In the Matter of the Application of John McLaughlin, Appellant, to Commence and Maintain an Action to Recover Part of a Mortgage Debt, v. John Durr, Respondent

In the Matter of the Application of John McLaughlin, Appellant, to Commence and Maintain an Action to Recover Part of a Mortgage Debt, v. John Durr, Respondent. Application for leave to sue a guarantor of a mortgage, after a suit brought, but not prosecuted to judgment, for its foi’eclosure, the property having been sold under the foreclosure of a prior mortgage. Upon an application, under section 1628 of the Code of Civil Procedure, by John McLaughlin for leave to commence an action against John Durr and others to recover part of a mortgage debt secured by a second mortgage upon certain premises, it appeared that Durr assigned the mortgage to McLaughlin and guaranteed the payment of the mortgage debt; that an action was brought to foreclose the first mortgage held by one Fries; that a sale was had under a judgment thereof, resulting in a small surplus, which was paid over to McLaughlin; that an action was also-brought to foreclose the second mortgage held by McLaughlin, but was not prosecuted to judgment. In opposition to the application, Durr alleged that his guaranty of the payment of the second mortgage was obtained by false representations made by McLaughlin; that, although he was made a party defendant in the McLaughlin suit, no demand for a personal judgment for deficiency was made against him, and, in general, that the acts and conduct of McLaughlin were such as toletease him from his obligation as surety. Held, that the application should be granted; That the- matters set up by Durr in opposition to the application might properly be the subject of inquiry upon the trial of the action, but could not be disposed ' of upon affidavits; That, in view of the fact that the action to foreclose the second mortgage had not been prosecuted to judgment, so that the relations of the parties had thereby become definitely fixed, the omission to demand in the complaint in that-action a deficiency judgment against Durr did not constitute in itself a binding election. Appeal by the petitioner, John McLaughlin, from an order of the Supreme Court, made at the New York Special Term and. entered in the office of the clerk of the county of New York on the 10th day of June, 1902, denying the petitioner’s motion for leave to commence an action to recover the balance of a mortgage debt. W. J. Foster, for the appellant. Joseph Fettretch, for the respondent. [MAJORITY — Patterson, J.:] Patterson, J.: This ajipeal is from an order denying an application made under section 1628 of the Code of Civil Procedure by John McLaughlin for leave to commence and maintain an action against John Durr, Segunda Lopez and Bertha Lopez, to recover part of a mortgage debt. - The petition of McLaughlin sets forth, in substance, the following facts as the ground of his application : On the 30th of April, 1896, Segunda and Bertha Lopez'executed and delivered to John Durr their joint and several bond for $8,000, with interest to be paid semi-annually, and. the bond contained the provision that-the whole principal sum should become due, at the option of the obligees, after twenty days’ default in the payment of interest. As-collateral security for the payment of the indebtedness mentioned in the bond, Segunda' and Bertha Lopez executed and' delivered to Durr' a mortgage for $8,000 covering premises at the southwesterly corner of Sixty-first street and First avenue in the city of New York, and the mortgage contained the same condition as to the ■option of the mortgagee to elect to have the whole amount become due upon the failure to pay interest. On the 15th day of August, 1896, Durr assigned the bond and mortgage to McLaughlin and guaranteed the payment of the principal amount of the bond and mortgage and interest thereon. This was a second mortgage, there being on the premises a prior mortgage for $12,000 held by one Fries. After the second mortgage was assigned to McLaughlin, Segunda and Bertha Lopez conveyed the premises to one Hilson, and subsequently, through a series of conveyances, the title to the premises became vested in Aimee Riley, subject to the two mortgages ; but the payment of those mortgages was not assumed by any of the grantees in those conveyances. On May 22, 1900, McLaughlin commenced an action against Aimee Riley and others to foreclose the second mortgage ; and on the 16th of April, 1900, Fries commenced an action to foreclose the first mortgage, and recovered judgment in that action on the 15th of August, 1900. The premises were sold on the lltli of September, 1900, for $14,900. A small surplus of $188.51 remained after satisfying the Fries judgment. Meantime, a receiver of the rents had been appointed in McLaughlin’s suit on the second mortgage, and $300 of rent was collected by that receiver, and the,rent thus collected and a portion of the surplus money were paid over to McLaughlin on account of the principal of his debt. His action was never pressed to judgment. In consequence of the sale of the mortgaged premises under Fries’ judgment of foreclosure, McLaughlin’s mortgage was cut off, and he has nothing to look to now but the bond of Segunda and Bertha Lopez and the guaranty of Durr. In the affidavits presented by Durr in resistance of McLaughlin’s application, various circumstances are stated' which, if duly proven upon a trial, may constitute obstacles to McLaughlin’s recovery upon the guaranty. They are, in effect, that that guaranty was procured by false representations of McLaughlin; that, although he was made a party defendant in the McLaughlin suit, no demand for a personal judgment for deficiency was made against him; that, when the summons and complaint were served upon him, he was told by the process server that no personal judgment would be sought against him (but who that person was or by what authority he spoke does not appear); that Durr was not a party to the foreclosure action brought upon the first mortgage, knew nothing of its institution and was never notified by McLaughlin or any one else of the pendency of that suit, and, in general, that the acts and conduct of McLaughlin were such as to release Durr from his obligation as a surety. All those matters may properly be the subject of inquiry upon issues duly framed, but we cannot dispose of them upon affidavits. Matter of Marshall (53 App. Div. 136) we do not consider as controlling here. In that case there was an express waiver of a right to a deficiency judgment. We do not regard the omission of McLaughlin to demand in his complaint a deficiency judgment as constituting in itself a binding election-. Had that action proceeded to .judgment and the relations of the parties become definitely fixed thereby, a different view might be entertained. Under the circumstances as disclosed, satisfactory reasons are shown for allowing McLaughlin to sue. „ The order appealed from should be reversed, with ten dollars costs and disbursements, and the motion granted, with ten dollars costs. Van Brunt, P. J., O’Brien, McLaughlin and Laughlin, JJ., concurred. Order reversed, with ten dollars costs and disbursements, ■ and motion granted, with ten dollars costs.