34 A.D. 534 | N.Y. App. Div. | 1898
This is an appeal from a judgment entered in favor of the plaintiff, in an action for the foreclosure of a mortgage. ’ The record is ■ voluminous, and the evidence as contained in it is filled with such contradictions as show deliberate false swearing by witnesses on one side or the other. The appellant, Mrs. Friedman, made and executed the bond and mortgage mentioned in the complaint, and upon the trial it was conceded by her counsel at the outset, that she is liable for something thereupon, dependent upon the result of an accounting; and he claimed, substantially, that it was for him to prove an affirmative defense set up in the answer, and allegations which, if established, would require a reformation of the instruments. That defense is, that by mistake on the part of the defendant, Yette Friedman, and fraud on the part of the plaintiff, or those acting for him, the bond and mortgage were so drawn as to secure other and greater obligations than those Mrs. Friedman had agreed to assume. Certain facts are conceded, namely, that the plaintiff and one Marcus Rosenthal were copartners
We must assume, then, that the bond and mortgage were to stand as security according to their terms, and it is not disputed that Mrs. Friedman occupies as to the plaintiff the relation of surety for Rosenthal, his debtor. Just at this point of the case is introduced the subject of subrogation of Mrs. Friedman to the right of the plaintiff to the warehouse certificates. It is claimed by the plaintiff that the pleadings are not in condition to give rise to an inquiry on that subject. But we do not so regard them. The history of these certificates and the relation of the parties to them came directly into the case. They are referred to in the. answer by an allegation which sets up that they, at the time of the dissolution of the firm of Rosenthal & Co. were given to the plaintiff, either in payment or as security for the $10,000 capital. The determination of the court below was that they were taken *as security. The defendant Friedman prayed that the plaintiff and the defendant Rosenthal be ordered to account to her respecting all the debts, liabilities and obligations of the firm, the amounts paid thereon and the amounts still outstanding and payable, to the end that the amount due upon the said bond and mortgage might be ascertained and determined; and
It is undoubtedly the law that a surety, as a general rule, is - only entitled to subrogation upon the payment of the indebtedness of his principal to the creditor, but where a creditor holds ás - collateral security two funds, viz., property óf the debtor. and, in'addition thereto, liability of a third party, a guarantor,, and the creditor elects to look to the liability of the guarantor, and the amount of that liability cannot be ascertained until a judicial accounting, a court of equity has. full power to define the rights of the parties as to both classes of security and to control in the hands of the creditor that to .which the guarantor may be entitled on a full judicial determination of the extent of his liability, and satisfaction of the amount found due. (Philadelphia & Reading R. R. Co. v. Little, 41 N. J. Eq. 519.) It needs no citation of authorities to show that a surety who pays a debt for his principal, is entitled -to be put in the place of the creditor, and is also entitled to all the means which the creditor
The proofs in this case showed that Mrs. Friedman, upon payment of such amount as might be found due on the mortgage, might be entitled to subrogation to the rights of the plaintiff to the whole or some part of the whisky certificates. That depends on the result of the accounting. But the plaintiff has sought to discharge himself from any responsibility for those certificates, and in doing so has .shown that Mrs. Friedman cannot have the actual benefit of them in tliis action. He contends and has endeavored to show that, in recognition of Mrs.- Friedman’s claims to those certificates and her right to control .or have them applied, they were delivered into her possession, and that thus he is freed from all accountability concerning them. It appears from the record that these certificates were taken by the- plaintiff from the safe of Rosenthal & Go. a day or two before the dissolution of that firm, and thenceforth, and until the 27th day of May, 1898, were always in the possession of one of the attorneys at law of the plaintiff. . At some time shortly before the last-mehtioned date, Rosenthal made application to that attorney for the certificates, desiring to use them in his own business and for his own purposes. The attorney was willing to aid Rosenthal in obtaining the certificates, but, as he states himself, he knew they could not be restored to Rosenthal without the consent
The evidence is convincing that a flagrant fraud was perpetrated on Mrs. Friedman in dealing with .these certificates:. We are not disposed to hold, upon this record, that the attorney concocted that fraud in collusion" with the defendant Rosenthal, for we would not be justified in acting upon mere suspicion. But the question here is, not as to responsibility for the fraud of Rosenthal and Reilly, but responsibility of the' plaintiff for the loss or destruction, so far as Mrs. Friedman ,is concerned, of those certificates, to which by the admission of the attorney she was entitled, either absolutely or contingently and which it was his purpose to give into her possession. Where the creditor s.o deals with a security to which a surety may be entitled by way of subrogation as, to lose it or destroy it, he is accountable for the value of that security to the surety paying the debt, or, as in this case, whose property is resorted to to pay the debt. As the learned justice at Special Term said, the rule is elementary that if the creditor loses or without the consent of the surety parts with security, the surety is. discharged to the extent of
The facts connected with the attempt to deliver the warehouse certificates to Mrs. Friedman plainly appear. She never got them and never consented to their delivery to Rosenthal. He wanted them for himself, and overtures looking to that end were made by him to the attorney in whose custody they were. The plaintiff knew it; his testimony is : “ I knew about the intention to deliver them; my brother told. me.” The plaintiff says they were in the attorney’s possession, and he did not personally give the attorney any instructions about the delivery at all. “ I did not see Mrs. Friedman about the delivery. I did not take the trouble to go and ask her whether she wanted them or not.” The brother referred to is Morris Sternbach, who represented the plaintiff in matters connected with these whisky certificates and whose authority to bind the plaintiff is in no way questioned or repudiated. Morris Sternbach says the conversations respecting the surrender of the certificates were had principally between Rosenthal and himself. Rosenthal told him that if he could get the whisky certificates and convert them into money he could see a way of liquidating the debts of the firm as well as indebtedness due the plaintiff and Morris. Morris Sternbach told Rosenthal that the whisky certificates were collateral, and that he would not give them up except with'"the advice of his lawyer, and thereupon he, Morris Sternbach, told the
Here then is the sim pie case of an agent charged with an active duty as to negotiable securities, namely, to deliver them into the hands of a particular person conceded to be entitled to them; who gets all his information as to the- wishes of that person from an -individual interested in abstracting them; an agent
It is not the case of the fraud of an agent. We will take the attorney’s own statement respecting his good faith, and then the fact remains that, for the want of proper inquiry or due notification. to Mrs. Friedman of what was to be doné with these securities, the opportunity was created for Rosenthal to cheat Mrs." Friedman out of them. If the plaintiff had personally acted with these certificates in the way his attorney did, there could be no doubt of the exoneration of the surety. Under the circumstances of this case, the attorney’s acts and omissions were those of the plaintiff; and we
These views require that the judgment be modified so that it shall be adjudged that the mortgage sought to he foreclosed in this action is a security to the plaintiff for unpaid indebtedness of the firm of Rosenthal & Co., and for the capital contributed by the. plaintiff to that firm;'but that Mrs. Friedman is entitled to he credited with the value of the whisky certificates on the 27th of May, 1896. The judgment should also be an interlocutory and not a' final one. (King v. Barnes, 107 N. Y. 645.) It should provide for an accounting, and, final judgment of sale and distribution should not-he made until after confirmation of a referee’s report upon such accounting, costs of appeal to appellants to abide event, and costs of action to be determined upon the application for final judgment.
Van Brunt, P. J., O’Brien, Ingraham and McLaughlin, JJ., concurred.
Judgment modified to the extent stated in opinion, and interlocutory judgment ordered as. therein directed, with costs of appeal to the appellants' to abide event, and costs of action to be determined upon the application for final judgment.
Sic.
Sic.