Opinion
Argued October 15, 1896
Decided October 30, 1896
Charles E. Patterson for appellant.
E.R. Harder and G.R. Donnan for respondent.
The main controversy in this case was determined by the Second Division of this court on the former appeal ( 134 N.Y. 122), which was taken from a judgment adjudging that the defendant Link was not liable for any deficiency which might arise on the sale under the judgment of foreclosure. It was held by this court that the principle of equity that the creditor is entitled to the benefit of a collateral obligation for the payment of the debt, received by one himself liable therefor, from a person who had undertaken to indemnify the former against his liability, applies to the situation, and that Link, who in his conveyance from Kellogg covenanted to pay the mortgage, was chargeable with any deficiency arising on the foreclosure sale. The judgment of the Supreme Court was, therefore, reversed as to the part appealed from, namely, the part exonerating Link from liability, and a new trial as to that question was awarded. Meanwhile the original judgment directing a sale of the premises (from which part of the judgment no appeal has been taken), had been executed, and the premises on the sale were bid off by the plaintiff for a sum much less than the amount unpaid on the mortgage. The courts below on the second trial followed the law as declared on the first appeal to this court and rendered judgment against the defendant Link for the deficiency as ascertained by the sale and the subsequent proceedings. It is insisted by the learned counsel for the defendant Link, that the decision on the former appeal to this court adjudging that his covenant in the deed from Kellogg inured to the benefit of the holder of the mortgage, and entitled the latter to enforce it to the extent of any deficiency arising on the foreclosure, is a departure from, or at least an extension of the doctrine of equitable subrogation as heretofore understood and applied. We are unable to concur in this contention. We think that the decision of this court on the former appeal is in precise conformity with the principle of equitable subrogation applied to the situation of creditor, and a person who has obligated himself to pay the debt by covenant, with one who had become obligated for its payment.
By the deed from Kellogg, Link acquired the legal title to the land. He assumed the payment of the mortgage as a part of the consideration of the purchase. Kellogg's title was derived under a quit-claim deed from the mortgagors, containing no covenant of assumption, and so far as appears he never entered into any covenant or agreement with them to assume or pay the mortgage. If there was nothing more, it would be plain under the decisions in this state, commencing with King v. Whitely (10 Pai. 465), that the plaintiff would not be entitled to enforce Link's covenant in the deed from Kellogg. But Kellogg by his bond of February 17, 1874, executed directly to the plaintiff, the consideration of which is not questioned, did connect himself with the original obligation and became bound to pay the part of the mortgage debt which should remain unsatisfied after the remedy against the land should be exhausted. This bond, although given subsequently to his acquiring the title to the land, was executed and delivered before his conveyance to Link, and it does not admit of doubt that it created an obligation on the part of Kellogg which could have been enforced in the present action, if the plaintiff had made Kellogg a party, and sought relief against him on the bond. When Kellogg took the covenant from Link he had an interest to protect himself against his liability on the bond. It was, it is true, a personal covenant between Kellogg and Link. But it is generally true in cases of assumption clauses in deeds, that the covenant is in form between the grantee and grantor only; but where the grantor is bound for the mortgage debt, then equity treats it as a covenant of indemnity to the grantor and the grantee as a surety for the grantor against his liability for the debt, of which relation the creditor may avail himself under the general principle adverted to. This beneficent principle prevents unnecessary litigation and appropriates the security to reinforce the original obligation according to manifest justice and equity.
It is urged that the fact that Kellogg's liability was not created by his deed from the mortgagors, but by a subsequent and independent transaction between him and the plaintiff, renders the doctrine of Halsey v. Reed (9 Pai. 446), and the cases following it, inapplicable. It is true that most of the cases in which the principle has been applied in our courts have been cases where the covenant to assume and pay the mortgage was contained in the deed conveying the premises. But the principle that the creditor may avail himself of the covenant does not rest upon the fact that it was contained in or was contemporaneous with the conveyance of the land. The point to be determined in each case was, whether the grantor in the deed had incurred a personal liability to pay the debt. If he had, it was wholly immaterial whether the liability was created by a covenant in his deed, or by an independent writing. It was necessary to establish his liability in some way, for, if he was under no liability, the covenant of his grantee did not place the latter in the position of surety for the grantor, and the grantor being under no liability to the creditor the covenant could not inure to his benefit. The deeds in those cases were only important because they contained the personal covenant necessary to create the liability. But a bond or other creditor who has no security by mortgage, but only the personal liability of the obligor or principal debtor, may, for the same reason as in mortgage cases, avail himself of an indemnity held by the obligor or original debtor from a third person against his liability. So, also, the fact that Kellogg assumed no liability to his grantors for the mortgage debt, or otherwise by any agreement with them, is immaterial. He incurred a liability by his bond to the plaintiff, subsequently given, and when he conveyed to Link he imposed upon him the primary duty to discharge that obligation as a part consideration for the conveyance. The case of Turk v. Ridge ( 41 N.Y. 201) is not applicable. There the bond was given by the grantee to the grantor, and the case turned on the construction of the covenant, and it was held that it was not a covenant to pay the note of the grantor held by the plaintiff. The covenant of Link in this case was to pay the mortgage, and no question of construction arises.
It is urged that the bond of Kellogg to the plaintiff was improperly allowed to be proved, because the giving of the bond was not alleged in the complaint. The complaint alleged that on the conveyance from the mortgagors to Kellogg, "Kellogg orally agreed with the said Sullys to assume, and did assume, the payment of the mortgage * * * and thereby and otherwise became legally and equitably bound to the grantors and to the mortgagee to pay the same." We think this allegation was sufficient, in the absence of any application on the part of the defendant Link to make it more definite, to justify proof of the bond, even assuming that any allegation on that subject was necessary to permit such proof.
We think the point that the defendant was or may have been prejudiced by the omission to serve process on Baker and Schermerhorn, named as defendants in the action, is unfounded. The judgment recited that all the defendants shown by the record to have had an interest in the mortgaged premises were served with process. The judgment of sale was entered upon the motion of Link's attorneys, the attorneys for the plaintiff opposing. Neither Baker nor Schermerhorn had any interest in the mortgaged premises. They were subsequent grantees, but their deeds were not on record and they subsequently and before the commencement of the action, conveyed to other parties. In fact all the necessary parties were joined as defendants and served with process, and a good title would be acquired by a purchaser under the judgment. The joining of Baker and Schermerhorn as defendants was unnecessary, as they had no interest in the premises. The formal and usual allegations in the complaint that the defendants therein have or claim some interest in the premises, subject to the mortgage, is followed in a subsequent clause by a statement that Link had conveyed to Baker and Schermerhorn, and they to another person who had conveyed to the defendant Van Allen, thereby fairly defining their relation to the property. The supposition that in bidding on the sale bidders were influenced by any notion that Baker and Schermerhorn had interests which had not been cut off by the judgment, has no support in the proof. If such was the fact the remedy by the defendant was to apply to the court, after his liability had been adjudged, to open the sale. His attorney was present and bid at the sale, and the judgment of sale, as has been said, was entered upon his motion.
We see no error in the judgment, and it should, therefore, be affirmed.
All concur.
Judgment affirmed.