Morris v. Fales — 6 N.Y. St. Rep. 379

Majority

p. 379

Abram V. Morris, Resp’t, v. Francis A. Fales, Impleaded, etc., App’lt.

(Supreme Court, General Term, Third Department,

Filed February 27, 1887.)

Headnote

1. Mortgage—Right of mortgagee to realize on other securities— Assignment for benefit of creditors.

The plaintiff held two notes of defendant’s assignors, one for $5,000, indorsed and secured by a preference in their general assignment and one for $4,000 note here in suit, not so secured, but both notes were secured by the assignor’s mortgage herein sought to be foreclosed to the extent of $6,000. Held, the plaintiff had the right to use these two securities to his best advantage, if the superior equities of third parties did not prevent; that he could not be compelled to foreclose this mortgage until he had realized all he could upon the $5,000 note under the preference given it in the assignment so as to bring the balance secured by said mortgage within the limit fixed by it.

3. Assignment for benefit of creditor—Right of assignee and mortgagee.

The assignees could have paid the $6,000 secured by the mortgage and have thereby satisfied it. They did not attempt to do this, but voluntarily paid and applied $5,000 upon the note preferred by the assignment. Held, that the payment did not extinguish the mortgage to that extent.

8. Same—When mortgagee bound.

The plaintiff may take that which is his due without liability to be bound by a contract which the assignee made with a third party.

Appeal from a judgment of foreclosure and sale, entered upon'the decision of the court.

The action was brought to foreclose a mortgage, dated ¡November 28, 1883, given to the plaintiff by the defendants Clark and Kline, upon their “Brewery lot,” to secure the plaintiff “for moneys loaned and paid by said Morris (pl’ff), and upon certain notes and obligations held or endorsed by Morris, but made by Clark and Kline, * * * the security to extend to and include any and all notes, etc. Provided, however, that said liabilities shall at no time exceed $6,000, exclusive of costs and expenses, and to the extent of $6,000 this conveyance shall be a continuing security for any amount that may at any time be due said Morris,” etc.

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Two days before this mortgage was given, Clark and Kline gave the plaintiff their promissory note for $4,000, at three months. The plaintiff, by this action of foreclosure, sought to collect said note.

The defendant, Pales, who was a subsequent purchaser of the mortgaged premises, defended, and showed the following facts:

On the 12th of March, 1883, Clark and Kline gave the plaintiff a mortgage upon other property, known as the mill property, for $16,000, to secure plaintiff as their endorser, and plaintiff thereafter endorsed Clark and Kline’s notes to the amount of $14,500. Plaintiff in addition loaned Clark and Kline $5,000 upon their note for that sum, dated August 27, 1883, indorsed by Maria McDonald. This note became due November 30, 1883.

On the 3d day of December, 1883, Clark and Kline made a general assignment, for the benefit of their creditors, of all their property, to Hunnan and Crane, who accepted the trust.

On the 6th of March, 1884, the general assignees negotiated with the defendant, Pales, for the sale by them to him of the real estate of Clark and Kline, covered by the two mortgages aforesaid, and also incumbered by other mortgages, for the sum of $35,000, subject to the last mentioned mortgages, but upon the agreement of the assignees that the $16,000, and the continuing security mortgage to the plaintiff, should be paid and satisfied by them out of the $35,000 purchase money.

The assignees gave Pales a deed of the two properties, March 8, 1884, in pursuance of such negotiations, and Pales paid them the $35,000.

The plaintiff was notified half an hour after the deed was given of the terms of the agreement between the assignees and Pales.

On the following day one of the assignees paid to the plaintiff the amount of the $5,000 note indorsed by Maria McDonald, but did not pay the $4,000 note for which the mortgage is now sought to be foreclosed. All the notes indorsed by the plaintiff for Clark and Kline were paid by the assignees. The defendant, Pales, contends that the $5,000 payment should be applied in reduction of the $6,000 limit of the mortgage in suit. The plaintiff contends that that payment reduced the balance due to him from Clark and Kline to the $4,000 note which he now seeks to enforce. The trial court so held.

E. F. Bullard, for app’lt; M. L. Stover, for resp’t.

When Clark and Kline failed the plaintiff held their two notes, one for $5,000, indorsed by Maria

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McDonald and secured by a preference in the general assignment, and the §4,000 note here in suit not so secured. But both notes were secured by the mortgage now sought to be foreclosed to the extent of $6,000.

The plaintiff had the right to use these two securities to his best advantage, if the superior equities of third parties did not prevent. Certainly he could not be compelled to foreclose this mortgage until he had realized all he could upon the $5,000 note under the preference given it in the assignment, so as to bring the balance secured by this mortgage within the $6,000 limit fixed by it.

It is true the assignees could have paid the $6,000 secured by the mortgage and have thereby satisfied it. But they did not attempt to do this, but voluntarily paid and applied $5,000 upon the note preferred by the assignment.

Whether their assets would justify their payment to the plaintiff of the $5,000 in full was a matter for them to determine as between themselves and the plaintiff, and which we are not called upon by the assignees to ascertain.

They failed to keep their agreement with Fales to procure the discharge of this mortgage, but the plaintiff aid not become their surety for their performance. For aught that we know, the remedy of Fales is complete against them without compelling the plaintiff to apply the money he received from the assignees to any other purpose than they applied it.

The $5,000 note was in the second class of preferred claims. After paying all of these claims, it appears that the assignees had in their hands $1,146 in money and $3,500 of claims in litigation. It is not clear that Fales may not compel them to protect him against this mortgage without exposing them to personal loss.

But the case is still stronger for the plaintiff. He held the $16,000 mortgage to protect himself against his indorsements for Clark and Kline. He had been paid the $14,500 of notes which he had indorsed for them. The $5'000 note had been discounted by him at his own bank, but he had indorsed it and procured its re-discount at another bank; this note fell due November 30, 1883, and Clark and Kline gave to the plaintiff a new note with Maria McDonald’s indorsement, and thereupon the plaintiff paid the first note. It is not probable that the $16,000 mortgage was in terms security for this note, but the plaintiff claimed it was, and refused to satisfy it until the balance claimed by him to be unpaid upon it should be paid, and when it was paid by paying the $5,000 note he satisfied the $16,000 mortgage. The assignees were thus enabled to make good to Fales that part of their agreement whereby they undertook to procure the satisfaction of both mortgages held by plaintiff. They

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recognized the force of the plaintiff’s position with respect to the $16,000 mortgage and accepted the terms proposed by him for its satisfaction. Suppose he did demand more than he could maintain by litigation. His demand was-voluntarily complied with by the assignees, and thus a doubtful claim was adjusted and the land freed from the record of an incumbrance.

The defendant claims that the payment of either of the two notes by the assignees extinguished the mortgage to the extent of the payments. But the mortgage was by its terms a continuing security for any amount that may at any time be due upon any or all notes, or renewals of them, to the amount of $6,000.

The defendant concedes that if Clark and Kline had not failed and had made payments upon either note, the mortgage would have been good for any balance not exceeding $6,000. The assignees stand in Clark and Kline’s shoes, and may voluntarily pay upon either note, subject to correction, if they improperly impair the rights of other creditors of their assignors. And the plaintiff may take that which is his due, without liability to be bound by a contract which the assignees made with Bales.

The difficulty with Bales’ case is, he relied upon the assignees’ representation that they would procure Morris to satisfy both mortgages, when the fact was that Morris was determined that he would not satisfy both unless both were paid to the extent that he claimed they were valuable. It was not convenient for the assignees to pay at that time both in full, and they procured one to be satisfied, and probably hoped to be able soon to satisfy the other, but have not yet found it convenient.

The judgment should be affirmed, with costs.

Learned, P. J., and Bockes, J., concur.