Summary
In Acer v. Hotchkiss (97 N.Y. 395, 403), cited as contra by the appellant, the court say: "One who is only a volunteer cannot invoke the aid of subrogation, for such a person can establish no equity. (Gans v. Thieme, 93 N.Y. 232.) He must have paid upon request, or as surety, or under some compulsion made necessary by the adequate protection of his own rights."
Summary of this case from Simonson v. LauckOpinion
Argued October 30, 1884
Decided November 25, 1884
H.H. Woodward for appellants.
Angus McDonald for respondent.
The opinion in the action first entitled is as follows:
The doctrine of subrogation is a device to promote justice. We shall never handle it unwisely if that purpose controls the effort, and the resultant equity is steadily kept in view. It might be easy to use it for the benefit of the respondent if the plaintiff in the foreclosure stood merely as the owner of the first mortgage with abundant security for the whole mortgage debt. But he owns a second and larger mortgage upon the same property, and whether on a foreclosure the land would sell for the full amount of both to a third person paying the money is not at all certain. Situated thus, any payment upon the first mortgage increases Acer's security upon the second; and to that benefit he has the right if the payment was in truth such, and not in equity tantamount to a purchase of so much of the mortgage debt. Subrogation awarded to Hotchkiss therefore affects Acer, and it ceases to be material that the other interested parties made default, and are not here resisting. Acer's two mortgages were practically one, since they were given by the same man, at the same time, as part of one transaction, and together represent the unpaid purchase-money of the very land to which Hotchkiss has now acquired title. The latter took his mortgage and under it the land, subject to both mortgages of Acer. Subrogation can do Hotchkiss no good except at the expense of Acer by cutting off part of the purchase-price due to him. For, if the land sells for more than the two mortgages as they stand reduced by payments, the surplus belongs to Hotchkiss, and is larger by the amount of his payment which he gets back in the surplus. But, if it sells for less, subrogation hurts Acer, and deprives him of a part of the purchase-money which otherwise he would have secured. He has a right, therefore, to resist, and an interest in resisting the claim of Hotchkiss to be subrogated, and may justly drive him to establish the equity which must lessen plaintiff's security if Hotchkiss is to gain a benefit at all.
One who is only a volunteer cannot invoke the aid of subrogation, for such a person can establish no equity. ( Gans v. Thieme, 93 N.Y. 232.) He must have paid upon request, or as surety, or under some compulsion made necessary by the adequate protection of his own rights. Hotchkiss was bound to put himself in this attitude before the court by some sufficient proof, and recognizing the necessity, he undertook to do so. One effort in that direction asserted this: that Hotchkiss made his payment in the character expressed of a surety for Nichols, and Acer accepted the payment in that character and upon that condition, and cannot now deny it. But the proof on this subject was contradictory, and the facts found do not warrant such inference. Those facts are that Hotchkiss offered to pay the mortgage in full if Acer would assign it. The latter refused. Hotchkiss then paid the amount due and told Acer "he paid it as surety and expected him to hold that portion of the mortgage for him, Hotchkiss." This finding furnishes no element of admission or estoppel. Acer plainly denied the asserted right of Hotchkiss to take and enforce the mortgage for his own benefit, and in the face of that denial Hotchkiss made his payment, averring that a certain legal effect would characterize and flow from it. Acer's acceptance of the money was not an admission of that legal result. He received it as payment merely, leaving Hotchkiss to secure, if he could, any right founded upon such payment. Putting that alleged admission one side as ineffectual, it still remained for Hotchkiss to show the facts which made him a mere surety, or the compulsion which drove him to the payment. He could show that only by force of his dealing with Nichols and with Wooster and Baker. Out of that dealing he became a junior incumbrancer, and obligated to pay the Acer mortgage, and in the end owner of the equity in the Darien farm. His equitable right of subrogation grew out of that contract and is based upon it, or else he stands as a mere volunteer. Now by the terms of the contract which alone made him junior incumbrancer, and involved a request to pay, and so left him not a mere volunteer, by those terms he was bound, not only to pay, but to discharge the Acer mortgage and remove entirely its lien from the Darien farm. Baker and Wooster expressly stipulated for this. They took their deed from Nichols upon that distinct condition. They were entitled to have all incumbrances removed, and were carefully providing for their removal, and gave their mortgage for $7,500 to be assigned by Nichols to Hotchkiss, only upon the faith of the latter's express covenant to pay and discharge the Acer mortgage. A purchase of it by Hotchkiss, or a payment of it by him which saved its vitality, left their land doubly incumbered for the same debt. Nichols assigned the $7,500 mortgage to Hotchkiss for a similar purpose and in the like confidence. He was liable to Acer upon his bond, and when he sold the Baker and Wooster mortgage to Hotchkiss, he allowed the latter to deduct from its purchase-price the Acer mortgage as assumed by him. Unless that mortgage and bond were not only paid, but the debt itself extinguished, Nichols was made to give Hotchkiss the means of payment, and yet be obliged to pay himself. It is beyond reasonable question that all the parties to the contract understood, and the contract itself required, that Hotchkiss should discharge the mortgage and extinguish it as a lien on the land for the protection of the grantees, and as a personal debt for the protection of the grantor. He so covenanted in express terms. He did it for a valuable consideration. His covenant was part of the purchase-price of the mortgage that he bought. He retains that consideration yet. He has foreclosed the mortgage, bid in the land, and taken judgment for a deficiency. He stands before us enforcing the consideration and demanding its entire amount. He makes no offer to surrender any part of it, or to abate any portion of his claim upon it. But while clinging to his consideration, he now seeks to avoid his covenant, because the consideration is of less value than he anticipated, and that through the agency of an equitable doctrine devised to promote justice. When he foreclosed his mortgage he did so for the full amount, saying in his complaint that he was both able and willing to pay the Acer mortgage. So that the contract which he invokes to put himself in the position of a surety or junior incumbrancer, or a person paying under stress of imperiled rights, so as to be entitled to subrogation, itself shows that he contracted not to be subrogated, but to discharge and extinguish the debt and the lien which he now seeks to keep alive and enforce. There is no equity in helping a man to break his contract while he persistently keeps its consideration.
The view of the General Term was pressed upon us at the argument; that Hotchkiss merely agreed to "carry" the Acer debt until he was reimbursed by the $7,500 mortgage. That assumes that by his contract he was not, as he covenanted, to "pay and discharge" the Acer mortgage, but was to buy it and then "carry" it until reimbursement. There is nothing of the kind in the terms of the contract, or the intention of the parties. The idea implies that the Acer mortgage was to be paid by Hotchkiss only when Baker and Wooster furnished him the money by paying their own. In other words it makes the covenants dependent one upon the other, and assumes that Hotchkiss could not be liable upon his bond to Baker and Wooster, except upon condition that the latter paid their own. No such condition in any manner existed. Undoubtedly Hotchkiss expected to be re-imbursed. He took the $7,500 mortgage in part to secure that result, but his rights to that reimbursement flowed from his covenant to "pay and discharge" the Acer mortgage, which covenant was absolute, to be first performed, and independent.
That the $7,500 mortgage has proved worthless or nearly so does not help the case. That result flowed from the alleged fraud and falsehood of Nichols, who represented that the conditions of Acer's second mortgage had been already and would be in the future so fulfilled as to extinguish that lien. But Hotchkiss might have rescinded on the ground of fraud. He might have freed himself from his obligation and revived his own mortgages, but to do that would have been compelled to return the $7,500 mortgage to Nichols, restoring what he had received. Instead, he chose to stand upon his contract, and affirm it by enforcing it, and if the result is disastrous, it furnishes no reason for allowing him to re-trace his steps. One cannot experiment upon a contract void for fraud, by trying to enforce it with knowledge of the fraud, and that result being unsatisfactory, seeking at last to rescind it. That is the substance of Hotchkiss' present position. If he is subrogated he rescinds his own contract after having with full knowledge sued to enforce its consideration, while retaining that consideration and declining to restore the other parties to their original situation.
We have taken no notice of the debate over the question whether at any stage of the transaction Acer could have maintained an action against Hotchkiss upon his promise to pay the mortgage. Conceding that such liability never accrued affects in no respect the view we take of the case; for Acer is not here suing upon that promise. He insists, that even if not liable to him, Hotchkiss voluntarily paid, and that he has a right to hold the benefit of that payment until Hotchkiss can establish some equity strong enough to deprive him of it. By making this payment, Hotchkiss stopped Acer's foreclosure, and induced the discontinuance of the action. He could not have mistaken or misunderstood Acer's position; and when in seeking to show his equity to be subrogated, he puts before us all the facts which demonstrate that such equity consists in permission to violate his covenant while retaining its consideration, he establishes against himself our duty to refuse.
Our view of the case is strengthened rather than weakened by two other facts which entered into the contract. On his assignment of the $7,500 mortgage to Hotchkiss, Nichols guaranteed its payment, and gave another mortgage on other property as a guard against Acer's second mortgage. That collateral has been enforced and its proceeds applied to the reduction of such second mortgage, and Nichols remains liable under his guaranty for more than the full amount of the $7,500 mortgage, and since he has never in any manner been released, subrogation would leave him twice liable for the same debt unless equity interfered by compelling as against Hotchkiss a reduction of the $7,500 mortgage; but if that were done it would simply work a partial rescission of the contract of Hotchkiss in the face of his positive and persistent affirmance of it.
The judgment should be reversed and a new trial granted, costs to abide the event.
All concur.
Judgment reversed.
The opinion in the action second above entitled is as follows:
The matters stated in the answer did not constitute a defense. The General Term gave them that force and effect upon grounds against which we have decided in the foreclosure suit brought by Acer. We there held that the covenant of Hotchkiss was to pay and discharge the Acer mortgage, and not merely to carry the debt till the Baker and Wooster mortgage became due. We further held that the covenant of Hotchkiss was independent, and payment of their mortgage by Baker and Wooster was not a condition precedent to their right of action upon such covenant. Granting the assertion of the General Term that the two bonds were cotemporaneous and to be read together as if contained in one paper, it would still be the case of mutual covenants in which by the terms of the contract performance by Hotchkiss was to be upon days certain which preceded the conditions to be performed by Baker and Wooster. The covenant by the defendant comes within the first branch of the rule originally stated in Pordage v. Cole (1 Saunders, 320, note 4) that "if a day be appointed for the performance of an act, and such day is to happen or may happen before the performance of the act, which is the consideration for the first-mentioned act, then the covenants are considered mutual and independent, an action may be brought without averring performance of the consideration, for it appears that the party relied upon his remedy and did not intend to make the performance a condition precedent." ( Tompkins v. Elliot, 5 Wend. 497.) The payment by Hotchkiss of Acer's mortgage was stipulated to be made as and when it became due, and such date, preceded the maturity of the $7,500 mortgage. ( Northrup v. Northrup, 6 Cow. 296.) Hotchkiss himself foreclosed that mortgage without averring or proving performance of his covenant, and when in fact it was unperformed.
But the defendant now insists that he proved a counter-claim; and although he did not plead it as such, calling it by that name, yet as he did set out the facts and they were all established and found in his favor by the court, he argues that he is entitled to the benefit of them, at least so far as to discharge the plaintiffs' claim upon the bond. There is an obvious justice in the result thus sought to be accomplished. The damages of the plaintiffs might well be applied, if possible, upon the defendant's unpaid bond and mortgage, for it would then result in just such a reduction of that security as would have been made if no covenant of Hotchkiss had existed to pay the Acer mortgage. But the question is one of pleading. We have held that the counter-claim must be described as such where the question turned upon the want of a reply. ( Eq. Life Ass. Soc. v. Cuyler, 75 N.Y. 511.) Such a rule is essential to protect a plaintiff from being misled by an answer, and to prevent the snare of a counter-claim lurking under the cover of a supposed defense, and unconsciously admitted by a failure to reply. We have also held that where the pleader himself characterized his facts alleged as a "defense" he was bound by the choice which he deliberately made. ( Bates v. Rosekrans, 37 N.Y. 412.) We have also ruled that the counter-claim could not be asserted for the first time on appeal. ( Muldoon v. Blackwell, 84 N.Y. 646.) But that again was an attempt to get the benefit of a failure to reply. In this case, however, the pleader has set out the facts without at all characterizing their effect. He left the way open to use them either as a defense or counter-claim. He put no reliance upon the omission to reply, but practically waived the need of such a pleading, and proved his facts as if they had been put in issue by a denial. He relied upon them at the trial as sufficient to defeat the action and asserted their effect, and in his exceptions to the conclusions of law of the trial court he raised the question by insisting "that the facts proven on said trial did constitute and should have been adjudged a full counter-claim or defense." The proceedings on the trial are not in the return and we have no warrant for saying that this exception was the first effort to raise the question. Now the facts pleaded and proved and found constituted, if nothing more, at least an equitable set-off. At the date of the commencement of the action, the defendant owed the plaintiff $1,140 and some interest thereon, and the plaintiffs owed the defendant at least three payments of semi-annual interest, amounting to $787.50. Before the conclusion of the trial it was shown that the mortgage collateral to this debt had been foreclosed, and $1,050 and some interest found due, and on a sale but $200 had been realized, leaving a deficiency due from the plaintiffs of $1,113.27 with the whole $7,500 also remaining to become due. This evidence was given without objection. Now "the general rule is that equity requires cross-demands to be set off against each other, if, from the nature of the claim or the situation of the parties, justice cannot otherwise be done." ( Coffin v. McLean, 80 N.Y. 564; Smith v. Felton, 43 id. 419.) Here there were, even at the commencement of the action, such cross-demands. We dismiss the suggestion that the plaintiffs held their claim as trustees of an express trust for Acer, because no such trust was contemplated or constituted, and it is probable that neither of the present parties were ever liable to Acer at all. There were cross demands held by each party in his and in their own right, due and payable at the commencement of the action. Nichols, who had guaranteed the $7,500 bond and mortgage, was insolvent. That the plaintiffs were insolvent was alleged in the answer and is conceded in their counsel's brief; and that a part of this $7,500 bond and mortgage was intended to reimburse Hotchkiss for the assumption of the Acer mortgage is beyond dispute. Equity will readily lay hold of facts like these to establish an offset, and so reach substantial justice. Undoubtedly such equitable offset is now embraced in the definition of a counter-claim (Code Civ. Pro., § 501) and the question returns, whether the facts pleaded were thus available to the defendant without being expressly described as a counter-claim. In Van Brunt v. Day ( 81 N.Y. 254) the defendant pleaded facts "available to the defendant as a counter-claim to the extent of the damages sustained, in reduction or extinguishment of his liability." No reliance was put upon the absence of a reply if one was absent, but the defendant offered to prove his independent right of action. Objection was made, but not upon the ground of any defect in the pleadings. Because that evidence was rejected, this court reversed the judgment and ordered a new trial. In this case the evidence of the cross-demand came in without objection of any kind; the question was raised on the trial and nobody appears to have been misled. While at the commencement of the action the set-off due and matured did not equal the plaintiff's claim, yet at the time of the trial, and before the answer was served, the amount due had been judicially ascertained as $1,050, and interest, and before the judgment was reached, the plaintiffs' deficiency, with which they were chargeable, had become $1,113.72; a deficiency further increased before the final judgment was ordered to more than enough to extinguish plaintiffs' claim. That some portion of the offset accrued during the pendency of the action is true, but no objection was taken upon that ground, and no rights of third parties had intervened. ( Gay v. Gay, 10 Paige, 369.) If such objection had been made the defendant might have obtained leave to serve a supplemental answer setting up the maturing of the additional sums after the commencement of the action. (Code of Civ. Pro., § 544.) The General Term was, therefore, justified in reversing the judgment of the Special Term and ordering judgment for the defendant, but for the reason that the debt due to the plaintiffs upon defendant's bond is extinguished by the offset of an equal amount due from the plaintiffs to the defendant upon their bond, and the judgment in the foreclosure suit in favor of Hotchkiss is to that extent paid and extinguished.
The judgment of the General Term should be affirmed, with costs.
All concur.
Judgment affirmed.