Case Name: Harris Schwartz, Appellant, v. Gertrude L. Smith and Others, Defendants, Impleaded with Harry Phillips and Others, Respondents
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1911-03-10
Citations: 143 A.D. 297
Docket Number: 
Parties: Harris Schwartz, Appellant, v. Gertrude L. Smith and Others, Defendants, Impleaded with Harry Phillips and Others, Respondents.
Judges: 
Reporter: Appellate Division Reports
Volume: 143
Pages: 297–301

Head Matter:
Harris Schwartz, Appellant, v. Gertrude L. Smith and Others, Defendants, Impleaded with Harry Phillips and Others, Respondents.
First Department,
March 10, 1911.
Assignment — when guaranty inures to benefit of assignee of mortgage — principal and surety — extension of time of payment — when surety discharged — failure of proof — consideration — consent by second mortgagee to extension of first mortgage — payment of interest — liability of sureties — appeal — findings of fact.
A contract guaranteeing to the assignee of a mortgage and to his legal representatives and assigns full payment of the principal sum with interest inures to the benefit of subsequent assignees.
Whore the holder of a mortgage, without the consent of sureties who have guaranteed payment, consents to a valid extension of the time of payment for a valid consideration, they are discharged. But a finding that there was such extension of time of payment cannot be based on mere testimony that the holder; in a casual conversation stated that he extended the time of payment, if it he denied by him, and there is no proof of any consideration for the extension.
To release a surety from his obligation, the extension of time to pay the debt must rest upon a valid consideration and must he sufficient to preclude the creditor during the extended period from enforcing the debt against the principal. Payment of a part of the amount then due does not constitute a valid consideration for an agreement to extend the time for payment of the balance.
As the holder of a first mortgage and the mortgagor may, as between themselves, agree to extend the time of payment without the consent of the holder of a second mortgage, a consent to such extension by the holder of the second mortgage adds nothing to its force, and hence is not sufficient to discharge sureties who have guaranteed the payment of the second mortgage.
This is true although, on the extension of the first mortgage, the rate of interest was increased by an agreement creating purely a personal covenant on the part of the mortgagor, as the additional interest did not fall within the lien of the mortgage.
But where the holder of a second mortgage, having a right to pay the interest on the first mortgage, did so at the increased rate, he cannot recover the whole sum from the sureties to the second mortgage, but only the amount which was due at the original rate of interest. «
The Appellate Division, on reversing a judgment dismissing the complaint as to the sureties of a mortgage debt, cannot order judgment for the plaintiff where the defense that the sureties had been discharged by a valid extension of the time to pay the mortgage involves a question of fact upon which the court cannot make a finding.
Appeal by the plaintiff, Harris Schwartz, from a judgment of the Supreme Court in favor of certain of the defendants, entered in the office of the clerk of the county of Hew York on the 1st day of March, 1910, upon the decision of the court, rendered after a trial at the Hew York Special Term, dismissing the complaint as to such defendants.
Louis Manheim, for the appellant.
Theodore Baumeister, for the respondents.

Opinion:
Scott, J.:
This is an action to foreclose a mortgage upon real estate and incidentally to recover any deficiency that may arise upon a sale of the mortgaged premises from defendants Harry Phillips, Samuel Lipman, Morris Naftolowitz and Max Lipman, who are sought to be charged as sureties upon instruments of guaranty executed by them. The court awarded a judgment of foreclosure and sale, but dismissed the complaint as .to the above-named defendants. From so much of the judgment as so dismissed the complaint the plaintiff appeals. The mortgage was executed on December 28, 1904, by the defendant Harry Phillips to Samuel Lipman and Morris Naftolowitz, who on May 25, 1905, assigned it to Abraham Halprin, Mendel Diamondston and Jacob Levin, plaintiff's assignors. This assignment contained a guaranty on the part of Lipman and Naftolowitz, the assignors, to 'Halprin, Diamondston and Levin, the assignees, their legal representatives and assigns, of payment of the full principal sum and interest secured to be paid by said mortgage. At the same time Max Lipman, by a written instrument, also guaranteed to said assignees, their legal representatives and assigns, the full payment of said principal sum with interest. These guarantees inured to plaintiff's benefit upon the assignment of the mortgage to him. Harry Phillips, the original obligor, is sought to be charged as a surety, because before the commencement of the action he had conveyed the property subject to the mortgage. This mortgage was by its terms due and payable on July 19, 1907. It was recited therein that it was subject and subordinate to a prior mortgage bearing interest at the rate of five per cent per annum and payable on November 22, 1907, which was a first mortgage upon the property. After the first mortgage had become due, and on April 20, 1908, an agreement was made between its then holder, The Lawyers' Title Insurance and Trust Company, and Gertrude L. Smith, the owner, of the mortgaged premises, whereby the time for the payment of the principal indebtedness was extended to April 20, 1911, " provided that the party of the second part [Smith] pays interest on said bond and mortgage from the 20th day of April, One thousand nine hundred and eight, at the rate of five and one-half per centum per annum," being an increase of one-half per ' cent per annum in the rate of interest. Gertrude L. Smith accepted these terms and covenanted and agreed to pay said principal sum and interest as above set forth. Plaintiff, then as now, the owner of the bond and mortgage in suit, executed a docu ment whereby he consented "to the extension of the foregoing mortgage, upon the terms above set forth."
The respondents claim to have been relieved from their obligations as sureties upon two grounds, both of which have been sustained at the Special Term. These grounds are: First, because, as it is said, plaintiff without their knowledge or consent extended the time of payment of the mortgage in suit, and, second, because, as they allege, plaintiff's consent to an extension of the time of payment of the first mortgage operated to release them. Undoubtedly, if plaintiff did, for sufficient consideration and without the consent of his sureties, consent to a valid extension of the time for the payment of the mortgage which they guaranteed, he has released them from their obligation as sureties. The Special Term has found hat he did so consent, but, in our opinion, this finding is without support in the evidence. It rests wholly upon the testimony of Samuel Lipman, who says that plaintiff in a casual conversation said that he had extended the mortgage. Lipman does not pretend that plaintiff stated that he had received any consideration for such an extension, and plaintiff himself expressly and categorically denies that he ever extended the mortgage or ever received any consideration for doing so. Ho formal extension was produced. This is altogether insufficient evidence to establish the defense of release by extension of the mortgage. To release a surety from his obligation the extension of time to pay the debt must rest upon a valid consideration and must be sufficient to preclude the creditor, during the extended period, from enforcing the debt against the principal (National Citizens Bank v. Toplitz, 178 N. Y. 464; Olmstead v. Latimer, 158 id. 313), and the payment of a part of the amount then due does not constitute valid consideration for an agreement to extend the time for the payment of the balance. (Parmelee v. Thompson, 45 N. Y. 58.)
The second ground for immunity claimed by the sureties relates to plaintiff's consent to the extension of time for the payment of the first mortgage. There can'be no doubt that the owner of the property and the holder of the first mortgage were entirely competent to consent, as between themselves, to extend the time for the payment of that mortgage, and that without- any consent on the part of the holder of the second mortgage. They were under no obligation to consult him, and his refusal to consent to such an extension, or even his protest against it, would have been wholly ineffectual. As he could not have prevented such an extension,. so his consent to it added nothing to its force and was an absolute nullity. It certainly had no effect upon the contract of suretyship between plaintiff and the respondents. So far as concerns the change in the interest rate upon the first mortgage the extension agreement was so drawn as to create merely a personal covenant on the part of the owner of the land. It was not provided in terms and there are no words leading to the implication that the additional interest was to fall within the lien of the mortgage. We are of opinion, therefore, that the plaintiff did not, by signing the consent to the extension of the first mortgage, effect any change whatever in the respondents' contract of suretyship. It appears that he paid an installment of interest due and unpaid upon the first mortgage, as by the terms of his mortgage he was entitled to do. If he paid it at the increased rate, as he apparently did, he may not recover the whole sum from the sureties, but only the amount that would have been due at the mortgage rate. We are aslced by the appellant, in case we arrive at the conclusion to which we have arrived, to order judgment for the plaintiff. This we cannot do because the' defense that plaintiff had agreed, for a valuable consideration, to extend the time for the payment of the mortgage in suit involves a question of fact, as to which we cannot make a finding.. -
The judgment, in so far as appealed from, must, therefore, be reversed and a new trial granted, with costs to appellant to abide the event.
Clarke, McLaughlin, Laughlin and Dowling, JJ., concurred.
Judgment reversed, new trial ordered, costs to appellant to abide event.