GROW v. GARLOCK

GROW v. GARLOCK. N. Y. Court of Appeals ; October, 1884. Foreclosure.—Principal and Surety. A mortgagee who becomes aware that the mortgagor gave his bond and mortgage for the accommodation of another person, is bound to respect the relation of principal and surety which may exist between the person so accommodated and the mortgagor; and if he wastes or surrenders, without the latter's consent, any other security he may have received from the former, the latter is entitled to a corresponding reduction upon the mortgage debt. Appeal from a judgment entered, upon an order of the general term of the supreme court, affirming a judgment of the special term in favor of the plaintiff entered upon the report of a referee. John B. Grow brought this action against Horace Garlock, Jason Garlock and others, to foreclose a mortgage made by Horace Garlock and his wife to the plaintiff. The answer of Horace Garlock alleged that the mortgage was executed by him, with the knowledge of the plaintiff, for the sole accommodation of Jason Gar-lock, who was the principal debtor, and that plaintiff had released certain chattel mortgages subsequently given to him by Jason to secure the performance of his covenant to pay the debt represented by the mortgage. The further material facts appear in the opipion. Wayland F. Ford, for the appellants. I. The mortgage in suit having been given for Jason Garlock by defendant Horace Garlock, and there being a valid agreement between them that Jason should pay the mortgage in exoneration o-f Horace and his property, and plaintiff having knowledge of this relation and agreement, Horace Garlock was vested with the rights of a surety, and plaintiff was bound to observe the relation (Barnes v. Mott, 64 N. Y. 397; Colgrove v. Tallman, 67 N. Y. 95; Millard v. Thorn, 56 N. Y. 406 ; Paine v. Jones, 14 Hun, 577 ; 76 N. Y. 274; Vail v. Foster, 4 N. Y. 312 ; Calvo v. Davies, 73 N. Y. 211 ; Valley National Bank v. Meyers, 17 Bankr. Reg. 257; Bank of Albion v. Burns, 46 N. Y. 170; Trustees of Union College v. Wheeler, 61 N. Y. 88, 110 ; Palmer v. Purdy, 83 H. Y. 144; Gould v. Butler, 127 Mass. 386 ; Matter of Sterling, 1 Am. L. Rev. N. S. 386). It is immaterial at what time the obligation of the parties to the creditors arose with reference to the ereation of the debt. “ There is no distinction recognized between those originally bound and those becoming so by some subsequent act or assent on their part” (Barnes v. Mott, 64 N. Y. 397, 403). In the following cases the persons held to occupy the position of principal debtors, became bound to the creditor subsequent to the creation of the debt (Paine v. Jones, 76 N. Y. 274; Calvo v. Davies, 73 N. Y. 211). From the time of the execution of the guaranty by Jason, and the chattel mortgages, containing a personal covenant to pay the debt to the plaintiff, both Jason and Horace were bound to plaintiff. An accommodation maker of a note is entitled to the rights of a surety, if the holder has knowledge of- the fact (Valley Nat. Bank v. Meyer, 17 Bank. Reg. 257 ; Gould v. Butler, 127 Mass. 386; Vail v. Foster, 4 N. Y. 312; Matter of Sterling, 1 Am. L. Rev. N. S. 386). In Artcher v. Douglass, 5 Denio, 509, defendants, obligors in a bond, were held entitled to the rights of sureties, although the relation was shown only by parol, there being nothing on the face of the bond to show it, and the principal not being a party to the obligation in suit, nor bound to indemnify the plaintiff. II. The acts done by plaintiff were in fraud of the rights of Horace Garlock, the surety. Plaintiff, having knowledge of the relations, released securities and released property mortgaged by the principal debtor to the creditor, to an extent sufficient to absolutely discharge the surety (Barnes v. Mott, 64 N. Y. 397, 402 ; Hayden v. Agent of Auburn State Prison, 1 Sandf. Ch. 195 ; Cory v. Leonard, 1 Supm. Ct. [T. & C.] 183 ; Hirsh v. Munger, 3 Id. 290 ; Snell’s Eq. 425; Campbell v. Rothwell, 38 L. T. R. N. S. 33 ; 17 Alb. L. J. 252; Boyd v. McDonough, 39 How. Pr. 389 ; Gould v. Butler, 127 Mass. 386 ; De Peyster v. Hildreth, 2 Barb. Ch. 109). A surety is entitled to the same benefit from a security acquired by the creditor subsequently to the contract of suretyship, as he would have been if it had been in existence at the time such contract Avas entered, into ; and if the creditor so deals with such security that he cannot give it up to the surety in the same condition as it was when he acquired it, the surety is discharged (Campbell v. Both well [above]). John O. MoOartin, for respondent. [MAJORITY — Earl, J.] Earl, J. This action Avas brought to foreclose a mortgage dated May SO, 1874, given by the defendant Horace Garlock to the plaintiff. It is alleged in the complaint, that on the 16th day of February, 1875, the defendant, Jason Garlock, by his writing indorsed upon the bond which the mortgage was given to secure, for value received, duly guaranteed the payment of the bond and mortgage; and a deficiency judgment is prayed against both Horace and Jason. All the defendants but Horace Garlock and Adam J. Snell suffered default. Snell alleged, in his answer, that he granted the mortgaged premises to Horace Garlock, and that he had a vendor’s lien upon the premises for unpaid purchase money, Avhich was known to the plaintiff at the time he took his mortgage, which Avas therefore prior and superior to the lien of his mortgage; and he also alleged, as did Horace in his answer, that the mortgage was executed by Horace Avith the knoAvledge of the plaintiff, for the accommodation of Jason Garlock, avIio was the principal debtor, and that the plaintiff had so dealt with Jason and his property as to release Horace from any liability upon his bond and mortgage. The cause, being at issue upon the answers of Snell and of Horace Garlock, Avas referred to a referee who found, that at the time the plaintiff advanced his money and took his mortgage, he relied upon the records, which showed a clear title to the premises in Horace Oarlock, and that he had no knowledge that any of the purchase money for the premises remained unpaid to Snell. He found, as matter of law, among other things, “that as to the plaintiff, the said Horace Garlock was the principal debtor as to the debt represented by the said bond and mortgage executed by said Horace Oarlock to the plaintiff, and was not a surety for the said Jason Oarlock as regards said debt, so that the release of any securities which the said plaintiff may have received from the said defendant Jason Oarlock, would not in any way affect the lien of the said Horace Oarlock to the plaintiff for the payment of said debt,” and he ordered the usual judgment of foreclosure in favor of the plaintiff, which was upon appeal affirmed at the general term, and then Snell and Horace Gar-lock appealed to this court. The following facts are undisputed. Sometime prior to the date of the mortgage, Jason Oarlock borrowed of a Watertown bank, for his own use, the sum of $2,000, and gave a note therefor made by himself and indorsed for his accommodation by his father, Horace. The note was about falling due, and the bank insisted upon payment, and Jason was unable to pay it. He and his father then applied to the plaintiff for a loan of money to take up the note, and they at first proposed to him to give him their joint note. This he refused to take, but said he would take a mortgage upon the father’s farm ; and so, it was finally arranged that Horace should give the mortgage upon his farm to secure the loan. The bond and mortgage were then drawn and executed by Horace and delivered to Jonas, who went with the plaintiff to the bank. There the plaintiff produced the $2,000, and took up the note and delivered it to Jason, and he then delivered the bond and mortgage to the plaintiff. Afterward, in February, 1875, at the request of the plaintiff, Jason guaranteed the payment of the bond and mortgage. The plaintiff had full knowledge of the nature of the bank debt, and the relations between Jason and Horace. He knew that the money was borrowed of him to pay the debt of Jason for which Horace was liable as surety. As between Jason and Horace, the debt to the plaintiff was really the debt of Jason, for which Horace had bound himself and his property as surety. Jason was bound to indemnify Horace against any loss by reason of the bond and mortgage, and he at once became debtor to Horace for any money he paid upon the debt. As between them, upon the undisputed facts, Jason was the principal debtor, and Horace, a mere surety. These relations were known to the plaintiff, and hence he was bound to respect them. It may be that, as to the plaintiff, Horace technically remained the principal debtor. But that is not a controlling circumstance. If, as between Jason and Horace, there was the relation as to the debt of principal and surety, no matter how or when it arose, and no matter whether the plaintiff consented to it or not, whenever that relation came to his knowledge, he was bound to respect it; and so it has been abundantly held by authorities which we are bound to respect (Colgrove v. Tallman, 67 N. Y. 95; Calvo v. Davies, 73 Id. 211; Palmer v. Purdy, 83 Id. 145). If Jason, recognizing his liability as principal debtor, placed any property in the plaintiff’s hands, or gave him a lien upon any property to secure the debt, he was bound to keep and hold the property for that purpose, for the protection and benefit of Horace, the surety, and if he voluntarily gave up or surrendered the property or the lien to Jason, or wasted the property, or allowed Jason to waste it, then Horace, as surety, had just ground of complaint, and, to the extent of his loss, was entitled to a reduction of his liability for the debt. There was evidence tending to show that the plaintiff had, in his dealings with Jason and his property, disregarded and violated the rights of Horace as surety ; and, therefore, without examining other alleged grounds of error brought to our attention in the briefs, for the error in the finding of law by the referee, in substance, that the plaintiff was not bound to respect the relation of principal and surety existing between Jason and Horace, the judgment should be reversed and a new trial granted, costs to abide event. All concur, except Danforth, J., absent.