without the consent of the surety, releases the principal debtor from the payment of his obligation, or any part of it, or releases any property of the principal debtor which the creditor-holds as security for the payment of the debt, the surety is thereby discharged, for the reason that an agreement into which a party is induced to enter by ■fraudulent representations is void, and consequently the surety is not thereby discharged from his obligation to answer for the debt;

'That the fraudulent release in question worked no legal injury to the surety, as when it was vacated the position of the surety was precisely the same as it was before the release was executed.

Appeal hy the defendants, Frederick Klein and others, from a judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of Monroe on the 16th day of April, 1895, upon the decision of the court rendered after a trial at the Monroe Equity Term.

This action was brought by the plaintiffs, who are the holders, by assignment, of a certain mortgage described in the complaint, to vacate a release of lands from the lien of their mortgage, and to restore such lien as to the lands described, upon the ground that the 'plaintiffs were induced to .execute such release by reason of the fraudulent representations of the mortgagor.

The mortgage in question was made by the Jennings Park Homestead Association to the defendant Frederick Klein, and was intended originally as security for the payment of the sum of $11,500 and interest.

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The mortgage covered a tract of land in the eastern part of the city of Rochester, which had been plotted for city lots, and it contained, among other provisions, the following:

“ The party of the first part may pay thereon at any time any sum not less than $200, to be applied on the principal thereof,” and “ the party of the second part hereby agrees to release from the lien of the mortgage * * * each and every lot of said tract,

according to a map thereof, on payment of the assessed valuation of the said lot, and all taxes and interest and insurance on such lot as fixed by said association.”

The premises covered by the mortgage were subdivided into forty-six city lots, and a map thereof was filed in the Monroe county clerk’s office, but the same did not show the valuation of each of the lots, as assessed by the association.

The mortgage, together with the bond accompanying the same, ultimately came into the hands of these plaintiffs by mesne assignments, the defendant Yorrenter being one of the parties through whom the same were assigned and transferred.

At the time the defendant Klein assigned such bond and mortgage he accompanied the same with a personal guaranty of their payment, which, guaranty passed by assignment with the bond and mortgage to these plaintiffs; and both the defendants Klein and Yorreuter executed a mortgage upon certain other property, belonging to them individually, as collateral security for the amount unpaid upon the mortgage in suit, which mortgages, together with the individual bonds of the mortgagors, also came into the hands of the plaintiffs, and are now held by them.

At the time the plaintiffs became the owners of the original bond and mortgage there was unpaid thereon $7,825 of principal and some accrued interest, and no part of the mortgaged premises had then been released.

On the eleventh day of February following $1,050 of principal was paid upon the mortgage, and six of the lots covered thereby were released from the lien thereof.

On the 18th of April, 1893, the treasurer of the Jennings Park Homestead Association paid to the plaintiffs the further sum of $3,075 of principal and $275 interest, and at the time of making such payments asked for and received from the plaintiffs a release

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of thirty additional lots. At the time of making such payments it is alleged that the treasurer stated to the plaintiffs that the amount paid entitled the mortgagors to a release of that number of lots, and that all taxes and interest due on the same, as well as the assessed valuation thereof, had been paid to the association, and by the association to the plaintiffs; that relying trpon the truth of such statement, and believing that the sum required to be paid as a condition of such release had been fully paid, the plaintiffs executed and deliv- ■ ered their release to the mortgagor; but that, as a matter of fact, of the lots embraced in the release were not entitled, under the terms of the mortgage, to be discharged from the lien thereof, by reason of the fact that their assessed valuation, amounting to $1,295, had not been paid to the association by the owners, nor by the association to the plaintiffs.

At the time of the execution and delivery of the release the plaintiffs had no knowledge of the assessed valuation of the particular lots, nor of the amount which had been actually paid upon the different lots to the association, as the same did not appear in the. mortgage nor upon the map held by them.

Upon learning, as they subsequently did, that the five lots in question had been improperly released from the lien of their mortgage, the plaintiffs brought this action to vacate such release, so far as it related to these particular lots, and to have the lien of their mortgage restored to the same.

William H. Smith, for the respondents.

Clarence J. Browning, for the appellants.

The learned trial court found, as facts in this case, that the release of the plaintiffs as to the five lots in question was induced by the false and fraudulent representations of the mortgagor’s treasurer, and that none of said lots was, by the terms of said mortgage, entitled to be released from the lien thereof; and his conclusion of law was, that the plaintiffs should be restored to the same rights in all respects as against the defendants Klein and Vorreuter, and as to all collateral security held by them, as they would have possessed had the release in question never been executed, so far as the same pur

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ported to discharge from the lien of the mortgage the five lots which were fraudulently embraced in such release.

The facts thus found appear to be fully sustained by the evidence in the case and are apparently acquiesced in by the principal debtor, as no appeal has been brought from the judgment herein, save by the defendants Klein and Vorrenter, who stand in the relation of sureties to the mortgage debt. And the only question, therefore, which is necessary to be considered upon this appeal, is whether or not the release from the lien of the plaintiffs’ mortgage of these five lots, which unquestionably did materially impair the security of such mortgage, exonerated the sureties from any liability for the amount remaining unpaid upon the principal debt.

It is, of course, well settled that where a creditor by a valid agreement entered into between himself and the principal debtor, without the consent of his surety, releases the former from the payment of his obligation, or any part thereof, or releases any property of the principal debtor which the creditor holds as security for the payment of the debt, the surety is thereby discharged. It is likewise an elementary principle of law that fraud vitiates all contracts; and it follows that where a party is induced to enter into an agreement by reason of fraudulent representations made to him, the same is absolutely void, and the surety is not discharged from his obligation to answer for his principal by reason of the agreement thus entered into. (Lowman v. Yates, 37 N. Y. 601 .)

The rule just stated may be applied with peculiar appropriateness to the case in hand, for the acts of the creditor which will ordinarily exonerate a surety, must be of such a character as to work some legal injury to him, or they must be inconsistent with his legal rights. (Blydenburgh v. Bingham, 38 N. Y. 371 ; Clark v. Sickler, 6 4 id. 231.)

Of course, to the extent that the release of the five lots impaired the security of the principal debtor which was held by these plaintiffs, the sureties were injuriously affected; but when the relief sought to be obtained through the medium of this action is accomplished and the lien of the mortgage is restored to those lots, the sureties will be placed precisely where they would have been had those lots not been included in the release. In other words, nothing has been

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done by these plaintiffs, except that which they are now seeking to avoid upon the ground of fraud, which injuriously affects the legal rights of the appellants. It is quite possible that the land covered by the mortgage has depreciated in value, as the defendants attempted to show upon the trial; but it is difficult to see how that fact can be made available as a defense to this action, inasmuch as the plaintiffs’ mortgage is not yet due and there has been no default in the interest thereon which would have permitted them to foreclose the same. So that, with the lien restored to these five lots, the sureties will simply remain liable to respond for any deficit which may possibly arise if the plaintiffs should ultimately be forced to foreclose their mortgage, and that is precisely what they undertook to do when they assumed the obligation of sureties to the principal debtor.

We are unable to discover any error committed upon the trial of this case, or in the conclusion reached by the learned trial court; and we, therefore, think that the judgment appealed from should be affirmed.

All concurred, except Ward, J., not sitting.

Judgment affirmed, with costs.

Cases cited

Lowman v. Yates 37 N. Y. 601 N.Y. p. 417
Blydenburgh v. Bingham 38 N. Y. 371 N.Y. p. 417