Summary
In Sherman v. Foster, 158 N.Y. 587, 53 N.E. 504, a judgment creditor of the mortgagor, who had a lien upon the real property, inferior to a mortgage, was held not to be entitled to have the mortgagee charge the amount of insurance payments, received by the mortgagor and paid by his consent on other debts.
Summary of this case from Wattenbarger v. TullockOpinion
Argued March 7, 1899
Decided April 18, 1899
T.W. McArthur for appellants. L.M. Brown for respondent.
Although the third mortgage of the plaintiff was not due when this action was commenced, as it became due before judgment, if it was still unpaid, it was properly included with the other two mortgages in the decree of foreclosure, under the allegations of the complaint, the evidence, the position taken by the parties at the trial and the rule governing the subject. ( Pond v. Harwood, 139 N.Y. 111, 120.) As the court said, in the case cited, in equitable actions "the right to judgment is not limited to the facts as they existed at the commencement of the action, but the relief administered is such as the nature of the case and the facts, as they exist at the close of the litigation, demand. ( Peck v. Goodberlett, 109 N.Y. 180; Mad. Ave. Bap. Ch. v. Oliver St. Bap. Ch., 73 id. 82; Worrall v. Munn, 38-id. 137; Gay v. Gay, 10 Paige, 369)." If, however, there had been no foreclosure as to either mortgage that was due when the action was commenced, there could have been none as to the mortgage that was not due at that time, because there would have been no foundation for a decree when the defendants were first brought into court and no reason for the commencement of the suit.
The appellants claim that as it is alleged in the complaint that the plaintiff had received $8,889.88 from the insurance, nothing whatever was due when the action was commenced, because that sum exceeded the amount of the first and second mortgages, and the plaintiff had not then sustained any loss on the administrator's bond. The entire allegation of the complaint upon the subject is, that over $2,000 of such insurance was paid on account of the loss on the personal property, and that "by the terms of the policies of insurance covering said chattel property the loss thereon was made payable to the plaintiff as his interest in such chattel property might appear, and the said sum so received by him on account of the damage to such chattel property should be applied as a payment upon the indebtedness or liability secured by said chattel mortgage." We think this suggests the true rule. While the plaintiff received, according to his admission, the sum of $8,889.88 from the insurance, only $6,537.01 was paid on account of the loss on the building, the remainder, $2,352.87, having been paid on account of the destruction of the personal property. The insurance on the chattels was payable to the plaintiff as mortgagee and was necessarily applicable to the particular debt secured by the chattel mortgage, independent of any other debt that the plaintiff had at the time against the mortgagor. The third bond represented the only debt to which the insurance upon the chattels was applicable, and the plaintiff had no right to divert it without the consent of the mortgagor, by applying it to the payment of any debt except that for which the chattel insurance was pledged. ( Duncan v. Brennan, 83 N.Y. 487; Continental National Bank v. Bell, 125 N.Y. 38; Buckley v. Garrett, 60 Pa. St. 333.) The chattel mortgage was not collateral to any real estate mortgage, but in connection with the third mortgage on the realty was collateral to the bond for $15,000. The moneys received from the chattel insurance were applicable in the first instance to the chattel mortgage debt and this left something due on the first and second real estate mortgages.
Furthermore, Mrs. Foster was co-surety with her husband upon the administrator's bond, and "a co-surety is entitled to any indemnity, or the avails of it, which his co-surety suing for contribution had from the principal debtor, and if the co-surety has released, or discharged the indemnity, or has collected, and applied the avails to his own use, he cannot recover." ( Crisfield v. Murdock, 127 N.Y. 315, 322, and cases cited.) The chattel mortgage was given by Foster, the principal, in part to indemnify the plaintiff against his liability as surety on the administrator's bond, and hence it inured to the benefit of Mrs. Foster, the co-surety. The appellants, therefore, cannot insist that the proceeds of the chattel insurance should, without her consent, be diverted from the object for which the mortgage on the chattels was given and applied to the payment of the indebtedness secured by the first and second mortgages on the real estate, to which the chattel mortgage was not collateral and for which she was not liable.
The appellants further claim that the plaintiff should be charged with $12,887.13, the whole amount of the insurance money, without any deduction on account of the sum paid on Foster's orders to his creditors. Over $6,000 of the entire amount of insurance was paid on account of damages to the furniture and the appellants never had any lien upon this sum, for they never caused a receiver in supplementary proceedings to be appointed. As the building and chattels belonged to Foster, the money paid over by the insurance companies was his money, subject to the lien of the plaintiff thereon as security for the payment of his mortgage indebtedness. It was in the power of the mortgagor and mortgagee, as between themselves, to agree before the insurance money was paid that it should not all be applied on the mortgages. ( Coles v. Appleby, 87 N.Y. 114, 119.) Such an agreement was made in this case, and, as between the parties thereto, there is no doubt that the plaintiff was not obliged to apply upon his mortgages the sum paid out on Foster's orders. The debtor and the creditor can always agree as between themselves upon the application of a sum paid by the former to the latter. The plaintiff had the right to release a part of his security so far as the mortgagor was concerned and to let him have a part of the insurance moneys.
We now reach the question whether he had the right to do this as against the appellants, and this involves an inquiry as to whether the plaintiff had such notice of the appellants' judgments as to charge him with knowledge thereof. They interposed no such defense in their answer, and took no such position upon the trial. The defense of payment, which was alleged, is quite different from the defense that the plaintiff had violated the equitable rights of the appellants after notice of their existence. There is no finding that the plaintiff knew of the appellants' judgments when he released his claim upon a portion of the insurance money and the rule is that a fact cannot be considered by this court for the purpose of reversing a judgment unless it either appears in the findings or, according to the practice formerly prevailing, is requested to be found upon uncontroverted evidence. ( Koehler v. Hughes, 148 N.Y. 507, 515.) Assuming that the statement in the first conclusion of law, that "a portion of the insurance money from the first fire having been paid out by Sherman to creditors of Foster at Foster's request, without notice to Sherman of the equitable rights, if any, of the defendants Roberts and Pearsall, and without any knowledge or information on his part that they had any rights," is a finding of fact, the exception thereto simply presents the question whether there was any evidence to sustain it. The facts in substance were that the plaintiff knew Foster was heavily in debt, that a bank was about to sue him, and that two small judgments, amounting to less than $300, had been recovered against him, but they were paid on Foster's order from the insurance moneys. It does not appear that the plaintiff knew that Foster was indebted to the appellants or that he ever did any business with them, or that they had recovered judgments against him. A prior incumbrancer is not bound at his peril to look for subsequent liens when about to release a part of his security, for, "in order to impose upon him the obligation to regard this equity, his conscience must be affected by knowledge of the facts upon which the equity depends or by notice sufficient to put him upon inquiry." ( Howard Ins. Co. v. Halsey, 8 N.Y. 271, 273.) As was said by Chancellor KENT in Cheesebrough v. Millard (1 Johns. Ch. 409, 414), the plaintiff was "not bound to search for the judgment, and the record was no constructive notice to" him, "and, as this rule of substitution rests on the basis of mere equity and benevolence, the creditor who has thus disabled himself from making it is not to be injured thereby, provided he acted without knowledge of the other's rights and with good faith and just intention, which is all that equity in such cases requires." The question of notice was not raised on the trial in any way, and it was not raised after the trial unless the exception to the facts recited in the conclusion of law raises it. We do not think the court erred in making that finding, treating it as a finding of fact, because the evidence did not compel the opposite or affirmative conclusion, and hence the negative conclusion was justified. The trial judge was not satisfied that the plaintiff had notice or was put upon such inquiry as would amount to notice, and, as the General Term reached the same conclusion, we cannot interfere, for there was some evidence to support it.
We have examined the other exceptions in the record and especially those relating to the admission of evidence, but we find nothing that calls for a reversal of the judgment appealed from, which must, therefore, be affirmed, with costs.
All concur, except O'BRIEN, J., not voting.
Judgment affirmed, with costs.