Murray v. Fox

Tbe most important question in these cases grows out of tbe release executed by tbe plaintiff, which purports to discharge the party primarily liable for the mortgage debt from all responsibility for its payment.. The bond in the first action was executed by Arthur W. Fox, and secured by the mortgage of Fox and Williams. The bond in the second action was executed by both, and secured in like manner. The mortgages incumbered parcels of land which had been conyeyed by Fox and Williams to the Grape Sugar Company by a full covenant deed, and for a price which covered the full value of the incumbered fee, — a fact which the trial court found upon sufficient evidence, and which is inferable from the character of the conveyance, and the scope of the covenants contained in it. Fox and Williams were partners when the bonds were given, doing business, at first in the name of Arthur W. Fox, and later in that of Arthur W. Fox & Co., and each of' the bonds was given for and represented an indebtnesss of the partnership. That fact is also found by the trial court'upon evidence quite sufficient to sustain it. The mortgage covered other lands of Fox, in addition to that conveyed to the Grape Sugar Company, which, upon the death of Fox, descended to his heirs, who were named among the parties defendant in the foreclosure actions.

Williams, as survivor of the firm, in possession of its assets and liable for its debts, was thus left a primary debtor for the bonds in suit. An action upon two notes of the firm was brought in another state where he chanced to be, and resulted in negotiations for a settlement of his liability, which culminated in the payment by him to the administratrix of the mortgage of $13,500, upon an agreement of release and discharge, put in writing and formally executed, the construction of which is to be ascertained and determined. That instrument recites the two bonds and mortgages now sought to be enforced; the

Previous to the execution of this release, the Grape Sugar Company had discharged the Fox estate and Williams from all liability on their covenants of warranty; and assuming — what is denied, and must later be considered — that the corporation stood in the attitude of a grantee buying for a full consideration, but without covenants, land incumbered by a mortgage, and so entitled on payment of the mortgage debt to enforce the bond against the mortgagor, ( Wadsworth v. Lyon, 93 N. Y. 208 ,) it follows that the release of Williams by plaintiff cut off and destroyed the equitable right of subrogation belonging to the surety, unless the latter right is saved by the reservation. It is undoubtedly true that one of several debtors jointly, or jointly and severally, liable for the same debt may be released in such manner and with such reservation as will preserve the right of recourse against the others, even though sureties, when their rights and equities can be'said to have been also preserved and left unaffected, the release becoming a mere covenant not to sue. It is strenuously insisted that such a rule of construction cannot possibly apply to the release of a sole debtor, not jointly liable at the time with any one, and that a covenant not to sue him must necessarily discharge and release the debt. Brown v. Williams, 4 Wend. 365 . But there is room for debate as to whether the liability of Williams, originally joint with Fox, has become in all respects sole and several within the meaning of the authority cited; and we prefer to proceed with the inquiry as to the construction of the reservation. If, by its terms, the equity of the Grape Sugar Company to pay the debt in exoneration of its land, and then recover that amount from Williams, is preserved, then the release did not affect the surety, and left its liability unchanged. However astonishing such a result would be upon the facts proven in the case, and however difficult it may be to believe that Williams meant and intended to pay $13,500 for a mere covenant not to be sued by Murray, leaving

The release discharges “ all liability ” “ on account of” such mortgages: not merely some, liability, — as, for example, that to a specific person, — but “ all ” liability “ on account of ” the mortgages; evidently meaning every possible liability of Williams which could in any manner, or at anybody’s suit, spring from the existence of .the securities. And this meaning is sedulously preserved and carefully guarded in the peculiar phraseology of the .reservation. As we read it, that reservation of the right to enforce other securities is not absolute and unconditional, and so inconsistent with what precedes it, but is limited and restrained precisely as we should expect to find it, having in view the situation and expressed purpose of the parties.' The intent is declared to be “ not to affect or discharge any other security for any of said demands other than the personal liability of said Williams.” That qualifying clause was inserted to preserve the full scope of the previous provision releasing Williams from all liability on account of, that is originating in or springing from the mortgages. The obvious meaning is that the releasor discharges no security which may be enforced without involving the liability of Williams, and preserves all such as can be enforced without bringing as a result recourse against him. He was to be entirely discharged at all hazards from every liability, direct or indirect, and those securities were to be preserved, and those only, whose enforcement was consistent with that primary and dominant purpose. Both parties may have believed that since Fox was sole obligor in one bond, Williams would stand as a surety mortgagor as to that, and so remedy could be had against the Fox heirs without a recourse over to Williams. Both parties, too, may have thought — -what, indeed, is' now asserted — that the mortgages could be enforced against the Grape Sugar Company without peril to Williams, by reason of its release of covenants, and so it is easy to see why the reservation was made, and its existing form. At all events it is limited and restrained, and the presence of the concluding phrase can have no force or explanation except to preserve the consistency of the instrument, and its full force as a discharge of Williams. Tins construction seems to us not only natural and reasonable, but fairly explains the large payment made by Williams, and redeems it from the level of a marvelous and absurd folly.

But the appellant contends that, even upon this construction, the rights of the Grape Sugar Company were not infringed, because it had already parted with those rights by its release of

It is not admissible to construe the release as operating upon debts non-existent but possible to arise in the future. The argument on behalf of the appellant is that a release of the covenants ipso facto discharged the equities possible to arise in favor of the covenantee against the covenantor. If that be true, the bare act of releasing the covenants made the land principal debtor for the mortgage, and amounted to an assumption by the Grape Sugar Company of the mortgage debt. No such agreement or intent is contained in the terms of the release, and must exist, if at all, as an inference from the bare fact of a discharge of the covenants for a valuable consideration. I think that fact standing alone does not justify or compel the inference. If the actual consideration had been shown, and it had appeared that the covenantors paid to the covenantee the amount of the outstanding mortgages, or that for a less sum they agreed to take the perü of a foreclosure, the inference would follow. But where the consideration is unknown and unexplained and may have been merely adequate to cover the technical breach of covenant already existing, and no agreement or purpose of assumption is proved, I think the asserted inference does not follow, the equitable duty of payment is not shifted, the debt remains the debt of Fox and Williams, and the land chargeable only as surety. It Is said that an express covenant destroys or restrains an implied one. That is true, but there are no implied covenants in a deed to be destroyed or restrained. The statute forbids them, and that fact demonstrates that the equities of a grantee whose land has been sold for another’s debt rest not at all upon any implied covenant, but upon the just needs of the situation as they appeal to the conscience of the court. Unless then the equities of the situation are changed by the fact of the release they must necessarily remain. That the taking of covenants does not impair or destroy the equitable right of the grantee to be protected against the forced payment of a debt which he has not assumed has been often decided, and is established by the eases which on a foreclosure have preserved to the grantee, although holding covenants of warranty, the equitable right to have the lands of the grantor covered by the mortgage first sold and applied to its payment. If one equitable right survives the taking of

And so the question comes back, and seems to me to be the-ultimate inquiry, whether the bare fact of a release of covenants-of warranty, for a valuable consideration, compels an inference-that the releasor assumed as his own a mortgage debt of the grantor. I think not. Something more must appear to warrant the inference. In the present case, other and entirely different-purposes may have occasioned the release. There may have been defects in the title not here disclosed, and which the parties had principally in view ; it may have had reference to the technical breach which already existed ; or, what is more probable, it may have been given and received on the supposition that the grantors had already paid and settled the mortgage-debt, or, if not, that the releasors would have ample protection against loss in the very equities which they now invoke. For these reasons, I cannot accede to the inference sought to be drawn; and since the equity remained, and the necessity for its protection has come, I think it may be enforced.

From these views of the two releases it follows that the liability of the Grape Sugar Company in respect to its lands bound as surety was discharged; that Hamlin, although a large owner of its stock, was competent to disclose personal transactions-with plaintiff’s intestate, since he was not examined in his own behalf; that he was a competent witness on the question of payment for the Fox heirs; and they are discharged by the finding of fact that the mortgages have been paid.

But there is a further view of the case, leading to the same result, and perhaps desirable to be taken in deference to some doubts existing among us. The Grape Sugar Company and thn Fox heirs answered- separately, and each pleaded payment. Evidence was given tending to establish that fact, outside of the testimony of Hamlin. His testimony, when offered, was objected to under section 829 of the Code, and received explicitly in behalf of the Fox heirs alone, and excluded as to the-Grape Sugar Company. Nevertheless, the trial court found the-fact of payment generally and without distinction among the defendants, and not specially in behalf of the Fox heirs alone. That finding, therefore, must be construed to be, so far as the Grape Sugar Company is concerned, that, upon the evidence received in its behalf, and so excluding that of Hamlin, the pay

The trial judge very properly took into account, in approaching a consideration of the evidence that both Murray and Fox were dead, and the mortgages had been disregarded for more than ten years and left without any claim made upon them, or even a demand for interest, although the security was abundant for any existing indebtedness, and Williams was responsible for and able to pay the whole of it. Bean v. Tonnele, 94 N. Y., 385 . Under such circumstances precise and direct evidence of payment was hardly to be expected, and the facts indicating it .are entitled to very considerable weight. The first mortgage recited an existing debt of about $5,600, but was intended also :as a continuing security for further advances. These, however, it was sufficiently declared were to be evidenced by notes or business paper, and no claim not so evidenced was within the .scope of the security so far as it covered future advances. The same characteristic is found in the second mortgage. The complaint in the first action described the existing debt as a loan of $1,500, one of $2,600, and one of $1,500, the latter made at the execution of the mortgage, and the former one and two months earlier. No note or memorandum of these was produced by the representatives of Murray, and while it is possible that none was ever given, the course of business, as proved by Damon, and indicated by the recitals, makes it probable that they were given, so that their absence becomes in some degree significant. The papers of Fox & Co. were burned and destroyed, which accounts for non-production by them, but those of Murray passed to his representatives. To the amount of debt existing at the date of the first mortgage theie is added by the complaint an accommodation note of $600, made half a year later. No such note is produced or proved, and its absence justifies an inference either that it never existed, or was taken

A note of $6,500 and°one of $610 are produced, but these only. They are dated in 1870. The large note appears from the evidence of Damon to have represented an unpaid check drawn by Fox in February, 1868, upon which interest was paid until 1869 and which afterward went into the account of bills payable. What this check was given for we do not certainly know. It does not prove a loan made at its date but presumes a pre-existing debt. The only such debt disclosed is the $6,000 secured by the first mortgage. The check was outstanding when the second mortgage was given, and so must have been,, at least, a part of the $13,500, and inferentially identical with that part of it which constituted the consideration of the first mortgage if that was still unpaid. Whatever it was, it has been paid and canceled together with the note of $610. And that these two notes which constitute the only items of business paper in Murray’s possession represented the sole indebtedness of Fox & Co., at the date of Murray’s death is quite strongly indicated by another set of facts. Hugh Murray died, according to the complaint, in August, 1870, and when the widow, with her son and son-in-law, were about starting for Chicago, Mr. Fox said to her that whenever she wanted money she need not wait for the interest to become due, but might draw for it, and he would send it to her. She had all her husband’s papers, both the mortgages and notes. Her son and son-in-law were not unintelligent or blind to her interest or their own. Fox did not tell them the amount of his debt. He assumed that they knew, as they probably did. From that time on till 1874 the widow, through her son and son-in-law, drew semi-annual drafts for interest of $250 each, which Fox paid; the amounts indicating-almost precisely an understood principal debt in the sum of the; two notes produced. The trial judge adverts to the improbability that a business man like Murray, shown to have collected interest monthly, and at very high rates, would have suffered it to accumulate, and to the circumstance that Murray himself signed, a paper which postponed these mortgages, and gave precedence to one executed to himself and Hamlin. While the facts and inferences thus sketched are not beyond dispute and criticism,

The judgment should be affirmed, with costs.

AH concur, Andrews, J., on second ground set forth in opinion.