Frank v. Davis — 48 N.Y. St. Rep. 86

Majority

p. 86

Julius J. Frank, App’lt, v. Edward A. Davis, Resp’t.^[1]

(Court of Appeals,

Filed October 4, 1892.)

Headnote

Foreclosure—Judgment for deficiency.

Where, during the pendency of an appeal from a judgment of foreclosure, the premises are sold under foreclosure of a prior mortgage, so that the lien of the mortgage sought to be foieclosed has been destroyed, the surplus arising from the sale under the prior mortgage is, as to the-other mortgagee, for the purpose of the lien of bis mortgage, to be treated as real estate, and he has a right to an order diiecting the clerk to docket a. judgment in his favor and granting him execution therefor.

2. Same.

The old rule that a court of chancery had no jurisdiction to render a personal judgment against a mortgagor upon his bond or covenant to pay the mortgage debt and that such a judgment could only be obtained by- an action at law, has been entirely swept away, and 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 transaction or the same subject matter, except as it is modified by the provisions of the Code, governs foreclosure as other equitable actions.

Appeal from order of the supreme court, general term, first department, reversing order of special term, directing a judgment against defendant for the amount due on a bond given by defendant, less the amount of the surplus money in another actiozy. brought by this plaintiff, to foreclose a prior mortgage. \

This action was brought to foreclose a mortgage, and 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 ; 38 St. Rep., 1016 . 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. Thereafter, upon his motion, an order was made at special term directing the clerk to enter and docket a judgment in his favor for the amount of such deficiency and . granting him execution therefor. From that order the defendant-appealed to the general term, where it was reversed, and the plaintiff then brought this appeal to this court.

Julius J. Frank, for app’lt; Benjamin N. Cardozo, for resp’t.

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,

p. 87

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, ánd 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 id., 77 ; Globe Ins. Co. v. Lansing, 5 Cow., 380 ; Sprague v. Jones, 9 Paige, 395; Equitable Life Ins. Soc’y 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. The Elevated Rail Road Co., 129 N. Y., 274 ; 41 St. Rep., 541 ; McGean v. The Same, 44 St. Rep., 75 . The purpose of this rule was to relieve parties from the expense and vexation of two suits, one equitable and the other legal, 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 beneficent rule; and the law makers 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., 191, §§ 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 “for the 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 beeii 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 foreclos

p. 88

ure 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 mortgaged premises, and not by the estimates of witnesses or other less satisfactory evidence. We are asked to hold that enough of the old chancery rule is left to prevent a deficiency judgment unless the deficiency be ascertained by a sale in the action 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 ta which the defendant was a party.

The surplus arising from the sale under the prior mortgage is, as to this plaintiff, for the purposes of the lien of his mortgage, to be treated as real estate. Moses v. Murgatroyd, 1 Johns. Ch., 119 ; Dunning v. The 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 deficiency without going against the prevailing practice under the general rule above referred to, without unnecessarily shortening the arm of equity and sacrificing substance to mere form. The plaintiff properly obtained his equitable judgment and as part of the relief to which he is entitled, to do complete j ustice 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 concur.