New York Life Insurance v. Aitkin

26 N.E. 732, 125 N.Y. 660, 36 N.Y. St. Rep. 8, 80 Sickels 660, 1891 N.Y. LEXIS 1527

• Court: New York Court of Appeals
• Decided: February 24, 1891
• Status: Published

Opinion

Earl, J.

The record discloses that the plaintiff was defeated at the Circuit, and the verdict there ordered in favor of the defendant upon the sole ground that he was, by the release executed to him by Gregg, absolutely discharged from the covenant of assumption made by his wife, the testatrix; and the effect of the release is, therefore, the first matter now to be considered.

■ If the question is to be governed by the law of this state, it is entirely clear that the release did not discharge the defendant. The covenant of assumption had, long before the release, come to the notice of the plaintiff, and it had adopted and acted thereon. Having no notice of the death of Mrs. Aitkin, it commenced the action for the foreclosure of the mortgage in the state of Hew Jersey, and inserted her name in the process and complaint as a party, and prosecuted the action to judgment upon the assumption that she had been made a proper party thereto. In the complaint in that action the covenant of assumption was alleged, and a deficiency judgment was prayed against Mrs. Aitkin and others. Whatever may be the effect of those foreclosure proceedings, they were at least competent to show that the plaintiff adopted and relied upon the covenant of assumption made by Mrs. Aitkin. After that covenant had thus come to the attention of the plaintiff, and had been adopted by it, Gregg, the covenantee, could not release her or her estate from the obligation of the covenant, and so the law must be deemed to be finally settled in this state. (Gifford v. Corrigan, 105 N. Y. 223; S. C., 117 id. 257; Watkins v. Reynolds, 123 N. Y. 211.) Therefore, if the law of this state governs, the release 'was not operative to bar this action.

But we reach the same conclusion if, as contended by the defendant, the effect of the release is to be determined by the law of Hew Jersey. There the courts hold that a covenant by a grantee of mortgaged premises, contained in the deed to him, to assume and pay the mortgage debt, is a contract with Ms grantor only for the indemnity of the latter, and may be released and discharged by him; and generally that where parties have made a contract which will, either directly or indirectly, benefit a mere stranger, they may at their pleasure abandon it and mutually release each other from its perform- ■ anee, regardless of the stranger’s interest, unless the parties, with knowledge that he is relying on the contract, suffer him to put Mmself in a position from which he cannot retreat without loss in case the contract be not performed, and that then he may ask to have the contract performed so far as it touches his interest. They hold that the mortgagee in such a case may enforce the covenant of assumption in equity, on the principles of equitable subrogation, thus appropriating a security which the mortgagor has obtained from his grantee for the benefit of the mortgage; and the rule there seems to be that the covenant can only be enforced in equity. But the courts there have held further that a release of a grantee’s assumption of a mortgage debt, given by an insolvent grantor, with■out consideration, and for the sole and admitted purpose of defeating the mortgagee’s claim in equity for a deficiency, is void in equity; that the release to be operative must be given in good faith and for a valuable consideration, and not for the sole purpose of defeating the claim of the mortgagee.- The following authorities were proved upon the trial and are ample to sustain the views just expressed. (Cromwell v. Currier, 27 N. J. Eq. 152; Trustees v. Anderson, 30 id. 366; Youngs v. Trustees, 31 id. 290; O'Neill v. Clark, 33 id. 444.) In the case of Trustees v. Anderson, the chancellor says: “ In the present ease recourse was had to the expedient of the releases as a means of protecting Youngs against his liability to the complainants, who, though they had not in fact commenced suit were, as the parties to the releases well knew, about to do so, and they had made preparations accordingly. No consideration passed, nor was any to be given. Nor were the releases founded on any equity or equitable consideration. The mortgagor was insolvent and had no longer any interest in the indemnity which Youngs had given him against his liability on the complainant’s mortgage. Had he been solvent the release would, of course, not have been executed. The hollow, unsubstantial formality of the execution and delivery of the release creates no barrier to the equitable relief to which the complainants are entitled. A release executed mala fide for the mere purpose of defeating the action of equity or of eluding its reach, will be of no avail.” Here Gregg, at the time of the release, was insolvent, and it is very certain that if he had not been, he would not have executed it. No consideration whatever was paid for the release. It was obtained a few days before the commencement of this action. Gregg testified that at the time the defendant obtained the release he said that “ it was because of something that had been obtained in the foreclosure of the mortgage on the premises —■ a deficiency or something like that, and he gave me nothing, but said he would remunerate me; ” and that was about all that was said between them. That a release obtained under such circumstances would in New Jersey be held unavailing in equity cannot be doubted. There was no dispute about the facts. They appear in the evidence of Gregg, which is undisputed and in harmony with the terms of the release which appears on its face to be in consideration of one dollar.,

But the defendant makes the further claim that according to New Jersey law his liability upon this assumption clause could, in any event, be enforced only in an equitable action,, and possibly in an action to foreclose a mortgage to which he had in some way been made a proper party. But this is matter of mere form, not of substance, and relates to procedure ;■ and the procedure in an action in this state must be governed by the laws of this state; and by our law an action at law maybe maintained upon such a covenant.

It is further said that in New Jersey the plaintiff could only-assail the release by alleging the fraud, and thus tendering an issue upon the question of its fraudulent execution. This is again matter of procedure to be regulated by the practice in this state. No notice is taken of the release in the complaint, and at the time of the sendee thereof it is.probably true that, the plaintiff had no knowledge of the release. It is set up in the answer, but not as a counter-claim. It was, therefore, not necessary for the plaintiff to reply to the answer, and it was entitled to meet the answer by any competent evidence to-defeat or avoid its allegations. If the defendant had desired a distinct issue upon the release, he could have procured one-under section 516 of the Code of Civil Procedure by a motion to the court for a direction to the plaintiff to reply to the new matter. A still further answer to this objection, although not-so fundamental, is that no question, as to the pleadings in reference to this matter, was raised at the trial.

We are, therefore, of opinion that the courts below erred in holding, upon the facts proved in this case, that the release-furnished a defense to the action.

There are certain other fundamental objections made to the plaintiff’s right to recover which were overruled by the trial judge, and as the defendant’s objections and exceptions are not. before us, we could pass over them without consideration. But as they are fundamental, with a view to'a new tidal, it is quite proper that we should say something about them.

It is objected that the complaint was defective and alleged no cause of action, because it contained no allegation that leave was obtained from the court to bring the action, as required by section 1628 of the Code of Civil Procedure. As this. action was brought to recover a balance remaining due upon a mortgage after foreclosure, if the foreclosure had been conducted in this state, it would have been necessary for the plaintiff to comply with the section referred to, which is as follows: “ While an action to foreclose a mortgage upon real property is pending, or after final judgment for the plaintiff therein, no other action shall be commenced or maintained to recover any part of the mortgage debt, without leave of the court in which the former action was brought.” This section plainly has reference solely to a foreclosure action conducted in this state, and the leave must be obtained from a court in this state, and so it was correctly held in Mutual Life Ins. Co. v. Smith (22 Jones & Spencer, 400).

There is a mistake in the assumption clause in describing the mortgage as one executed by Gregg and wife, whereas it was executed by Drew and wife, and the claim is made that the plaintiff must fail in this action, because Mrs. Aitkin did not covenant to pay this mortgage, and that parol evidence was inadmissible to show that this mortgage was intended. A portion of the description of the mortgage assumed is clearly erroneous. It was not executed by Gregg and wife. It was, however, assumed by them. But the date—the 3d day of December, 1868 — is accurate, and the sum secured by the mortgage—$4,000—is correctly given. This is, therefore, a case where parol evidence may be given to apply the covenant to the subject-matter. There was no other mortgage of that date or amount. Indeed, this was the only mortgage upon the premises. The court could take proof of the surrounding circumstances for the purpose of applying the covenant to the mortgage actually intended, and a reformation of the contract was not needful. For these views the authorities are quite abundant. (Greenleaf’s Evidence, §§ 297, 301; Taylor’s Evidence, §§ 1218, 1221; Wigram on Extrinsic Evidence, 144; Jackson v. Clark, 7 Johns. 216; Jackson v. Sill, 11 id. 201; Loomis v. Jackson, 19 id. 449; Dodge v. Potter, 18 Barb. 201; Burr v. Ins. Co., 16 N. Y. 267.)

It is further said that Mrs, Aitkin was a married woman ; that her contract of assumption, made in Hew Jersey, must he governed as to its validity by Hew Jersey law, and that it was not made to appeal upon the trial that under the Hew Jersey law she incurred any personal validity by her covenant. But it is a sufficient answer to this claim that, while the defense was set up in the answer, it was in no way alluded to upon the trial, and it seems to have been assumed, at least by the court, that she had power to bind herself personally by such a covenant. Therefore, the point that we must assume that the common-law rule still prevails in Hew Jersey ought not to he sustained, particularly as the statute law of that state as respects married women is similar to that of this state. (Huyler's Exrs. v. Atwood, 26 N. J. Eq. 504; affirmed 28 id. 275.) This case and the Hew Jersey statute are also referred to in Cashman v. Henry (75 N. Y. 103). If this point had been made at the trial the plaintiff might have proved these decisions and the Hew Jersey statute, and would thus have answered the defense of coverture.

It is claimed that this action was barred by the Statute of Limitations. The mortgage fell due on the 3d of December, 1869. The covenant of assumption was made on the 28tli of December, 1870, and this action was commenced on the 11th of October, 1888, within less than twenty years, even from the date of the mortgage, and hence the action was not barred in this state; and it is the Statute of Limitations of this state which is to govern such an action commenced here. (Miller v. Brennam, 68 N. Y. 87.) But it is equally clear if we look at the statutes of Hew Jersey that this action would not have been barred if it had been instituted there.

The Hew Jersey judgment for deficiency did not bind this defendant. Heither he nor his wife was a party thereto. She, although supposed to be living, was actually dead. Even if the plaintiff had been informed of her death, and had known that the defendant was her executor, there was no way to obtain a deficiency judgment against him, unless process could be served upon him in that state, or he voluntarily appeared in the action there. He remaining in this state, there was no way without iiis consent to obtain a personal judgment there binding upon him here. (Freeman v. Alderson, 119 U. S. 185, Schwinger v. Hickok, 53 N. Y. 280; Cross v. Cross, 108 id. 628; Shepard v. Wright, 113 id. 582; Booth v. Conn. Mut. Life Ins. Co., 43 Mich. 301.)

At the time of her death Mrs. Aitkin stood as a mere surety for the mortgage debt, the land as to her being primarily liable for the payment thereof. The defendant could require that the land should be first sold and the proceeds applied upon the mortgage debt before resort could be made to him or the estate represented by him. But the proceeds of the land have been first applied. The New J ersey foreclosure is in no way assailed. We must assume that it was conducted in accordance with the laws of that state. The sale was a public, judicial sale, and we must assume that the land brought its value. In the absence of proof of fraud or collusion in conducting that foreclosure, we see no reason to doubt that the plaintiff may recover in this action the amount still remaining due upon the mortgage.

There are minor exceptions taken by the defendant to the rulings of the court against him upon the trial, but as they are not vital and are not before us, we do not deem it important to give them any attention.

The judgment should be reversed and a new trial granted, costs to abide event.

All concur.

Judgment reversed.