Field v. Thistle

| New York Court of Chancery | Jul 24, 1899

Emery, V. C.

This is a bill for deficiency filed by the mortgagee against-Thistle, the obligor and mortgagor, and against the successive-grantees of the mortgaged premises, being Royle, Bray and McChesney, in the order named, who have, it is claimed,, assumed.the payment of the mortgage in their respective deeds. The mortgaged property was sold under foreclosure proceedings,, to which the mortgagor and the grantees were parties defendant, and a deficiency of over $900 exists. On the day before the-sale Thistle, the mortgagor, released his grantee, Mrs. Royle, from her covenant of assumption, and she also released her' grantee, Bray, from his covenant to assume made in her deed to-him. The covenant of McChesney, the last grantee, with Bray has not been released, but McChesney has died since the conveyance, and his executors, who are parties as his devisees, claim that the right to recover against them is barred by reason of the-failure of complainant to exhibit his claim under oath within the time limited by the order to bar creditors, upon which a decree barring creditors has been duly made. The sale under-foreclosure was not made, however, until after the expiration of the time limited 'by the order for presenting claims, and this defence of failure to present the claim must therefore be overruled on the authority of Terhune v. White, 7 Stew. Eq. 98 (Chancellor Runyon, 1881), which holds that before foreclosure the claim is contingent and cannot be proved against the estate. The first question in the case is the construction of the clause-of- assumption in the deed from Thistle to the defendant Mrs. Royle, then Mrs. Cross. The covenant is as follows (punetuatim et literatim):

“This conveyance is made expressly subject to a mortgage encumbrance of three thousand dollars, given by the said Hugh B. Thistle .to the said Josie-Downing Smith, dated October (1st., 1886) first, eighteen hundred and; eighty six. Together with interest.and taxes from October first eighteen hundred and eighty six. All of which are assumed by the party of the second< part."

Mrs. Royle claims that by the true construction of this covenant the clause of assumption reaches only the interest and taxes from October 1st, 1886, and not the principal of the mortgage. X think, however, that “all of which” means “every one of which,” and must include every one of the encumbrances previously set out, being the mortgage of $3,000, interest and taxes, .and cannot be restricted to the last two encumbrances. In Wise v. Fuller, 3 Stew. Eq. 257 (1878), Vice-Chancellor Van Fleet (at p. 366) construes a somewhat similar contract in reference to .a like objection.

The assumption of Mrs. Royle extends, therefore, to the payment of the mortgage, and as to form there is no question in reference to the subsequent assumptions by the other grantees. The question on these relates to the effect of th.e releases, which were made before the beginning of this suit, but after decree of foreclosure in a suit to which all parties to the foreclosure were parties, and in which suit they were made parties, as ultimately responsible for any deficiency resulting in the sale.

Complainant (by her amended bill) alleges that at the time of •making the releases, Thistle, the mortgagor, was insolvent, and ■that the releases were made in fraud of her rights as a creditor, ¡after notice of her claim. The defendants Thistle, Royle and Bray, answering separately, deny the fraud charged. Mrs. Royle and Bray deny the assumption of the mortgage by Mrs. Royle, and Bray alleges, in addition, that the clause of assumption in the deed from Mrs. (Cross) Royle to him was inserted by mistake. McChesuey’s executors also set up the insertion 'by mistake in the deed from Cross to Bray, and also that the ¡same clause was inserted by mistake in the deed from Bray to McChesney. If the releases had not been given, the defences ■of alleged mistake set up in these answers could perhaps be considered only on cross-bill. Green v. Stone, 9 Dick. Ch. Rep. 387 (Errors and Appeals, 1896), and cases cited p. 400. But it is claimed that the parties have the right by their releases to reinstate or restore voluntarily the equities which could otherwise have been enforced by suit, and that the question of fact is -whether the consideration of the releases was the bona fide restoration of these equities, or whether the releases were tainted with fraud on a creditor. This claim proceeds of course upon the-theory that the releases could be made by the act of the parties after filing of the bill to foreclosure, in which the releasors were-made parlies, as ultimately liable for the deficiency. On this assumption and considering the evidence, I conclude that the clause of assumption was not inserted by mistake in the deed from Mrs. Cross to Bray, but that it was specially inserted in her deed to Bray with the special object on her part of protecting herself in case she was liable for the mortgage on her own-covenant. This appears by her own evidence, and there being no mutual mistake there could have been no reformation of the deed based on this ground. Green v. Stone, 9 Dick. Ch. Rep. 387, 396. Bray’s defence of mistake therefore fails, whether considered as a substantial equitable defence to an existing covenant of assumption, or as the consideration of a release of such-covenant. No other consideration for the release to Bray than-this alleged mistake was either set up in the pleadings or urged at the hearing. No evidence of mutual mistake in the deed from Bray to McChesney was given. I conclude also upon the-evidence that the releases, whatever their consideration as between the parties, were actually intended to defraud complainant as a creditor of Thistle. Thistle was hopelessly insolvent, judgments-of about $40,000 appearing to have been outstanding for several years, and the releases were all made as part of one transaction by which upon Thistle’s releasing Mrs. Cross, she in turn waste release Bray, and this was the plan actually carried out. These releases were made after the foreclosure suit had commenced and notice received that complainant relied on their liability, and the circumstances of Thistle’s release were such as to-charge Mrs. Royle and Bray with the duty of inquiring into his financial condition and with knowledge of his insolvency. As-guarantors they were proper parties in the foreclosure suit, for •the purpose of attending the account and protecting themselves at the sale. Jarman v. Wiswall, 9 C. E. Gr. 267, 270 (Chancellor Runyon, 1873); Dorsheimer v. Rorback, 8 C. E. Gr. 46, 48 ; S. C. on appeal, 10 C. E. Gr. 516, 519; United Security, &c., Co. v. Vandegrift, 6 Dick. Ch. Rep. 400 (Vice-Chancellor Van Fleet, 1893).

Under the former practice of obtaining a decree for deficiency in the foreclosure suit, no release' after suit brought to collect the deficiency in the foreclosure suit would have been effective. Green v. Stone, 9 Dick. Ch. Rep. 387, 396, 399. And although the decree for deficiency cannot now be obtained in the foreclosure suit, yet the commencement of a suit for foreclosure, to which the defendants assuming the mortgages are properly made parties, as ultimately liable for deficiency, is, in my judgment, such an acceptance of their obligation and action thereon as the mortgagee is entitled to rely on as.fixing his rights to enforce the covenant, and terminates the right to release by the voluntary act of the parties. After the filing of such a bill against the grantees, as having assumed the mortgage, and for the purpose of commencing the enforcement of their ultimate liability by settling finally for that purpose the amount of the debt and of the*deficiency, the mortgagee is entitled to have the equities, which are relied on as a basis for discharging the release, made an issue on the record and decided by the court after hearing the parties interested, and cannot be deprived of this right by the voluntary release between the parties subsequently made. Bring an action to foreclose and claim therein for deficiency is such au adoption of the covenant by the mortgagee as terminates the right to release. 1 Jones Mort. (2d ed.) ¶ 764, and cases cited.

In my judgment the action to foreclose, which under our present practice must precede the bill for deficiency, has the same effect if the grantees liable for deficiency are made parties to the bill for the purpose of settling the amount of their liability.

I find, therefore, that as against the complainant the releases are void and the parties are all liable, but in an order which has been affected by the releases. These, although void against complainant, are valid between the parties. Youngs v. Trustees, &c., 4 Stew. Eq. 290, 303 (Errors and Appeals, 1879). The order of liability will be, first, McChesuey’s executors; second, Thistle; third, Mrs. Royle, and fourth, Bray.

The unpaid taxes upon the property at the time of the sale cannot be added to the amount of the deficiency. The land was purchased subject to these taxes which were prior Hens, and it must be assumed that the bid at the sale was made for the property subject to these taxes to be paid by the purchaser.