Case Name: HOWARD et al. v. ROBBINS et al.
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1901-12-03
Citations: 73 N.Y.S. 172
Docket Number: 
Parties: HOWARD et al. v. ROBBINS et al.
Judges: 
Reporter: West's New York Supplement
Volume: 73
Pages: 172–188

Head Matter:
(67 App. Div. 245.)
HOWARD et al. v. ROBBINS et al.
(Supreme Court, Appellate Division, Fourth Department.
December 3, 1901.)
1. Mortgages—Assumption by Grantee—Principal—Surety.
Where a grantee of property assumes the payment of a mortgage on. such property executed by his grantor, the grantee becomes the primary-debtor, and the mortgagor is surety.
2. Same—Enforcement—Resort to Property.
Where the grantee of mortgaged property has assumed the payment of the mortgage, the property must first be resorted to, before any enforcement can be had on the agreement of assumption.
3. Same—Foreclosure—Deficiency.
A grantee assuming a mortgage on the granted premises is liable for any deficiency which may exist after the sale on foreclosure.
4. Same—Extent of Liability.
Where a grantee assumes a mortgage on the property granted, his liability depends on, and is coextensive with, the personal liability of his grantor.
•5'. Same—Rights of Mortgagee.
An agreement by a grantee to pay a mortgage on the granted premises inures to the benefit of the mortgagee, though a stranger to the agreement.
-6. Same—Right of First Mortgagor—Payment—Assignment.
Where a grantee who has assumed a mortgage on the premises executes a second mortgage thereon, and the second mortgagee procures an assignment of the first mortgage, and refuses to foreclose the same, but collects the rents, to apply on its second mortgage, the first mortgagor has a right to pay the amount due on the first mortgage, and require an assignment to him, so that he may foreclose and fix the liability of his grantee.
7. Same—Notice—Unrecorded Instrument—Inquiry.
Where a grantee under a quitclaim deed, who by a separate unrecorded instrument covenants to pay a mortgage on the premises executed by its grantor, conveys by a deed containing a covenant that its grantee will pay the mortgage, one taking a second mortgage from the last grantee is put on inquiry to ascertain the respective rights and liabilities of such prior parties as to the first mortgage.
8. Same—Foreclosure—Decree—Assignment—Motion.
Where a decree of foreclosure and sale is entered, but the owner of the decree refuses to sell, and the mortgagor has conveyed the premises to a grantee who covenanted to pay the mortgage, the right of such mortgagor to an assignment of such decree and mortgage on payment of the amount due may properly be determined on motion in the action.
9. Same—Receiver.
Where there are two mortgages executed by different mortgagors on a leasehold, the first mortgagor having conveyed to a grantee who assumed the payment of the mortgage, and the holder of the first mortgage refuses to sell, a receiver should be appointed to collect the rents and apply in payment of the first mortgage.
Adams, P. J., and McLennan, J., dissenting.
Appeal from Erie county court.
Action by Caroline H. Howard and another against Walter G. Robbins and others. Erom an order directing the defendant the Third National Bank of Buffalo to execute and deliver to defendant Walter G. Robbins an assignment of the judgment of foreclosure and sale entered in the action, and of the bond and mortgage on which the judgment is founded, on paying the amount due thereon, and from an order appointing a receiver, the defendant bank appeals.
Orders affirmed.
Argued before ADAMS, P. J., and McLENNAN, SPRING, WILLIAMS, and HISCOCK, JJ.
Loran L. Lewis, for appellant.
William L. Marcy, for respondent.

Opinion:
SPRING, J.
In 1897 the defendant Robbins purchased at a foreclosure sale a leasehold interest in certain premises on Niagara •street, in the city of Buffalo. Robbins was then the manager of the Ellicott Square Bank, in that city, and acquired title to the premises on behalf of that bank, which paid in cash over $1,800 on the purchase price of the premises at the time.- Robbins, im mediately upon becoming vested with the legal title, and in accordance with an arrangement then made, gave his bond, accompanied by a mortgage' on these premises, to secure the payment of $5,000 loaned to him by Ethan H. Howard, the mortgagee. At the same time the bank gave to Robbins its written undertaking to pay the said bond and mortgage, and to protect him from any liability on account thereof. On March 21, 1898, he conveyed the premises to the bank by quitclaim deed. By deed dated September 14, 1899, but not acknowledged or delivered until November of that year, the bank conveyed the premises to Harriette E. Jones, who by a clause in the conveyance assumed the. payment of the mortgage. On November 9, 1899, Harriette E. Jones executed a mortgage on these premises to Mary H. Nev to secure the payment of $2,000, and on that day the mortgagee assigned the mortgage to the Third National Bank of Buffalo, which still holds it. The holders of the first mortgage commenced this action to foreclose the same, asking for judgment for deficiency against the defendant Robbins. The action was prosecuted to judgment, and the premises were advertised for sale pursuant to the judgment on March 29, 1901. On the 28th day of March the defendant the Third National Bank paid the amount of the judgment, and obtained an assignment of the same from the plaintiff, and declined to sell the property. The defendant Robbins insisted on the sale of the property, and offered to pay the amount of the judgment and take an assignment thereof; but the Third National Bank refused to assign the same, as did the attorney for the holders of the mortgage, to whom a like offer was made to pay the judgment and take an assignment thereof. The leasehold is subject to the payment of rent to the owners of the fee, and to provide for this, and also to meet the taxes accruing during the pendency of this appeal, a receiver was appointed. The lease has nearly -15 years of life, and the revenues are valuable; and the Third National Bank insists that it can apply the same on its second mortgage until paid, and still retain th$ judgment, for the payment of which the defendant is personally liable. Inasmuch as the value of the leasehold will materially lessen as the expiration of the term of the lease approaches, and the judgment will continue to increase by accruing interest, it is very important to the respondent that his rights be determined.. The respondent contends that a sale of the premises should be ordered pursuant to the judgment, or an assignment of the same be made to him upon payment thereof, or else that he be relieved from any personal liability for its payment, to each of which the appellant refuses to accede.
When the bank assumed the payment of the bond and mortgage, it became the primary debtor, and Robbins its surety. This is elementary. Wilts. Mortg. Forecl. par. 223; Jones, Mortg. (5th Ed.) par. 741. It is equally fundamental that the land or the leasehold must first be resorted to, before any enforcement can be had upon the covenant or agreement of assumption. The grantee or-person assuming the payment of a mortgage is liable for any deficiency which may exist after the application of the avails of the sale pursuant to the judgment upon the mortgage debt. Thomas, Mortg. par. 577. In the present case, therefore, Robbins can obtain no redress against the Ellicott Square Bank upon its agreement to indemnify and save him harmless until the extent of the harm he has suffered has been measured and ascertained by the sale of the land, and the payment of the avails in diminution of the judgment. If the Ellicott Square Bank is liable on its agreement to Robbins, then Harriette E. Jones is liable, also, on her assumption of the mortgage in the conveyance to her. Liability under an assumption clause is based upon the personal liability of the person for whose benefit it is given. The contract is between the grantor and grantee, and is one of indemnity; and if there is no danger, no liability to the grantor, then there is no occasion for indemnity. This principle is thoroughly settled by many adjudications in this state. Vrooman v. Turner, 69 N. Y. 280, 25 Am. Rep. 1951 Wager v. Link, 134 N. Y. 122, 31 N. E. 213. But, while the mortgagee is a stranger to the covenant or agreement to pay the mortgage, it inures to his benefit, on the principle that the security taken by a surety for his protection can be reached by the principal creditor, even though he was not aware of its existence. Garnsey v. Rogers, 47 N. Y. 233, 7 Am. Rep. 440.
It is contended in the present case that the agreement between the Ellicott Square Bank and Robbins was a secret agreement, and unknown to Harriette E. Jones, and hence her assumption does not render her personally liable. It is also urged that the Third National Bank by an examination of the record would have found nothing upon which to hinge any personal responsibility of the Ellicott Square Bank, and therefore could not know that Robbins was a surety, and the bank the primary debtor. The agreement was not secret in the sense that it was concealed or hidden from any one. It was a writing entered into pursuant to a formal resolution of the board of directors of the bank, but there was no occasion to blazon it forth. Whether public or private, recordable or nonrecordable, known or unknown to the subsequent grantee, makes no difference to one who has personally assumed the payment of the mortgage debt. The Ellicott Square Bank and Robbins had a right, as between themselves, to regulate their liability. Primarily they were the only parties interested in this agreement, and, if it was valid and binding between them, it was of sufficient strength to support an assumption of the mortgage by the subsequent grantee. The test is, was the bank liable for the payment of the mortgage? If so then the undertaking by Harriette E. Jones was enforceable, and there was no hiatus of personal liability in the' chain of conveyances. Even a paroi agreement by the grantee to pay a mortgage for which the grantor is personally responsible is enforceable. Taintor v. Hemingway, 18 Hun, 458, affirmed on opinion below in 83 N. Y. 610; Jones, Mortg. par. 750; Thomas v. Dickinson, 12 N. Y. 364; Remington v. Palmer, 62 N. Y. 31. In Wager v. Link, 134 N. Y. 122, 31 N. E. 213, Jennie and Edward Sully gave a mortgage upon premises owned by them as collateral security to their bond accompanying the mortgage. After ward they conveyed the premises to one Kellogg by quitclaim deed, which contained no covenant to pay the mortgage. Later on, Kellogg, the owner of the premises, gave his f>and to the mortgagee of the Sully mortgage, covenanting to pay whatever of the mortgage debt remained unpaid after the obligee had exhausted his remedy against the premises. Kellogg conveyed to Link, who assumed the payment of this mortgage. The bond of Kellogg was not recorded, and Link did not know of its existence. The referee held that he was not personally liable on the assumption clause, and the general term sustained the referee. The ground of the decision of the general term was the facts above recited, showing the absence of knowledge by Link of the bond of his grantor, and, as the deed contained no assumption clause, he had a right to believe that this grantee, his immediate grantor, was not personally chargeable with the payment of the mortgage. The court at general term cited the case of Vrooman v. Turner, supra, and kindred cases, to uphold its decision. Upon appeal to the court of appeals the judgment was reversed, and Link held liable upon his assumption covenant. The court held that neither the fact he was not aware of the bond Kellogg had given to the mortgagee, nor that Kellogg's liability was by an instrument independent of the conveyance to him, exonerated Link. After a sale of the premises the case was again before the court of appeals. 150 N. Y. 549, 44 N. E. 1103. The defendant Link insisted that the decision on the former appeal, adjudging that the covenant in his deed inured to the advantage of the holder of the mortgage, "is a departure from, or at least an extension of, the doctrine of equitable subrogation, as heretofore understood and applied." The court disagreed with this contention, and, after discussing the proposition, says (page 555, 150 N. Y., and page 1104, 44 N. E.):
"This bond, although given subsequently to his acquiring 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 betwe.en 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 re-enforce 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 Paige, 446, and the eases following it, inapplicable. It is true that most of the eases 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 IAnli he imposed upon him the primary duty to discharge that obligation, as a part consideration for the conveyance."
While it appears to me that the authorities cited effectually dispose of the contention that Harriette E. Jones was not liable because the liability of the bank depended upon an agreement which may not have been known to her, and which was not recorded, there is another suggestion which is equally potential. By assuming the payment of the mortgag-e in the conveyance, a clear intention is manifest on her part to become liable for any deficiency which might arise. This recital in the deed, for whatever it -was worth, was binding upon subsequent incumbrancers or purchasers. It was notice to them that she had assumed the payment of the mortgage, and it was incumbent upon them to ascertain what basis there was for this assumption of liability. They were put upon their inquiry. They must have realized that the assumption clause was not inserted in the conveyance as an idle ceremony. They could not ignore it or treat it as surplusage. If they expected to be relieved of any personal responsibility founded upon a break in the chain of those liable for the payment of the mortgage debt, they must be certain that their premise was correct, and the break existed. This is especially true when it is evident that personal responsibility may be made effective by an agreement separate from the conveyance, and not recorded. The Ellicott Square Bank was located in the city of Buffalo, as was also the appellant; and Harriette E. Jones also resided in that city. The slightest diligence on the part either of the appellant or the grantee, Harriette E. Jones, would have apprised them of the existence of the agreement by which the Ellicott Square Bank became liable for the payment of this mortgage. If these views are correct, Robbins was entitled, upon payment of the bond and mortgage, to compel its assignment to himself. The land was the property primarily to be used to meet the indebtedness, but Robbins -was personally liable to the plaintiffs on his bond; and while as to the Ellicott Square Bank he was a surety, and -it the principal debtor, yet the plaintiffs might maintain an action at law on the bond, or hold him primarily liable for any deficiency accruing on the sale.
It is urged that the holder of the second mortgage had the right, as junior incumbrancer, to pay the mortgage, and require its assignment, or, if not assigned, it would be subrogated to all the rights of the plaintiffs. That principle ordinarily obtains, but the rights of the holder of the second mortgage are certainly not superior to those of Robbins. The doctrine of subrogation is available to any one who pays a debt for which he is responsible to the creditor, but among other debtors is secondarily liable. If there had been no assumption by Harriette E. Jones or the Ellicott Square Bank, 'Robbins could have paid the first mortgage and compelled an assignment to him, or, if paid without assignment, he would have been substituted to the rights of the holders of the mortgage. Whether his grantees were personally liable or not, he could insist that the land should be the fund out of which the mortgage debt was to be paid, as far as it would meét the indebtedness. The doctrine of subrogation is founded on "equity and justice," and a junior incumbrancer cannot successfully assert its adoption where it will be to the disadvantage of one whose rights are superior to those it possesses. A third mortgagee may pay the first lien and stand in the place of the first mortgagee, but he may not apply the income accruing from the property in payment of the third lien to the exclusion of the second mortgage. If the contention of the appellant is correct, it has obtained by its assignment of the mortgage in suit greater rights than the plaintiffs possessed. With the plaintiffs the holders of the mortgage, Robbins could pay the lien and compel its assignment to him, and require that the rents be applied torvard its extinguishment; but the appellant contends that this right, which is valuable to him, has been lost because it has purchased the mortgage. The Third National Bank by its assignment acquired whatever rights the mortgagee or the judgment creditors possessed, and no more. The rights Robbins had when the judgment wras held by the plaintiffs still inure to him. They cannot be cut off or impaired against his protest. The appellant acquired its lien with knoAvledge of the first incumbrance. It knew that the land must first be devoted to the extinguishment of that lien. It knew that the first mortgage was collateral security to the bond given by Robbins. It could not assert the principle of equitable subrogation to the detriment of the plaintiff, whose rights were inherent in that first obligation before the second mortgage had any existence. The injustice of the appellant's position is obvious. It expects, under its assignment, to apply the rents to the payment of its mortgage, a second lien, and still hold the plaintiff liable for the first mortgage, Avith its accumulation of interest, while the value of the leasehold is constantly depreciating. There is no principle of equity wdiich will uphold that transaction. The enforcement of that doctrine Avould make the second mortgage the better security.
The point is made by the appellant's counsel that the judgment in the foreclosure action is a bar to the claim of the respondent that, as between him and the Ellicott Square Bank, he is only secondarily liable. The complaint was the usual one in a mortgage foreclosure action, and set out the bond which respondent gave, and to which the mortgage was collateral, and asked for judgment for deficiency against him. To this he had no defense. The allegations were strictly true. He was liable to the plaintiffs on his bond. . The judgment is an estoppel, in that it determined that he was liable on his bond to the plaintiffs; and the verity of that judgment, to its fullest extent, he is not seeking to impair. If the plaintiffs were content to hold Robbins only for the deficiency, instead of bringing in the Ellicott Square Bank and Harriette E. Jones, that was their privilege, and called for no interference by appellant or Robbins. If one holds an obligation against half a dozen persons who are severally liable for its payment, he is not obliged to sue them all. If among themselves some are sureties, and others principals, the fact that the person to whom they are all liable recovers against one or more does not settle their rights among themselves. Furthermore the action was proceeding exactly as the respondent desired. The sale under the judgment would establish the extent of the deficiency which he must pay, and concurrently would fix the liability of the Ellicott Square Bank to him. He desired the judgment enforced, and it is the intervention of the appellant to prevent this of which he is now complaining.
It is contended by the appellant that this matter should not be disposed of on a motion. The facts were undisputed. It is made in a pending action. So far as the record shows, there was no request to the county judge to order a reference to ascertain the facts. Of his own motion he might have ordered this "to be done, but, as the facts were undisputed, he doubtless deemed it unnecessary. In any event, there is no necessity for this court to pursue that course. The orders should be affirmed, with $10 costs, and disbursements of this appeal.
Orders affirmed, with $xo costs, and the disbursements of this appeal.
WILLIAMS and HISCOCK, JJ., concur.