
    Harris v. De Paulina.
    (Decided September 28, 1931.)
    
      Mr. I. R. Morris, for plaintiff in error.
    
      Mr. Abner H. Goldman, for defendant in error.
   Vickery, J.

This cause comes into this court on a petition in error to the municipal court of the city of Cleveland; the purpose being to reverse a judgment that was rendered in favor of the defendant in error, Carmel De Paulina, who was plaintiff in the court below, against the plaintiff in error, Max L. Harris, who was defendant.

We have read the briefs, familiarized ourselves with the record and heard the oral arguments of counsel in this case, and from the information that we have thus gleaned we find that a judgment was rendered for the plaintiff in the court below under very singular circumstances.

In order to understand the nature of our decision, it is necessary to go back and see how the so-called claim arose in the instant case. It seems that on the 1st of November, 1926, Harris loaned to a Mr. and Mrs. Griffith the sum of $2,375, who, to secure the payment of this sum, executed a mortgage upon their real estate. At the same time they executed a cognovit note, secured by the mortgage, which provided that the whole sum should become due in two years, namely, November 1, 1928, but it provided further that the payments were to be made in quarterly installments of $200 each, and that, if any installment, and interest thereon, was not paid when it became due, the whole sum should at once become due and payable; that is, the cognovit note contained an acceleration clause, which, upon default in any payment, made the entire sum come due and payable.

Prior to October 5,1927, De Paulina, the plaintiff in the case in the lower court, purchased the property which secured the note by mortgage, and, as a part of the consideration, agreed in writing to assume the mortgage indebtedness and to pay it as it matured to Harris, who was the mortgagee.

On October 5, 1927, De Paulina and the Griffiths were in default in the payment of the installments due upon the note, and Harris elected to declare the whole sum due. So on October 5, 1927, he brought an action to foreclose the mortgage against the Griffiths and De Paulina. Anyhow, shortly after that time an employee in the office of I. R. Morris, the attorney of record for Harris, called up either the attorney, or De Paulina himself, and notified him that the mortgage was due, that he was in default in his payments upon the note, and that he proposed to foreclose. I believe that as a matter of fact suit had already been commenced to foreclose the mortgage.

Thereupon Mr. Goldman, attorney for De Paulina, got in touch with the office of I. R. Morris, and through some understanding of some kind, the record is not clear as to what it was, he obtained from De Paulina $300 and sent the same to Mr. Morris’ office with a letter which purports to say that there were inclosed $300 to apply upon the note and mortgage. Through some oversight in Mr. Morris’ office this amount was not credited upon the note, but was sent direct to Mr. Harris, and, of course, De Paulina, or somebody, was entitled to a credit for-that amount.

In May, 1928, a judgment was taken upon the cognovit note for $2,155, the amount due upon the note, not accounting for the $300 that had been paid by De Paulina.

Subsequently, upon the sale of the property, an adjustment was made with the Griffiths whereby the Griffiths paid $1,200 and were released from further liability.

Subsequently De Paulina brought a suit to recover the $300 that he had paid, and, strange as it may seem, he did recover, and it is to reverse that judgment that error is brought here.

We think .the whole trouble arises from the mistake which the court below and the attorney for De Paulina made with respect to the relations of these parties. The argument was made as though De Paulina was a surety, or “an indorser,” to use Mr. Goldman’s own phrase, and, inasmuch as the Griffiths were released, that released De Paulina, and, if that was so, De Paulina could recover the $300 that he had paid. That, I believe, is the argument.

It was also claimed in the argument that the payment of $300 was made in order to get a postponement of the foreclosure of the mortgage, and, inasmuch as the foreclosure had already started, the money was wrongfully obtained from De Paulina.

Prom the view we take of this case it does not make any difference, if the relation of the parties is once understood, which horn of the dilemma De Paulina takes.

There can be no question but that, when De Paulina bought this property, upon which the mortgage existed, and assumed in the deed or a promise in writing to pay that mortgage, so far as he and Griffith were concerned he was the principal debtor and Griffith was surety to him. So far as Harris is concerned, there not having been a novation, Griffith was still liable to Harris, and, if Griffith paid this entire indebtedness, then by virtue of the assumption of the mortgage by De Paulina and his promise to pay this obligation, Griffith could have recovered the whole sum from De Paulina, because of the relationship that existed between them. As already stated, the relation between Griffith and De Paulina was that of principal and surety, De Paulina being the principal.

Now if the surety pays the principal’s debt, he is entitled to recover whatever he was compelled to pay, and so if the Griffiths had paid the entire debt they could have recovered from De Paulina. But, whatever the transaction was between the Griffiths and Harris, it did not release De Paulina’s obligation to Harris unless the Griffiths had paid the entire obligation, so that nothing was due to Harris, without taking into consideration the $300. In that event the $300 could have been recovered by De Paulina on the ground that there was a failure of consideration for money had and received, but De Paulina then would have been responsible to the Griffiths; in that event the Griffiths could have recovered all the money from De Paulina for anything that might be due from him on his contract of assumption of the mortgage obligation.

Now when this suit was brought in the municipal court for the $300 which had been paid, De Paulina owed Harris something like $900, and, of course, on settling that $900 he would have been entitled to have an accounting between Harris and himself and make Harris apply that $300, and that would have been perfectly right upon his part, and Harris would have been compelled to credit the $300 upon that claim, so that there would have been only $600 left.

But De Paulina, being tbe principal obligor, under tbe authorities that made him the principal upon the assumption of the mortgage, and made Griffith only a surety, when the surety paid a sum less than was actually due, he as principal was not released. It is true that, if a principal settles for a less amount than the whole debt, the surety will be discharged; but the reverse of that is not true. If the surety pays less than the sum that is due, it does not discharge the principal. So when the Griffiths paid the $1,200 to Harris, and got an assignment of the mortgage to them, that transaction did not in any way affect the liability of De Paulina to Harris, and so Harris had a claim, after the $300 was taken out, to something over $600. So when De Paulina brought a suit against Harris to recover $300, he owed Harris not only $300, but taking out the $300, he owed Harris $600 more, and he had no right under any circumstances to recover from Harris the sum of money that had been paid. His rights were to have the $300 credited upon the indebtedness of $900 which he owed to Harris.

Now De Paulina was not a resident of the state, but nevertheless, by bringing a suit in court, he invoked the jurisdiction of the court. Then he was not only not entitled to recover the $300, but Harris was entitled to recover in law from him on his counterclaim the $600 that was still due.

Consequently we do not understand upon what theory the judge of the municipal court decided this case. Surely it must have been upon a mistaken notion as to what the relation of the parties was. If one understands the principle correctly, that, as between De Paulina and the Griffiths, De Paulina was the principal, then De Paulina owed the entire sum to Harris. Harris had a claim against the Griffiths because they signed the note and there had been no substitution or novation. De Paulina was liable because he assumed and promised in writing to pay the creditor the debt of another. Consequently Harris had a claim against De Paulina for the balance of whatever money he did not get from the Griffiths, and the Griffiths had a claim against De Paulina for whatever they paid to Harris, but, inasmuch as De Paulina owed Harris $900, he still owed him, after he was given credit of $300, the $600 that remained due, and, he being in court, Harris had the right to maintain a counterclaim and should have secured a judgment against De Paulina for that amount.

It follows, therefore, that the trial court was wrong not only in rendering a judgment in favor of De Paulina for the money that he had paid upon a claim that he owed, which was past due, but erred in dismissing the counterclaim, for, De Paulina being in court, and having brought Harris into court, Harris could get a judgment against him for the amount that was due him. Had it not been for this counterclaim, if the amount had been only for $300, this court would not only have reversed the judgment, but would have rendered final judgment in favor of Harris, the defendant in the court below; but, inasmuch as De Paulina is in court and Harris has a counterclaim against De Paulina, we think it would be unjust to Harris to render a final judgment in his favor and thus let De Paulina escape.

According to the record in this case, De Paulina is undoubtedly liable to Harris for the sum of $600 or more.

It is argued that this $300 was paid On consideration that the mortgage would not be foreclosed, that it was not a part payment of the debt, but simply a new consideration for a postponement of the foreclosure of the mortgage. The record does not show that to be true. In fact Mr. Goldman’s letter shows that it is not true, and he is complaining because his $300 payment was not credited upon the mortgage. Even if that is so, that the $300 was paid upon a new and separate consideration, not to apply upon the debt, but leaving that intact as it was, for an extension of time on the foreclosure of the mortgage, and that was not done, it might be a breach of faith on the part of Harris; but, if De Paulina owed Harris $900, and a suit was brought to recover this $300, Harris could counterclaim for the money that was due him, notwithstanding there was a failure of consideration, and notwithstanding even that the money had been obtained by misrepresentation, which was not the fact in this case.

So under no theory of the law, no theory which could be surmised under the conditions of this record, as borne out by the evidence in this lawsuit, could De Paulina recover this money from Harris. If, however, the Griffiths had paid the entire debt, and this $300 was given for an extension of time, which was not given, then, of course, De Paulina could recover this money, but that state of facts is not borne out by the record, and as a matter of fact is not true.

The whole matter can be summarized as follows: That when De Paulina purchased a mortgaged property, and promised and assumed to pay the mortgage, as between Griffith and himself he became the principal debtor, and he became liable directly to Harris; and if there was a default, and it is conceded there was a default when this suit was brought, Harris had the right to maintain the foreclosure suit; and as already stated, inasmuch as De Paulina was the principal, the surety’s paying any sum less than the full amount would not discharge the principal. So under no theory of the lawsuit was De Paulina entitled to recover any part of this $300 payment which he sued for. On the contrary, under the record, the plaintiff in error, the defendant below, was clearly entitled to sustain his counterclaim, and he should have had a judgment against De Paulina for $600 or more.

For that reason the judgment will be reversed, and the case will be remanded to the trial court for a new trial, simply so that Harris can maintain his suit against DePaulina in the courts of Ohio for the counterclaim.

Judgment reversed and cause remanded.

Levine, P. J., and Weygandt, J., concur.  