Opinion
May, 1904.
C.J. Palmer, for the appellants.
A.M. Mills, for the respondent.
On December 17, 1890, the defendants Welch executed their mortgage to the defendants O'Rourke to secure the sum of $1,900, and personally covenanted to pay the same. The mortgage contained the usual clause requiring the mortgagors to insure the buildings on the property "in an amount approved by the said parties of the second part and assign the policy and certificate thereof to the said parties of the second part, their heirs or assigns," and in default of so doing the mortgagees were authorized to effect such insurance at the expense of the mortgagors, to be added to the mortgage lien.
On April 16, 1892, the mortgagees, for a valuable consideration, assigned the mortgage to George A. Hardin. Accompanying the transfer was their personal guaranty of payment of the mortgage indebtedness. In September of that year the late Mr. Justice Hardin assigned the mortgage and guaranty to the plaintiff.
The plaintiff never insured the buildings on the property and never required the mortgagors to do so. It appears, however, that in 1895 the latter effected insurance thereon, which was in force in August, 1897, when the buildings were destroyed by fire, and the amount of the policy, to the extent of $500, was paid to the insured.
The plaintiff has foreclosed the mortgage and recovered a judgment for deficiency against the guarantors. They contend that they are not liable, because the plaintiff neglected to require the obligors to insure the buildings for her benefit. We do not assent to this contention.
The privilege of requiring insurance was for the benefit of the mortgagees, but imposed no imperative duty upon them. In fact, it does not appear that while they were the owners of the obligation they enforced this provision, for apparently no insurance at all was obtained until five years after the execution of the mortgage, and the plaintiff did not attempt to add to her security by availing herself of the right to exact insurance. She was not obliged to do so for the benefit of the sureties. When they executed the contract of guaranty, presumably they knew there was no insurance for their benefit, and they made no agreement enlarging the burden of their assignee by obliging him to obtain insurance as an additional protection. If the plaintiff had undertaken this, it might have imposed upon her the payment of money. To be sure, the sum paid would have been added to the mortgage, but she may have been without the cash or may not have desired to increase the mortgage lien, or may have preferred to rely upon the guaranty of payment. No explanation of her conduct is necessary, for no affirmative duty was imposed upon her. She could not do any act which would in any way add to or alter the liability of the sureties, but as long as she did nothing whatever they are not exonerated of their guaranty. ( Schroeppell v. Shaw, 3 N.Y. 446; Newcomb v. Hale, 90 id. 326, 331; State Bank v. Smith, 155 id. 185, 198.) They became sponsors for the mortgagors to pay their indebtedness, knowing the terms of the contract by which their liability was created. They took the chances of the principal debtors complying with the clause respecting insurance.
It is urged that as the plaintiff was to approve of the amount of the insurance an affirmative duty was cast upon her. The approval followed the issuance of the policy, and she was not compelled to take the initiative in procuring that. The right of approval was for her benefit and necessary if she elected to require insurance in order to make it fairly equivalent to the value of the buildings. The crucial failure of the appellants' position is that they overlook the fact that it was optional with the plaintiff to demand the insurance at all.
It is claimed that it was incumbent upon the plaintiff to collect the insurance money which the mortgagors received. There is no suggestion of any collusion between her and them. The only complaint is that she was remiss in that she failed to put forth the effort which she might have exerted. Again we must bear in mind that the key-note of the conduct to be required of the plaintiff was to do no positive act to the detriment of the guarantors.
"Mere passive negligence or laches of an obligee or creditor, mere non-performance of some affirmative act which if performed might prevent loss to the surety, will not, in the absence of some express covenant or condition to that effect, discharge a surety, and that the neglect of duty which is available as a defense for a surety must be of some duty owing to the surety, and not to others; some positive duty undertaken in behalf of and for the benefit of the surety." ( Board of Supervisors v. Otis, 62 N.Y. 88, 92.)
Undoubtedly upon the payment of the mortgage the sureties would have been substituted to the rights of the plaintiff, embracing any collateral security which she may have held. If she possessed the right to pursue this insurance money that right they obtain upon payment. The principle of subrogation, however, does not become effective until after the surety has paid the debt. Nor is the plaintiff estopped because she alleged in her complaint that the defendant Sarah Welch obtained the insurance money and converted it to her own use, and asked judgment therefor. The plaintiff did not, in fact, recover any of the money in the action and has never received any of it. If any payment had actually been made, or if any security had been obtained by her, it would inure to the benefit of the surety; but the attempt to recover is not to be treated as an actual payment any more than a promise is not deemed equivalent to fulfilment.
It is also noted that the mortgage indebtedness had not fully matured at the time of the fire, and the plaintiff could not have been required to accept payment. In the first place, the appellants never made any offer of payment and never went to the extent of asking that the plaintiff procure insurance; in the second place, they knew the long time which the mortgage debt had to run and made no contract with their assignee to protect them by reason thereof.
The judgment should be affirmed.
All concurred.
Judgment and order affirmed, with costs.