Summary
In Smith v. Ferris (1894), 143 N.Y. 495, 39 N.E. 3, defendant guaranteed payment of a $4,000 bond and mortgage "according to its terms until the same is reduced to $3,000."
Summary of this case from Telegraph Sav. Loan v. Guaranty Bk. TOpinion
Argued November 2, 1894
Decided November 27, 1894
I.W. Wiswall and J.L. Henning for appellant. D.E. Wing and L.B. Pike for respondent.
The defendant, Mark T. Ferris, who by assignment had become the owner of the bond and mortgage, sold and assigned the same to the plaintiff, executing at the same time a guaranty to the purchaser, indorsed on the mortgage, as follows: "I hereby guarantee the payment of the within mortgage according to its terms until the same is reduced to three thousand dollars." The bond and mortgage was conditioned for the payment of $4,000, in sums of $100 of principal annually, together with interest on the whole sum unpaid, with the privilege to the mortgagee to pay any additional sum on the principal, when any payment became due. The mortgage further provided that the mortgagor would keep the buildings on the premises insured for the benefit of the mortgagee, to the amount of $1,000. Subsequent to the assignment of the bond and mortgage to the plaintiff and the execution of the guaranty, the buildings on the premises were burned, and the sum of $1,434 was collected on the insurance and received by the plaintiff, which reduced the mortgage to $2,700. Default having been made in the payment of a subsequent installment on the mortgage, this action for foreclosure was commenced and the defendant was joined as defendant therein by reason of his guaranty, and judgment was demanded against him for any deficiency, to the extent of his liability thereon. The only question is whether the mortgage has been reduced to $3,000, within the meaning of the guaranty. It is of course conceded that there is now unpaid on the mortgage only the sum of $2,700. But it has been reduced to this sum by the application thereon of the insurance money. Except for this there would be unpaid $4,000 and upwards. Whether the sum received on the insurance is to be reckoned as a payment on the mortgage as between the plaintiff and the guarantor, and to be applied in exoneration of the guarantor's liability, depends on the true interpretation of the guaranty. The purpose of the parties to the arrangement is obvious. The plaintiff was willing to purchase the bond and mortgage and look to the property and the obligor's liability on the bond and the collateral security against fire, as his resource for the payment of the mortgage to the extent of three thousand dollars. But for the payment of the sum secured by the mortgage beyond that sum, he required, in addition to the other security, the personal guaranty of the defendant. The defendant undertook to this extent to become personally liable. The terms of the guaranty indicated that the parties had in view the reduction of the mortgage by payments made in the usual course. The guaranty was that the mortgage should be reduced by payments, "according to its terms." There are no terms of payment specified in the mortgage, except payments to be made by the mortgagor as provided. The payment made by the application of the insurance money was a payment out of the property itself. This insurance money was a substitute pro tanto for the property mortgaged. While the obtaining of an insurance was contemplated between the original parties to the mortgage, the payment on the insurance was not a payment on the mortgage "according to its terms." If the construction of the guaranty claimed by the defendant prevails, the plaintiff is deprived of the security intended thereby. It is true that the mortgage has been reduced by the application of the insurance money, below $3,000. But only by the conversion of part of the property into money and the application of the converted fund on the mortgage debt. The property remaining, as may be assumed from this litigation, is now inadequate to pay the balance remaining unpaid. If the mortgage in question had been a second mortgage, and on the foreclosure of the first mortgage a surplus had arisen, applicable on the subsequent security, but insufficient to satisfy it, could it be claimed that if less than $3,000 remained unpaid by reason of such application the defendant was discharged? We think such a claim would be wholly unfounded. The case supposed is quite analogous to the present one. The plaintiff is entitled to no relief, not within the fair and reasonable construction of the guaranty. But we think the fair construction of the terms, in view of the purpose of the instrument and the situation of the parties when the warranty was executed, precludes the theory that the application of the insurance money was a payment which, as between these parties, reduced the mortgage below the stipulated amount. The defendant may, upon payment of the mortgage debt, be entitled to subrogation, or he may protect his interests so far as he can on the sale of the property, but he cannot, we think, upon any principle of law or equity, remit the plaintiff exclusively to the land, and the liability of the obligor in the bond for the payment of the balance of the mortgage.
The judgment of the Special Term is based upon a true interpretation of the guaranty, and the judgment there rendered correctly defines and limits the liability of the defendant.
The judgment of the General Term should be reversed, and that of the Special Term affirmed, with costs.
All concur.
Judgment accordingly.