Court Opinion

ID: 3592549
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:40:48.277799+00
Date Added: 2024-06-11T13:59:29.196567
License: Public Domain

The mortgage which this action is brought to foreclose was assigned by the mortgagee, Anson Thomas, president of The Bank of Central New-York, to Bates Cook as comptroller, on the 27th of April, 1839, "under the provisions of the act to authorize the business of banking," passed April 18, 1838; and the first objection made by the appellant is, that the plaintiff has no right to institute and maintain this action. If the assignment to Cook carried no interest except what he could hold as comptroller under the law referred to (and I understand no more to be claimed by the plaintiff) it is conceded by the defendant that such interest passed by operation of law to his successor. But it is contended that the comptroller has no power, under the statute, to collect by foreclosure the amount due on a mortgage. The assignment is absolute in its terms. It vests the comptroller with the legal title to the mortgage, and he *Page 497 
holds it as trustee for the purposes of the act. Where a direction is given by statute it must be strictly pursued or it will be void. (Sherwood v. Reade, 7 Hill, 431.) Under this rule, it was held that a power specially conferred on two persons, to be exercised jointly, could not be exercised by one of them (Powell v. Tuttle, 3 Comst., 396; Olmsted v.Elder, 1 Seld., 144); and under this same act, it was held by this court, in Mitchell v. Cook (3 Seld., 538), that the comptroller has no power to assign a bond and mortgage to a stranger, on receiving from him their amount in the circulating notes of the bank from which they were received, the only power to assign being given by the 9th section, which authorizes a reassignment to the person or association which transferred the same, and an assignment in all other cases being virtually forbidden by the 12th section, which requires such mortgages to be held by the comptroller until the same are paid. The power to foreclose is not conferred by the act in express terms. If it exists, it must result from the title conveyed by the assignment, or be implied from the powers conferred by the act. It is not certainly forbidden, as is the power to assign by the 12th section. The comptroller is to hold the mortgages till they are paid, but he is not thereby precluded from enforcing payment. There may be cases in which a foreclosure may be absolutely necessary for the protection of the trust fund, or where the security upon the land may be insufficient and a personal claim for the deficiency exists against the mortgagor or some other person, or where an injunction may be necessary to stay waste, and delay to foreclose by action in such case would put at hazard the debt secured by the mortgage. No relief in such case could be obtained under the 11th section, which authorizes a sale at auction only in case the person or association shall fail or refuse to pay its bills or notes on demand, in the manner specified in the 4th section.
I think the right to institute and maintain an action to collect is incidental to the title derived under the assignment; *Page 498 
and being necessary to the protection of the trust fund and the objects of the act, it will be implied from the powers expressly conferred. The statute authorizes the comptroller to receive payment of both principal and interest. (§§ 9 and 10.) He may allow the person or association assigning to receive the interest, unless the security becomes insufficient, of which the comptroller alone is to be the judge. He has the custody as well as the assignment of the papers. He can only assign in one case and sell at auction in another; and neither of these will aid him in protecting the trust fund against the deterioration of the land mortgaged or the failing circumstances of the mortgagor, whose personal responsibility has become necessary to the safety of the demand. The power to collect in such case must be either in the person or association assigning or in the comptroller. It must exist somewhere; and it would be alike incompatible with the language of the assignment and the safety of the billholder to suppose that the person or association assigning still had such a control over the property assigned. It would be an absurdity to hold that the party assigning had still the exclusive power to enforce payment, when the comptroller alone has by the statute the right to receive payment. By the act of 1840 (Laws of 1840, 306, § 9), bonds and mortgages are authorized to be executed by any banking association or individual banker direct to the comptroller; and if they may not be foreclosed by the comptroller, they are placed beyond the pale of legal remedy. It will hardly be claimed that it was designed to give the comptroller greater powers over these mortgages than over those assigned under the act of 1838. I think that in both cases the right to receive payment implies the right to demand it, and that this action is properly brought in the name of the comptroller. Where the legal title to a chose in action is vested in a trustee by assignment, the law gives, as in every other case of legal ownership, a right of action to enforce or collect it. *Page 499 
The second objection is, that Munger is not personally liable for any deficiency there may be after a sale of the premises. By the deed from Thurber to Munger, dated June 15, 1842, it was declared, among other things, that the conveyance was made subject to one-half the mortgage in question, which was assumed by Munger and which was part of the consideration of the conveyance. But to ascertain the precise contract between Thurber and Munger, this deed must be considered in connection with the bond of Thurber bearing a later date, but in fact delivered at the same time and executed after the deficiencies in the land had been ascertained. By the deed alone Munger would have assumed to pay on the mortgage $3250, but this was reduced by the bond to $1700, Thurber agreeing thereby to pay on the mortgage, or to Munger to be applied on the mortgage, the balance of the $3250, viz., $1550 for the deficiency in the lands. And it was further agreed that Munger's personal liability for the $1700 ceased when Thurber made default in the payment of the $1550 and interest. It is claimed on the part of the plaintiff that this last provision was a mere penalty to enforce the payment of the $1550 by Thurber, and that Munger is still personally liable for the payment of the $1700, under the rule well established in equity, that where a purchaser of an equity of redemption takes it subject to the mortgage, which he agrees to pay as part of the consideration of his purchase, he will be held personally liable to the mortgagee and will be regarded as the principal debtor, the mortgagor standing as his surety. (Halsey v. Reed, 9Paige, 446; Curtis v. Tyler, id., 432; Marsh v. Pike,
10 id., 595; Ferris v. Crawford, 2 Denio, 595; Cornell
v. Prescott, 2 Barb., 16; Blyer v. Monholland, 2 Sandf.Ch. R., 478.) That rule is undoubtedly applicable to this case, unless it is changed by the agreement of the parties exempting Munger from personal liability for the $1700, in case Thurber failed to pay his share of the mortgage, $1550. *Page 500 
The question to be decided is, whether the clause under consideration is a penalty. A penalty is generally a sum of money agreed to be paid or forfeited on failure to perform or to omit to do a certain act; but a penalty may, perhaps, be created in a different form. In this case Thurber did not agree to pay any additional sum of money. He only agreed that Munger should not pay, the effect of which was to make Thurber again stand as the principal debtor, instead of surety for Munger for the debt. In other words, it restored him to his original position.
I concede the rule to be, that where a contract provides a forfeiture for the purpose of securing the payment of a sum of money, or the performance of an act which may be compensated in damages, the sum forfeited will be deemed a penalty, and not liquidated damages. (Story's Eq. Jur., § 1314.) But I do not understand that the provision in question in this contract was inserted merely to secure payment of the $1550 on the part of Thurber. It was inserted to protect Munger against the consequences of such non-payment; and, at most, was merely sufficient to save him from loss on the happening of the contingency. If Thurber failed to pay the $1550, and the lots were sold in consequence, Munger would lose the whole benefit of his purchase; the land he had bought would be sacrificed; and it was proper, therefore, that he should protect himself against paying the consideration money in such an event. It is true Munger might save his lots by paying the $1550, as well as the $1700 which he had agreed to pay; but in that case he would be remitted to a personal claim against Thurber, which it appears would have been worthless; and Munger had a right to guard, in his contract, against such a contingency. The whole consideration he was to pay for his lots was $1700, and he preferred to surrender them up, in satisfaction of the mortgage, relieved from the payment of such consideration, rather than retain them and pay an additional consideration of $1550 beyond his contract. *Page 501 
So far from being a penalty, the clause in question was no more than was necessary for his own protection, if the lots were worth only the sum he agreed to pay for them.
It was clearly competent for the parties, Thurber and Munger, to make their own contract; and the holder of the mortgage can avail himself of no right beyond what Thurber would have had against Munger. If Thurber could enforce no claim against Munger, the plaintiff has none. But by the decree in this cause, though Thurber has entirely failed to perform his part of the contract, which was a condition precedent to the payment of any consideration on the part of Munger, Munger is condemned to pay whatever balance of the $1700 is not realized from the sale of the lots. Munger is not only divested of the lots which are sold, and the proceeds applied for Thurber's benefit, but he is decreed to pay the balance of the $1700 on Thurber's debt, from which he has reaped no benefit whatever.
I think it was clearly competent for Munger to protect himself against such a contingency, and that the court is not at liberty to violate or disregard the provision of the contract designed for that purpose.
If I am right in this view, the decree of the supreme court should be modified so far as to relieve the defendant Munger from all personal liability; and Munger should recover his costs in the supreme court, neither party to have costs on this appeal.
All the judges concurred.
Ordered accordingly *Page 502