Wood v. Ludlow — 17 N.Y. St. Rep. 94

Majority

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Joseph Wood et al., as Executors, etc., Resp’ts, v. William H. Ludlow, as Executor, etc., et al., App'lts.^[1] Two Actions.

(Court of Appeals,

Filed June 19, 1888.)

Headnote

Mortgage given as collateral security—When does not discharge PRIMARY SECURITY—COVENANT TO GUARANTY SUFFICIENCY OF MORTGAGED SECURITY TO PAY AN ASSIGNED MORTGAGE DEBT.

The defendants’ testatrix in assigning certain bonds and mortgages being foreclosed in these actions covenanted as follows, viz- “ And I hereby guarantee that the mortgaged security is sufficient to satisfy the obligation of said bond at the maturity thereof, and do covenant and agree to pay the deficiency, if any, to the said party of the second part or his assigns, hereby charging the same on my separate estate.” Before the assigned bonds became due she and her husband made and delivered to plaintiffs, testator their bond in the penal sum of $10,000 conditioned to pay the sum of $1,500 and further to pay such deficiency as might arise on the foreclosure of said mortgages “as stipulated in said assignments and provided.” But it is understood that the liability of said F. L. L. and W. H. L. “by virtue hereof for such deficiency on any or all of said mortgages-shall not exceed the sum of $3,500.” The bond was secured by a mortgage upon certain real estate. Subsequently the testatrix and her husband continued their liability under their covenants of guaranty from time to-time. Held, that the $10,000 bond was given as a collateral security to the extent of $3,500, and that the covenants in the assignments were never restricted.

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Appeal in each action from a judgment of the supreme court, general term, second department, modifying a judgment in'favor of the plaintiff, entered upon the the trial of the case at the Kings county special term.

Jasper W. Gilbert, for app’lts; A. A. Spear, for resp’ts.

Defendants’ testatrix in assigning the bonds and mortgages, now being foreclosed in these actions, covenanted as follows, viz: “And I hereby guarantee that the mortgaged security is sufficient to satisfy the obligations of said bond at the maturity thereof, and do covenant and agree to pay the deficiency, if any, to the said party of the second part, or his assigns, hereby charging the same on my separate estate.”

The assignments were dated January 16, 1874, and June 20, 1874. On November 22, 1874, and before the assigned bonds became due, she and her husband, William H. Ludlow, made and delivered to plaintiffs’ .testator their bond in the penal sum of $10,000, conditioned to pay the sum of $1,500, in one year and, further, to pay such deficiency as might arise on the foreclosure of the two mortgages in suit here (and upon another mortgage not now in question) 6 ‘ as stipulated ” in the assignments of January 16th and June 20th. The following clause was contained in this bond: “But it is understood that the liability of said Francis L. Ludlow and William H. Ludlow by virtue hereof for such deficiency on any or all of said described mortgages shall not exceed the sum of $3,500.” The bond was secured by a mortgage upon certain real estate.

Before the maturity of the bonds and mortgages described in the complaints in these two actions, defendant’s testatrix and her husband executed an instrument in writing, by which their liability under their covenants of guaranty should be continued for one year from the maturity of said bonds, and by similar instruments their liability on the covenants was continued to November, 29,. 1883.

Before that date these actions were commenced for the-foreclosure of the mortgages. The $1,500 secured by their bond was repaid, and the sum of $3,500 was placed in the hands of the plaintiffs’ attorney, who had commenced these foreclosure actions, and the bond and mortgage given to secure these sums were cancelled and satisfied.

The defendants’ claim is that the bond of Mrs. Ludlow and her husband, given to secure the sum of $5,000, on. November 22, 1874, was substituted in the place of and superceded their covenants of guaranty contained in the assignments of the mortgages; that their liability upon those covenants was thereby limited to $3,500. Plaintiffs’[1]

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testator refused to accept the $3,500 in discharge of that liability, and that sum still remains in the attorney’s hands, to be applied according to the direction of the general term, modifying the decree at special term to that effect, to relieve defendant Ludlow pro tanto from any. deficiencies arising upon sale of the mortgaged premises.

The sole question presented for review is whether the plaintiffs in foreclosure are entitled to a judgment against the defendant Ludlow for any deficiency arising upon sale, or whether that defendant’s liability is limited by virtue of the agreement in the bond of November 22, 1874, to the said sum of $3,500. The learned justice at special term found that the said covenants were in full force and effect. In the careful opinion accompanying his decision, he held that the bond of November 22, 1874, was given as a collateral security to the extent of $3,500, • and that the covenants in the assignments were never restricted.

The reading of the bond itself warrants that construction, and the oral testimony upon the trial sustains it. Nothing in the language of the bond limits the liability upon the covenants of guaranty, while it does distinctly provide that the obligors shall pay any deficiency “as stipulated in the deeds of assignments, etc.’" These words in connection with the subsequent extensions of the guaranty, from time to time, are significant of an intention to keep in force the covenants themselves, and negative the idea of a substitution of the bond for them. The words “ by virtue hereof,” in the clause in the bond, relating to the measure of liability, could only mean that the liability on that bond of the obligors, after repayment of the sum of $1,500, intended to be secured thereby, was fixed at the sum of $3,500, which amount might be realized upon it, and applied, if need be, towards discharging the still existing liability of the obligors on their covenants of guaranty. Such a construction accords with the weight of the evidence. While the testimony of William H. Ludlow is to the effect that the liability upon the covenants of guaranty was intended to be restricted by the bond of November 22, 1874, it is contradicted by that of plaintiff’s testator and of Griffmg, the attorney who drew the bond. According to Griffing’s evidence, the bond was drawn by him “in exact accordance with the instructions received from both parties at the time,- ” and all the limitation spoken of was as to the liability on the new mortgage given to secure the bond. Plaintiff’s testator was present at the interview, which resulted in the execution of the new bond, and testified that it was proposed as a collateral security for the guaranty. The appellants claim that the guaranty was discharged by the fact that the assignee of the mortgages, plaintiff’s testator, gave time to the mortgagor without exacting a performance of the condition on which

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Ms assignor had consented to continue the liability on the covenants of guaranty What is referred to as the condition was a proviso that the interest on the bonds, and the taxes on the property should be paid as they became due. There is no force in this suggestion. This proviso relates to Wood’s consent to extend the time of payment of the principal sum in the bonds and mortgages assigned to him. The agreement continuing the guaranty recites that extension as based on such a condition, and Wood’s evidence so explains it.

We think the judgments appealed from were right, and under the stipulation of the parties the judgments in actions Nos. 1 and 2, are affirmed, with costs of the appeals to the respondents.

All concur.