Summary
In Lewis v. Duane (141 N.Y. 302) it was held that an attorney employed to foreclose a mortgage has no implied authority in the matter to compromise the rights of his client and make nugatory the duty he was employed to perform.
Summary of this case from Bush v. O'BrienOpinion
Argued January 30, 1894
Decided February 27, 1894
Edward K. Clark and Roger P. Clark for appellant. S.C. Millard for respondent.
The plaintiff's right to an accounting under the agreement which made the mortgage from Lewis to Drake collateral to certain described liabilities and promised advances of the latter is apparently barred by the foreclosure of that mortgage which has vested the legal title in the purchasers at the sale and extinguished the mortgagor's right of redemption. It is, consequently, over the validity and operative force of that foreclosure and sale that the controversy has been carried on both in the proofs and the argument addressed to the trial court and the General Term, and it is substantially upon that point only that a final judgment is now sought.
The mortgage was given by Frederick Lewis and his wife in June of 1873, to Patrick H. Drake, as security for the sum of sixty thousand dollars to be paid in one year from that date. An agreement executed by the mortgagee at the same time indicates the purpose of the security, the consideration upon which it rested, and the extent to which it was intended to operate. That agreement shows that Lewis was in embarrassed circumstances, unable to pay his debts, and exposed to executions which threatened a sacrifice of his entire property; that he had come to Drake for help and protection, in the hope, by his intervention, of saving something from the wreck; and that the purpose was to put the debtor's property in the hands of Drake, both to secure the latter for his large liability as indorser, and obtain for the former an application of his property, without sacrifice, to the discharge of his debts. The agreement estimates the value of the land mortgaged at "about one hundred thousand dollars," a sum which it did not bring and which was largely in excess of the actual market value; a result not strange in view of the almost invariable tendency of a failing debtor to overestimate the actual value of his assets. The agreement put Drake's liability, as indorser for the mortgagor, at about thirty-two thousand dollars, but conceded that to be only a supposition, and that the true amount was at the moment unknown. Equally uncertain was the total of the judgments against Lewis which were already liens upon the lands mortgaged. Out of these uncertainties the sum of sixty thousand dollars was fixed upon for the purposes of the mortgage, as a sum likely to cover the prior lies upon the land and Drake's liability as indorser. Such prior liens he was to assume and discharge, and pay off the notes which he had indorsed, and so far as he did so to do it out of his own means during the year of grace which the mortgage security to the debtor, and that instrument was to stand as security for the advances made and to be made and the indorsed notes paid and discharged.
At the end of the year, and the consequent maturity of the mortgage debt, Drake had paid out large sums of money under the agreement which Lewis was unable to reimburse; and it became obvious that Drake would be compelled to resort to his security. The drain upon his own resources had become heavy and was daily increasing; he had borne the burden for the stipulated time, and since the debtor could not pay, it was just and proper to resort to his property pledged for that purpose. But Drake was not hasty or impatient. He bore the burden for still another year, and doubled the time for which Lewis had stipulated, but no relief came from the debtor and the hope of any had practically disappeared; and Drake then foreclosed the mortgage by advertisement and cut off the mortgagor's equity. That foreclosure was conducted in conformity with the statutory provisions, and is not criticized so far as a due observance of those provisions is concerned, but is assailed upon grounds which go to the mortgagee's right to foreclose, to the amount which was asserted to have become due, and to the consequence claimed to have resulted.
The first proposition of the appellant is that the foreclosure was premature, because Drake agreed to advance the money necessary to pay off the incumbering judgments and had done so only in part. The referee finds as a fact that at the date of the foreclosure Drake had paid out under the agreement a little over forty-two thousand dollars, and that there remained outstanding judgments which were a lien to the amount of twenty thousand dollars more. Now, the agreement did not purport to alter or change the maturity of the mortgage. There is no word in it to that effect. On the contrary, all its provisions are consistent with the explicit terms of that instrument which allowed Drake at the end of one year, in case of Lewis' default, to resort to the mortgaged property itself for the means of carrying out and fully accomplishing the purposes of the agreement. Its stipulations contemplated an assumption by Drake of the judgments which were liens on the property, and because it was only after their payment that any surplus could be reached applicable to his liability as indorser; but while he became bound for their eventual payment, he had a right, after one year, to resort to the property itself for the means of carrying out the contract, and in the meantime was bound to pay judgments only when necessary to prevent a sacrifice of the property or an enforcement against Lewis personally. The mortgage debt, therefore, was due and payable when the foreclosure proceedings were commenced, and they were not prematurely instituted; unless there is force in the further contention that the amount secured was unliquidated, and was to be ascertained as a condition precedent to the foreclosure.
It may be that where a mortgage is given to secure unliquidated damages they must be fixed and ascertained before the mortgage can be foreclosed. Until then it is impossible to know what sum will redeem the security on the one hand or satisfy it on the other; but if in such case no foreclosure by advertisement can be had the rule applies only where the damages are strictly of that character. What such damages are is shown in Butts v. Collins (13 Wend. 156), and what they are not is settled in Mowry v. Sanborn ( 68 N.Y. 153). The former case describes them as resting in opinion merely, to be ascertained by the verdict of a jury, and not susceptible of computation or calculation. The latter case sustained a foreclosure by advertisement where the mortgage was given to secure outstanding commercial paper up to a certain fixed amount. That is the situation here. The indorsed paper and the judgments were for settled and ascertained amounts. To schedule them correctly and add them together was all that was necessary to show for what sum the mortgage stood as security. Allusion is made to the provision in the agreement that the mortgage should be indorsed down to the actual amount due on it. That clause operates only when less than the principal is the amount of the debt, and has no application where the latter is in excess and no indorsement at all is requisite or permissible.
And that brings us to the appellant's principal contention; which is that the mortgage was foreclosed for a much larger amount than was due on it. There is no allegation of any fraud upon the mortgagor. Proper notices of sale were served upon him, and they disclosed the claim of Drake that there was due on the mortgage the full amount of principal and interest. Lewis was either present or might have been present at the sale and made neither objection nor protest, and none is heard from him for years thereafter, not even when he is required to surrender possession, and not until Drake's death had lessened the means of explanation. Where no fraud is charged, and the mortgagor stands by silently and with approval, and makes no complaint, we should be very slow to criticize or dispute, long after the sale, the amount asserted to be due.
But in spite of all difficulties flowing from the death of Drake, I think it is made quite apparent that when the mortgage was foreclosed very much more was due than the amount of its principal and interest. The referee finds that at such date Drake had actually paid out upon notes and judgments a little more than forty-two thousand dollars, and that there remained unpaid liens on the property to the amount of at least twenty thousand dollars more, exclusive of the accrued interest thereon. The evidence indicates, according to the computation of the respondent, the details of which are furnished for our inspection, and which appear to be correct, that at the date of the mortgage there were outstanding judgments which were liens on the property and which Drake assumed and agreed to pay and discharge, and which he was obliged to assume before reaching protection for his own liability, to the amount of almost thirty-six thousand dollars, and notes on which he was charged as indorser to the amount of forty thousand dollars more, making a total exceeding the principal of the mortgage by more than fifteen thousand dollars.
Some of the items which enter into the computation are criticized by the plaintiff, and the computation itself assailed for alleged inaccuracies.
It is said that Drake did not in all cases discharge the judgments of record, and assigned or caused some of them to be assigned to his wife. She was Lewis' sister, and the transfers were with his assent. The language of the agreement shows that such a mode of protecting Lewis from damages and costs and his property from sacrifice was within the scope of the arrangement. The words are: "In the meantime the said Drake will take care of and protect the said Lewis and his property from the enforcement of any of the judgments against the said Lewis or his property, and save the property of said Lewis from sacrifice and the said Lewis from damages and costs." That covenant was fully performed. None of the property was wasted or sacrificed on execution sales; it was all applied to the payment of Lewis' debts; no judgment in any manner charges or menaces his estate; each and all of them are paid; and Drake only is a loser by the transaction.
It is said that until actual advances in payment of judgments were made the latter formed no part of the debt protected by the mortgage. But that was intended as an indemnity to Drake. He did not covenant to pay the outstanding judgments in express terms, but did agree to save Lewis harmless therefrom, and protect him against the sacrifice which would result from their enforcement by execution sales. Drake's liability attached at once, and on appellant's own theory the mortgagee became responsible to the judgment creditors. Whether that be quite true or not, Drake, at least, by the terms of his agreement became liable to Lewis to pay all these judgments so far as necessary to protect him from loss, and took his own security subject to such payments, every one of which was eventually to be discharged. Drake's right to resort to his security sprang up at its maturity and was not postponed until his actual payments ( Kohler v. Matlage, 72 N.Y. 259.)
It is further insisted that the referee erred in not crediting upon the mortgage a sum of five thousand dollars paid to Drake by Lewis. The proof tends to show that the amount was applied by Drake upon a note of Lewis, outside of and in addition to those embraced in the mortgage consideration.
There are many other criticisms upon the accounts as it respects their details, but these were all submitted to the consideration of the referee and constituted elements of the question of fact upon which his finding ought to be and is conclusive upon us. We are unable to find any just reason for reversing his determination that at the date of the foreclosure at least the full sum of principal and interest was due on the mortgage.
But, assuming that to be true, the plaintiff urges that, by not discharging the judgments on the record, the mortgagee was enabled to make the sale and become the purchaser under the cloud of a seemingly double incumbrance, and so purchasers were prevented from bidding. But the result came from Lewis' assent. Paid judgments were assigned to Mrs. Drake, instead of satisfied of record, with his knowledge and approval. He, at least, knew the truth and did not object. He might have explained, but did not. He might have required Drake to make the record correspond with the fact, but chose not to do so, and evidently preferred in his own interest that Drake should be the successful bidder. It is impossible not to see that such was his attitude. He knew very well that nobody could afford to take the property, burdened with its actual liability, except Drake, to whom it was a necessity if he hoped to obtain any protection; and Lewis occupied the homestead, long after the sale, by Drake's sufferance, while waiting for a purchaser. There is not only no claim of fraud made in the complaint, but not a single allegation of fact pertinent to a setting aside of the sale, and no such relief asked. Whatever of force there might have been under some circumstances in the objection made, it has no just application as a ground of this appeal.
Nor can the effect of the foreclosure be avoided by the contention that the papers executed between the parties constituted a trust. They plainly established the relation of mortgagor and mortgagee, and not that of trustee and beneficiary. The mortgage was, as a mortgage always is, collateral to a debt due or to become due to the mortgagee, which in this case was the liability of Drake as indorser, necessarily increased in the result by the incumbering judgments first to be paid before protection of any kind could be reached. There were about the transaction no elements of trust beyond those which commonly attend a mortgage given as collateral. ( Williams v. Townsend, 31 N.Y. 415.) The result might have been different if Lewis had not been made a party to the foreclosure so that his equity survived.
An effort was made in that direction through the agency of some parol evidence which was excluded at the trial but is now claimed to have been admissible. The attorney foreclosing the mortgage for Drake was Mr. Hotchkiss, who was dead at the time of the trial. Mrs. Lewis was asked this question: "Did Mr. Hotchkiss tell you, or say to Mr. Lewis in your presence, that the foreclosure should make no difference as to the agreement between Mr. Drake and Mr. Frederick Lewis?" The question was objected to and excluded and the plaintiff took an exception. The only authority of Mr. Hotchkiss was derived from his position as the attorney of Drake in the proceedings for foreclosure. No other agency is shown, and the question presented is whether an attorney employed to foreclose a mortgage has, by virtue of his office, an implied authority to give away the entire right of his client and make nugatory the very duty which he was employed to perform. There ought to be and there can be but one answer to that question. The primary and principal purpose of the foreclosure was to extinguish the equity of redemption. For that purpose the notices were served upon Lewis and his wife, and the whole proceeding was a waste and a nullity without it. To assure the mortgagor that the legal effect of the pending foreclosure should be annulled and the rights of the parties nevertheless remain unchanged was to give away and destroy the entire right of the client and invalidate the proceeding itself. An attorney, as such, may not compromise the rights of his client outside of his conduct of the action, or accept less than the full satisfaction sought, or release his client's right, or subject him to a new cause of action. ( Arthur v. Homestead Fire Ins. Co., 78 N.Y. 469; Barrett v. Third Ave. R.R. Co., 45 id. 635; Beers v. Hendrickson, Id. 665.) The evidence offered could only be material by completely annulling the legal effect of the proceedings as against the mortgagor. The attorney had no such authority and the evidence was properly excluded.
Beyond the legal questions involved I have quite carefully gone through the evidence to see if Lewis has been in any manner wronged. There is no possible basis for any such theory unless upon the ground that there was a real surplus of value in the property mortgaged beyond the incumbrances and the conceded debt of Drake. There are some opinions in that direction but the weight of evidence, and especially the plain and decisive facts are the other way. No process can create the desired surplus except one which stands on opinions of cost or intrinsic worth instead of market value for purposes of sale, and which compels Drake to account for the property at double the amount which he was able to get on a sale.
I think the judgment should be affirmed, with costs.
All concur.
Judgment affirmed.