New York Life Insurance v. Casey

O’Brien, J.:

There is no conflict of testimony or dispute about the facts nor doubt as to the law and yet the conclusion to be drawn as to whether or not what occurred with respect to dealing with' the bond and mortgage resulted in a discharge of Casey from all liability upon the bond, requires serious consideration.

It is agreed that, under the settled law of this State, when a mortgagor conveys the mortgaged premises subject to the mortgage, the land becomes the primary fund for the payment of the mortgage debt, and the mortgagor occupies the position of a surety to the. extent of the value of the mortgaged premises and is entitled to all the rights of a surety. (Osborne v. Heyward, 40 App. Div. 78; Antisdel v. Williamson, 165 N. Y. 372.) In the latter case it was. also held that the obligation of a surety “is strictissimi juris and he is- discharged by any alteration of the contract to which his guaranty applied, whether material or not, and the courts will not inquire whether it is or is not to his injury.”

It is conceded by the respondent that a binding extension of time to a grantee would release the mortgagor on the principle applicable to all sureties. (Calvo v. Davies, 73 N. Y. 211.) The crucial question, therefore, upon the undisputed facts, is whether there was proof of an agreement enforcible by the debtor which changed the. terms of Casey’s original contract, either in respect to the rate of' interest which should be payable or extending the time of payment..

It is not necessary that the agreement changing the terms of the. contract should be in writing, for after a breach of a sealed instrument it may be modified in any respect or even wholly-rescinded by an executed parol agreement. (Kane v. Cortesy, 100 N. Y. 132; Dodge v. Crandall, 30 id. 294; Thomson v. Poor, 147 id. 402.) This subject is well summarized in Brooks v. Wright (13 Allen 72) wherein it is said: “We know of no rule which requires that such an agreement to give time, to a principal, by which a surety will be discharged, must be in writing, or in any precise form of words or even in express language at all. It is a. question of mutual understanding and intention, and like other contracts, the agreement of the parties may be derived from and inferred by acts, declarations, facts and circumstances. When such are-the sources from which the mutual agreement of the parties is to be-gathered, it is for the jury to determine what the intention and understanding were, if any, upon which the minds of the parties; met. That is their contract.”

Upon the question as to changing the terms of the contract as to. the payment of the rate of interest, we have the fact that, by order of the finance committee of the plaintiff, the rate of interest was. increased, and that in compliance with such order the then owner of the premises paid such increase. We do- not understand that any contention is made but that the members' of the finance committee had it within their power to and could make an agreement with the owner of the mortgaged premises changing the rate of interest. We have, therefore, the case of two parties competent and able to enter into an agreement* and, as evidence that their minds met on a single proposition, the direction of the committee -and the acquiescence of the then owner of the property proved by the fact that, in compliance with the order, the interest at the new and increased rate was paid by her and received by the plaintiff.

It is true that there was no express agreement, but under the law which permits inferences to be drawn from the declarations and acts of parties, there was certainly enough, it seems to us, from which the inference might fairly be drawn of an agreement between them. We are not unmindful of what was said in Scott v. Stockwell (65 How. Pr. 249; affd., 28 Hun, 641; 93 N. Y. 636): “We have to do with a mortgage, a lien upon real property, an instrument under seal, with terms precisely determined, and the rights and remedies of the parties should not be destroyed, unless by an agreement concerning which there could be no reasonable doubt, vwhich imposed a binding obligation upon the parties affected.”

Considering, the action of the finance committee, communicated to the owner of the property, that the intei’est thereafter payable •should be at the rate of six per cent instead of at the former rate of five, and the acquiescence in such action on the part of the owner in thereafter paying, and the company in thereafter receiving, the interest at the new rate of six per cent, we do not think there could be any reasonable doubt as to the then intention of the parties to change the rate of interest. This is the only inference -deducible from the evidence, and it leaves the finding to the Contrary without any evidence to support it.

So, too, upon the question of the extension of the time of payment, we think that the evidence leads to but one conclusion, namely, that there was a valid agreement which extended the time of payment of the principal sum without the knowledge or consent of the defendant Casey. It will be- recalled that the evidence is that the defendant Nordenschild paid the plaintiff on December 29, 1893, the sum of $660 interest due on January 1,1894, for the previous six months. That amount included interest in advance for three days, or until January 1, 1894, and we find no answer to the contention that by the receipt and retention of such interest in advance, the plaintiff was precluded from taking a,ny steps to foreclose the mortgage until the time for which interest had been already paid had expired. In Bangs v. Strong (7 Hill, 250) it was held that an extension of the time of payment for one day released the surety. And in Wakefield Bank v. Truesdell (55 Barb. 602) the facts were that “ on the 23d of February, 1855, the Beaver Manufacturing Company, by its treasurer, made its promissory note "* * * to the order of John Thompson, payable at the WakefieldBank at six months after date. The note was indorsed by the payee; the payment was jointly and severally guaranteed by the defendant and several others, and on the 28th day of February the note was discounted by the plaintiff for the accommodation of the maker, and the proceeds placed to the credit of Thompson, who was an agent of the company. On the 24th of August, 1855, John Thompson paid to the cashier of the plaintiff, with the funds of the maker, the interest on the note up to the 26th day of February, 1856, which payment was made without the knowledge or assent of the defendant. The payment was made and received specifically for interest, and the cashier indorsed upon the note the words ‘ Int. paid to Feby. 26th, 1856,’ but no express agreement was made to wait for the payment of the principal till that time, or any agreement other than what is to be implied .from the transaction as above stated.” The court affirmed the judgment entered, upon the finding of the referee that the time of payment had been extended without the knowledge or assent of the defendant and that the latter was thereby discharged from his liability as surety, saying that it was evident that it was the intention and understanding of the parties that time should be given, and that the cashier otherwise “ should have declined to receive the interest at all, or have informed Thompson that he should reserve the right to collect the note at any time.”

In principle, we¡ do not think that the present case is distinguishable- from Wakefield Bank v. Truesdell (supra); for here, too/ although there was no express agreement to wait for the payment ■during the three days, the right to enforce payment was not expressly reserved, and, therefore, the result was to suspend the right of action and discharge the surety.

Having • reached the conclusion that the judgment must be reversed and a new trial ordered, we do not deem it necessary to determine the other point raised by the appellant as to the alleged irregularity and defect in the judgment that it was entered upon insufficient proof of service upon the parties to the action, as this, upon a new .trial, will necessarily be corrected.

The judgment should, accordingly, be reversed, and a new trial ordered, with costs to the appellent to abide the event.

Van Brunt, P. J., and McLaughlin, J., concurred; Ingraham and Hatch, JJ., dissented.