Vanderbilt v. Schreyer

[After stating the above facts.]— We differ in our conclusion from that reached by both of the courts below.

The guaranty in question is not an absolute guaranty for the payment of the mortgage, but a guaranty that it shall be paid in a particular manner.

In construing it we must give effect, not only to the entire instrument, but also to all of its language.

This requires us to give some effect to the words “ by due foreclosure and sale,” and they can perform no other office in the connection in which they are used than to qualify and limit the operation of the preceding words: “ I hereby guarantee the payment of said bond and mortgage.” We must conclude that the parties put these words into their contract for some purpose; and the only purpose they can be made to serve is to make the guarantee a conditional instead of an absolute one. A covenant quite similar to this was held in the case of Mahaiwe Bank v. Culver, 30 N. Y. 313, to be a covenant to pay any deficiency existing after a foreclosure and sale.

But we suppose it to be immaterial whether the guaranty be called a guaranty of payment or of collection, for in either event the plaintiff was entitled to make Schreyer a party defendant in the foreclosure action, and demand and recover a judgment against him therein for any deficiency which might arise on a sale of the mortgaged premises.

The principles applicable to the prosecution of actions against guarantors of the collection of promissory notes and other securities do not apply to actions for the foreclosure of mortgages. ■ In such actions the persons who may be made parties therein are pointed out by statute, and include all who are under obligation to pay the mortgage debt or any. part thereof, whether such obligation be absolute or conditional.

This action was commenced in 1875, and tried in 1878, prior to the adoption of section 1627 of the Code of Civil Procedure.

It must, ■ therefore, be governed by the provisions of the Revised Statutes. The sections applicable are the following: 2 R. S. 1st ed. 191, § 154 ; same stat.,3 Id. 6th ed. 198, § 98 [154] reads: “ If the mortgage debt be secured by the obligation or other evidence of debt hereafter executed of any other person besides the mortgagor, the complainant may make such person a party to the bill, and the court may decree payment of the balance of such debt remaining unsatisfied, after a sale of the mortgaged premises, as well against such other person as the mortgagor, and may enforce such decree as in other cases.”

Section 153, of the same statute, reads : “After such bill shall be filed, while the same is pending, and after a decree rendered thereon, no proceedings whatever shall be had at law, for the recovery of the debt secured by the mortgage, or any part thereof; unless authorized by the court of chancery.”

These provisions of the statute remained without material changes, so far as the question under discussion is concerned, until the adoption, in 1880, of the last portion of the Code of Civil Procedure.

The scheme of these provisions was stated by this court in the Equitable Life Ins. Socy. v. Stevens, 63 N. Y. 341, to be to prevent oppressive litigation by the multiplication of actions against the several persons who might be liable for the same mortgage debt, and to require all of the parties interested in its payment to be brought into the same suit and thus settle their respective liabilities in one comprehensive action.

Previous to. the enactment of § 1627 of the Code of Civil Procedure, it was the settled practice of courts of equity to bring all parties who were in any way liable for the payment of the mortgage debt, or any part thereof, and whether liable upon an absolute or conditional undertaking, into the same foreclosure action and decree payment of any deficiency arising on a sale of the mortgaged premises against any of the parties appearing to be liable therefor, according to the nature and circumstances of such liability.

The principle that such person, whether liable conditionally or absolutely, may be sued and made liable for any deficiency in an action to foreclose the mortgage is laid down in the works on chancery practice and sustained by numerous cases (See 2 Hoffman Ch. Pr. 141, 2; 2 Barb. Ch. Pr. 175, 176 ; Leonard v. Morris, 9 Paige, 90; Suydam v. Bartle, Id. 294; Curtis v. Tyler, Id. 432; Griffith v. Robertson, 15 Hun, 344; Scofield v. Doscher, 72 N. Y. 491).

Other actions of a similar nature are provided for in our statutes ; as in the case of proceedings in equity against insolvent corporations to reach stockholders and trustees who may be contingently liable for the payment of the debts of such corporations. These trustees and stockholders are chargeable with a conditional liability in the action brought to dissolve the corporation.

Of course when the liability of a person to pay a mortgage debt depends upon some extrinsic event which cannot be determined in the prosecution of the foreclosure suit, he could not be made a party to such an action and charged with a deficiency, because by the terms of his contract his liability does not commence until the happening of the event contracted for, and that might be wholly disconnected with the process of foreclosure.

Such was the case of Pennsylvania Coal Co. v. Blake, 85 N. Y. 226, where the party guaranteed to pay the mortgage debt provided another party on demand did not do so.

Then a demand was held necessary before suit brought. The serious consequences of neglecting to include as parties all persons liable for the payment of the mortgage debt in a foreclosure thereof, are illustrated in the case of the Equitable Life Ins. Socy. v. Stevens, already cited. It was there held that upon an application for leave to prosecute an action at law against parties liable for the payment of the mortgage debt, the granting of the permission rested in the discretion of the court, whether the application was made during the pendency of the foreclosure suit or after it had terminated ; and that in the exercise of a wise discretion the court had the power to deny such permission even when the claim had not been prosecuted in the foreclosure suit. The order of the court below granting leave to prosecute such an action was reversed upon the ground that it had declined to exercise its undoubted discretionary power.

That an action at law either, during the pendency or after the termination of a foreclosure suit, cannot be maintained by the holder of a mortgage against a person liable for the payment or collection of the mortgage debt without leave of the court duly obtained, has frequently been held in this State (Pattison v. Powers, 4 Paige, 549; Comstock v. Drohan, 71 N. Y. 9; Scofield v. Doscher, above).

It follows from these authorities that the plaintiff was not only justified in making Schreyer a defendant in this action, and asking judgment for a deficiency against him, even though his guaranty had been one of collection merely, but that it would have been hazardous to his security if he had omitted to do so.

A more serious question, however, arises under the exception taken to the rulings of the special term excluding the evidence offered by the defendant, to prove the facts stated in his answer showing that the guaranty was without consideration.

[n considering this question, the allegations in the answer must be assumed to be true, and that the defendant would have proved them if he had hot been precluded by the rulings of the court from doing so.

The answer, while perhaps in artificially drawn, certainly alleged all of the facts necessary to show that neither Gebhard and Ritchie or the plaintiff had received any consideration for the guaranty in question. This he should have been allowed to prove. The production of the assignment in evidence purported to be executed “ for value received,’ ’ and being under seal xvas prima facie evidence only of a valuable consideration. It was not conclusive, and could be disproved if it was, in the defendant’s power to do so (3 R. S. 6th ed. 672, § 124; Bookstaver v. Jayne, 60 N. Y. 146; Anthony v. Harrison, 14 Hun, 198 ; affirmed in 74 N. Y. 613).

The incorporation of this guaranty into the assignment, for which there was a consideration, does not affect the question. It was not essential to the assignment, and was, so far as its legal effect was concerned, a separate instrument, and. must be supported upon a sufficient consideration or treated as nudum pactum.

It is quite clear that the plaintiff had no right to demand this guaranty by the terms of his original contract with Gebhard and Ritchie.

That was satisfied by a mere naked transfer of his interest in the mortgage.

It was held in Van Eps v. Mayor, &c., of Schenectady, 12 Johns. 435, that an agreement to execute a deed of lands was satisfied by the execution of a deed, without warranty or covenants. So it has been held that a party has no right to impose any conditions to the performance of a contract, except those contained in the contract itself (Brown’s Water Furnace Co. v. French, 34 How. Pr. 94).

It being clear that Vanderbilt had no legal right to require as a condition to the fulfillment of his contract, the performance of an act not required by the contract, it is difficult to see what benefit he has bestowed, or what inconvenience he has suffered, in return for the undertaking assumed by the defendant. He promises to do only that which he was before legally bound to perform. Even though it lay in his power to refuse to perform his contract, he could do this only upon paying the other party the damages occasioned by his non-performance, and that, in contemplation of law, would be equivalent to performance. He had no legal or moral right to refuse to perform the obligations of a contract into which he had, upon a good consideration, voluntarily entered. There is no evidence in support of a claim that this guaranty was given as a compromise of any dispute arising with reference to the obligations of the plaintiff under his contract with Grebhard and Ritchie.

The case is not, therefore, brought within the cases in which a promise has been upheld on the theory that it was made in settlement of a controversy over disputed claims (see Geer v. Archer, 2 Barb. 420). The defendant visited the plaintiff to-pay her an installment upon a mortgage given by him a few weeks before on a purchase of land. She complained that she had not received the fair value of her land upon such purchase. The defendant offered to give her his note for $200, to satisfy her complaints; she replied that she would be satisfied with that, whereupon the note in question was given. It was held that this note was void for want of consideration. So where land was sold and described in the deed as containing a certain quantity, and a deficiency was afterwards discovered, it was held that there was no obligation on the grantor to compensate the grantee for such deficiency, and a promise to pay the same was without consideration (Smith v. Ware, 13 Johns. 257; to similar effect, Ehle v. Judson, 24 Wend. 97).

Pollock states the rule as follows: that “neither the promise to do a thing, nor the actual doing of it, will be a good consideration, if it is a thing which the party is already bound to do, either by the general law or by a subsisting contract with the other party ” (Pollock's Principles of Contracts, 161; Crosby v. Wood, 6 N. Y. 369 ; Deacon v. Gridley, 15 Com. B. 295).

Nor is the performance of that which the party was under a previous valid legal obligation to do a sufficient consideration for a new contract (1 Parsons on Contracts,; 437). When certain sailors had signed articles to complete a voyage, but at an intermediate port refused to go on, and the captain thereupon promised to pay them increased wages, it was held that the promise was without consideration (Bartlett v. Wyman, 14 Johns. 260). A firm having a contract to build a railroad found the contract unprofitable, whereupon the railroad company promised if they would go on and complete the contract, they would repay to the contractors all of the obligations which they had or would incur in consequence of their completion of the works. Held, no consideration (Ayres v. Chicago, R. I., &c. R. R. Co., 52 Iowa, 478).

When a mortgagor as a condition to the payment of his mortgage exacted from the mortgagee an obligation that he would procure the cancellation of a certain outstanding bond executed by the mortgagor, or pay him the sum of $100, said bond being given to indemnify against some apparent incumbrance, it was held that it not being shown that there was any incumbrance existing against the land, that the obligation was without consideration (Conover v. Stillwell, 34 N. J. Law, 54).

Where the plaintiff agreed to enter the military service of the United States, to the credit of the town of Tobin, for $100, and on arriving at the place of enlistment being offered an advanced price by others, refused to perform unless they would pay him $250 additional, Held, that an obligation to pay him the additional amount was void for want of consideration. (Reynolds v. Nugent, 25 Ind. 328).

A sailor signed articles for a voyage to Melbourne and home, at £3 per month; several of the crew deserted at Melbourne. The captain to induce plaintiff to remain signed fresh articles for £6 per month. Held, no consideration for the promise (Harris v. Carter, 3 El. & Bl. 559). To same effect, Stilk v. Myrick (2 Camp. 317).

Where defendant gave plaintiff notes to provide funds to take up obligations which plaintiff had previously contracted to pay, Held, no consideration. Mallalieu v. Hodgson, 16 Q. B. 689. A promise to pay an attorney additional compensation to attend as a witness, after he has been duly subpoenaed is without consideration. The attorney did nothing except what he was legally bound to do (Willis v. Peckham, 4 Moore, 300; S. C., 1 B. & B. 515).

It would doubtless be competent for parties to cancel an existing contract, and make a new one to complete the same work at a different rate of compensation ; but it seems it would be essential to its validity, that there should be a valid cancellation of the original contract. Such was the case of Lattimore v. Harsen, 14 Johns. 330.

It necessarily follows from these authorities that the plaintiff had no right to impose as a condition to the performance of his contract that the payment of said mortgage should be guaranteed although the defendant was not a party to the original contract, and the consideration and contract between him, Gtebhard and Ritchie does not appear. Yet we must assume that he acted at the request of Gebhard and Ritchie, and was required only by such contract to execute such an assignment as Gebhard and Ritchie had contracted to give. The answer at all events sets up that he received no consideration from any one for the guaranty sued upon. The answer also alleges that the sole consideration received for this guaranty was the performance by the plaintiff of his contract with Gebhard and Ritchie.

We think that this answer sets forth a defense to the action, and, inasmuch as defendant has been erroneously deprived of the opportunity of proving it, if in his power to do so, that a new trial should be ordered.

The judgment, therefore, of the general term dismissing the complaint is reversed, and their order reversing the judgment ordered against the defendant at circuit is affirmed and a new trial is ordered, with costs to abide the event.

All concur, except Andrews and Danforth, JJ., not voting.

The present statute is as follows:

Code Civ. Pro., Ҥ1627. Any person who is liable to the plaintiff for the payment of the debt secured by the mortgage, may be made a defendant in the action; and if he has appeared, or has been personally served with the summons, the final judgment may award payment by him of the residue of the debt remaining unsatisfied, after a sale of the mortgaged property, and the application of the proceeds, pursuant to the directions eqntained therein."

The present statute is as follows:

Code Civ. Pro., “ § 1628. While an action to foreclose a mortgage upon real property is pending, or after final judgment for the plaintiff therein, no other action shall be commenced or maintained, to recover any part of the mortgage debt, without leave of the court in which the former action was brought."