HURD v. CALLAHAN

HURD v. CALLAHAN. Surrogate's Court, Westchester County, February, 1881. Liability oh Guarantor oh Mortgage.—Neglect to Proceed against Mortgagor.—Costs oh Foreclosure deductible hrom Amount realized on Sale as against Guarantor. The mere neglect 6f a holder of a mortgage to proceed against the mortgagor -will not discharge one who has guaranteed its payment, although the value of the land has so depreciated as to be inadequate to pay the amount due. A guaranty of the payment of a bond and mortgage is a guaranty of the payment not only of the principal but also of the interest that may accrue thereon. Although in proceedings to sell the real estate of a deceased guarantor of a mortgage, costs of foreclosure cannot be considered as part of the debt, yet as they are incidental to the endeavor to collect out of the premises, the amount to be credited on the debt is the proceeds realized on the foreclosure after deducting the costs. A surety has no equity to demand that so much money as is necessary to pay the costs of collection shall be withheld from that object and applied exclusively to satisfy the principal of the debt, for the creditor being entitled to the whole amount, the expenses of collection are properly deductible from the sum realized from the principal debtor. People v. Janson, 7 Johns. 332,—said to be overruled. Humilton v. Van Rensselaer, 43 N. Y. 244,—distinguished. Application of William C. Hurd, a creditor, to sell the real estate of Patrick Callahan, deceased, to pay his debts. On November 17, 1871, John Finagan executed a bond and mortgage to Patrick Callahan to secure the payment to him of $782.50, on November 17, 1874, with interest. On April 6, 1872, Callahan assigned the bond and mortgage to James Blackwell, the assignment containing a clause as follows: “ The party of the first part hereby guarantees the payment of the said bond and mortgage.” In March, 1873, Blackwell assigned the same to William C. Hurd. Callahan died March 23, 1874, leaving a will, of which Ellen Callahan, Ms widow, was executrix. Interest was paid on the bond and mortgage to November 17, 1875. In 1879, Hurd commenced an action to foreclose the mortgage, making the executrix a party defendant, and asking for j udgment 'for deficiency, if any, against her and the obligor. A defense upon the merits was interposed by the executrix, the issue was tried, and a judgment of foreclosure and sale resulted. The premises were sold for $800. Out of this sum there was paid $156.26 costs, $45.25, referee’s fees and disbursements; and $49.73 taxes ; and the residue, $548.76, was paid to the plaintiff in the action. This left a deficiency of $480.08, for which judgment was entered on May 15,1880. In June of the same year the executrix rendered an account of her proceedings as such, from which it appeared that the assets of said Callahan were.insufficient to pay his debts. Thereupon, Hurd .commenced these proceedings to obtain ,an. order, to mortgage, lease or sell the real estate óf Callahan to pay his debts. On the hearing, these facts were established, when it was proposed to prove, on behalf of the heirs, that the mortgaged premises had depreciated in value, from the time the mortgage became due to the time of foreclosure and sale* about one-third. It was objected to as immaterial. M. G. Hart, for petitioners, Cited: Brown v. Curtiss, 2 N. Y. 225; Looney v. Hughes, 26 Id. 514; East River Nat. Bk. v. McCaffrey, 3 Redf. 97. Martin J. Keogh, for widow and heirs. Petitioner, having been guilty of laches, is not entitled to the order sought (People v. Jansen, 7 Johns. 332). The guaranty does not apply to the payment of - interest after the .principal became due (Hamilton v. Van Rensselaer, 43 N. Y. 244). Nor to taxes. The costs and referee’s fees (with the taxes) are a part of the amount of the deficiency, and the real estate is not liable for their payment (Sanford v. Granger, 12 Barb. 392; Wood v. Byington, 2 Barb. Ch. 387; Ferguson v. Broome, 1 Bradf. 10). [MAJORITY — Coffin, Surrogate.] Coffin, Surrogate. The objection to the proof offered as to the depreciation in value of the mortgaged premises was well taken. The case of People v. Jansen has been overruled, and is no longer to be regarded as an authority (5 Amer. Dec. 275, and note 279). In no case is a surety discharged by mere laches of the creditor, unless after a request to prosecute the principal (Looney v. Hughes, 26 N. Y. 514). The mere neglect of the holder of the bond and mortgage to proceed againstthe mortgagor does not discharge the guarantor, ^ though the value of the land become so depreciated as to be ultimately inadequate to pay the amount due (Brown v. Curtiss, 2 N. Y. 225). Callahan guaranteed the payment of the bond and mortgage. This was a guaranty of payment not only of the principal, but also of the interest that might accrue thereon. The case of Hamilton v. Van Rensselaer (43 N. Y. 244), cited by counsel for contestants, is not in point. There the guaranty was for the punctual payment of interest, on a bond to run for several years, payable yearly, and an agreement to pay it on demand, in default of its payment by the obligor. It was held that. the guaranty did not extend to the payment of interest accruing after the bond became due, as was claimed by the plaintiff. Church, Ch. J., remarked that the construction contended for by the plaintiff might render the contract as burdensome as if it had teen a guaranty of the payment of the principal itself. It has been repeatedly decided that the real estate of deceased persons can only be sold, in a proceeding like this, to pay their debts, and that the costs of actions brought against the executor or administrator to recover them, are no part of such debts. This is undoubtedly the law. The only question, on this subject, in this case, is whether the deficiency in the amount realized embraces the costs, &c. The holder of the bond and mortgage exhausted his remedy against the land, and the supreme court has adjudged that the proceeds of sale were insufficient to pay the same, and the amount remaining due thereon, for principal and interest, is the amount of the deficiency. The costs of the foreclosure were incidental to the endeavor to collect out of the mortgaged premises ; and although they were first paid out of the proceeds of sale, they cannot justly be considered as constituting any part of the amount still due on the bond and mortgage. I am to ascertain what remains due, and I find that $548.76 has, through legal proceedings, been paid thereon, and that there is still due $480.08, with interest thereon from May 15, 1880. No costs, as such, are included in this balance. The sale, if ordered, is for the purpose of paying if, and not to pay any costs. Upon a guaranty of payment only, thé holder may proceed, in the first instance, against the maker; but if he does so, and subjects himself to costs, he cannot afterwards recover those costs of the guarantor, because he had his action, in the first instance, against the guarantor, and need not have incurred costs in an action against the maker (Theobald on Principal and Surety, 90 ; Tuton v. Thayer, 47 How. Pr. 180). But, suppose the plaintiff in foreclosure had not made the executrix a party in that action, and had afterwards sued her on the testator’s guaranty, to recover this deficiency, he would have obtained a judgment for the whole amount of such deficiency, with costs. Then, he could have made -a like application to this, and the amount of that judgment, exclusive of costs, would have been the debt against the decedent, he was entitled to recover in the proceeding. In the case of Mosher v. Hutchins (3 Keyes, 161), although it was a case of guaranty of collection, the court lays down the abstract rule, as one of the reasons why the guarantor should not be allowed to have the costs of an action against the principal deducted from an amount collected from him and applied to the principal, that where a sum of money has been collected by action against the principal debtor, the surety can have no equity to demand that so much of the money, as shall be necessary to pay the expense of the collection, shall be withheld from that object, and be applied exclusively to satisfy the principal of the debtor. The creditor is entitled to the whole of his demand, and the expenses of collection were legitimately deducted from the sum realized, by execution against the principal debtor. The case of Ferguson v. Broome (1 Bradf. 18), cited by counsel for the heirs, was decided before the enactment of chapter 845 of the Laws of 1869, which protects bona fide purchasers, for value, after the lapse of three years from the date of letters testamentary, or of administration, and which thus robs this right of the creditor of its character as “a hidden and tremendous lien.” The case was decided upon sound principles, as the law then stood, but is no longer an authority in so far as its reasoning is in conflict with the provisions of that act. The language of that law implies that a sale may be made, on the application of a creditor, which is not presented until after three years has elapsed since the granting of letters. This proceeding, having been commenced in July last, is unaffected by the provisions, on the subject, of the new Code. While this case presents a different question from that discussed in East River Nat. Bk. v. McCaffrey, 3 Redf. 97, and I do not, therefore, propose here to consider it, yet I am inclined to think the conclusion there reached, to be sound. The amount of the deficiency with interest must be established as the amount due to the petitioner. Code Civ. Pro. c. 18, tit. 5.