Opinion
June Term, 1898.
William Sullivan, for the appellant.
Charles E. Miller [ Walter Alexander with him on the brief], for the respondent.
Lucy Adaline Hall and her husband, now deceased, in 1883 executed and delivered a bond to the plaintiff and as collateral thereto executed and delivered a mortgage upon the premises which are the subject of this action. Thereafter, and in 1887, Mrs. Hall conveyed the premises to one Hanaman; the latter covenanted to pay the mortgage and the plaintiff thereupon released Mrs. Hall, by an instrument in writing sufficient for that purpose, from all liability for any deficiency which might arise if the land did not produce sufficient to pay the mortgage debt. Hanaman subsequently conveyed the land to one Lansdell; he gave to Mrs. Parker a second mortgage upon the land, which was thereafter foreclosed, and the defendant Parker bid in the same at the foreclosure sale, subject to the lien of the prior mortgage to plaintiff. By an agreement thereafter made between the plaintiff and the defendant Parker, the interest upon its mortgage was reduced from six to five per cent; the time of payment of its mortgage was extended, and Parker gave to the plaintiff a collateral bond, so called, agreeing to pay the principal sum secured by the mortgage. This instrument is, in all respects, sufficient to create a primary liability, and is of such effect unless the recital: "(this instrument being collateral to the bond and mortgage of Lucy A. Hall and John B. Hall held by the above-named company to secure the payment of the sum of fifteen thousand dollars with interest; said mortgage being recorded in the county of Dutchess in Liber 186 of Mortgages, page 306,)" changes it from a primary security to one of suretyship merely of the obligors in the original bond. The contention of the defendant Parker is, that he occupies the relation of surety to the obligors in the former bond, and as he was not informed of the agreement which released them from any liability for a deficiency, he is discharged from all personal liability. We are, therefore, to consider what his relation is.
If he be not a surety, then he has no defense, and the judgment below is right. Ordinarily when we speak of a collateral undertaking, we understand it to be secondary to a primary obligation, and in the nature of a security for the performance of the duty for which the principal obligation provides. I apprehend, however, that it may be in a sense collateral and yet be also primary, dependent upon the circumstances and character of the consideration moving to the obligor therein. If the promise be made for the obligor's benefit, and he alone becomes the recipient and sole beneficiary in the matters arising therefrom, he may well become primarily liable, although his engagement be denominated collateral, unless the agreement, either in terms or by necessary implication, forbids such construction. Under such circumstances we are to consider whether in fact the bond is collateral in the sense of suretyship, or additional and also primary. It is said by Judge COOLEY: "Now a surety, as we understand it, is a person who, being liable to pay a debt or perform an obligation, is entitled, if it is enforced against him, to be indemnified by some other person, who ought himself to have made payment or performed before the surety was compelled to do so. It is immaterial in what form the relation of principal and surety is established, or whether the creditor is or is not contracted with in the two capacities, as is often the case when notes are given or bonds taken; the relation is fixed by the arrangement and equities between the debtors or obligors." ( Smith v. Sheldon, 35 Mich. 42.)
"Where the primary debt subsists and was antecedently contracted, the promise to pay it is original when it is founded on a new consideration moving to the promisor and beneficial to him, and such that the promisor thereby comes under an independent duty of payment irrespective of the liability of the principal debtor." ( White v. Rintoul, 108 N.Y. 222; Raabe v. Squier, 148 id. 81.)
In the present case the promise of the defendant Parker to pay the mortgage debt was founded upon a good consideration. The rate of interest was reduced, and the time in which to pay the mortgage debt was extended. The benefit derived from this transaction was enjoyed solely by Parker; he was enabled to retain the possession of the land, enjoy the rents and profits, and make use of it to the fullest extent. The conditions were such, therefore, that the promise was in no sense collateral, but was direct, independent and primary; was supported by a consideration, the benefits of which were reaped by Parker directly and alone; no one else had interest therein. ( Prime v. Koehler, 77 N.Y. 91.) At this time Parker occupied the relation of principal debtor upon the mortgage to the extent of the value of the land, and, occupying such relation, he had a special undivided pecuniary interest in dealing with the mortgagee, and in reducing the mortgage burden to the lowest point. There was no privity between the original obligors and Parker. There was no basis upon which to found an equitable right of subrogation in him as against the original obligors. His promise was made for his own benefit, and these benefits he received. It is true that the agreement for the extension of the mortgage, and probably the change in the rate of interest, did not have the effect of discharging absolutely the obligors in the original bond. ( Murray v. Marshall, 94 N.Y. 611.) Yet they were so discharged to the extent of the value of the land at the time when the extension was given. Parker was chargeable with knowledge of the effect of his contract upon them, and would be estopped from asserting any right as against them which was destroyed by his contract. If Parker be now compelled to pay the amount of any deficiency, and he be held to stand in the relation of surety, he could only be subrogated for the deficiency above the value of the land at the time when he made his contract. And if the land was of the value of the amount of the mortgage debt at the time the extension was given, he would have no right which he could enforce, as there would exist no legal liability upon the part of the obligors to pay the deficiency, and such condition would be the product of Parker's act equally with that of the plaintiff. But, within the principle of the decisions we have cited, the relation between the original obligors in the bond and Parker in his bond was never that of principal and surety. Parker's obligation was primary. Both obligations rested upon a basis of benefit which each received quite independent of the other. It was this obligation under which each rested and the benefit which each received, independently of the other, that removes the contract from the domain of suretyship, and constitutes each an independent and primary obligation. The recital in the last bond does not have the effect of changing the relation of the parties, as it must be construed having regard to the equities of the parties, the obligation which the land was under, and the legal results which flowed from the act of each, based upon the obligation each was under and the benefits which each received. So regarded, it follows that the defendant Parker suffered no legal injury by the release of the survivor of the original obligors, and consequently remains liable upon his bond for any deficiency which may arise upon the sale by virtue of its being an independent contract.
The judgment should be affirmed.
All concurred, except WOODWARD, J., not sitting.
Judgment affirmed, with costs.