
    Mary Murray, Appl’t, v. Arthur G. Fox and Buffalo Grape Sugar Co., Respt’s. Same Appl’t v. Same Respt’s.
    
      (Court of Appeals,
    
    
      Filed March 1, 1887.)
    1. Mortgage — Grantee in deed without covenant — Right of subrogation AGAINST MORTGAGOR.
    A grantee buying for a full consideration, but without covenants, land incumbered by a mortgage is entitled on payment of the mortgage debt to enforce the bond against the mortgagor.
    2. Release of one of several joint debtors — When does not discharge OTHERS.
    One of several debtors jointly, or jointly and severally liable for the same debt may be released in such manner and with such reservation as will preserve the right of recourse against the others even though sureties, when their rights and equities can be said to have been also preserved and left unaffected, the release becoming a mere covenant not to sue.
    3. Release from existing debts does not discharge future debts.
    A release from all existing debts matured and unmatured cannot be construed as operating upon debts non-existent but possible to arise in the future.
    4. Deed — Covenant of warranty — Effect of release of.
    The bare fact of a release of covenants of warranty for a valuable consideration does not compel an inference that the releasor assumed as his own a mortgage debt of the grantor.
    6. Same — Effect of release on mortgagor.
    Where the consideration of a release of the covenants contained in a deed is unknown and unexplained and may have been merely adequate to cover the technical breach of covenant already existing and no agreement or purpose of assumption is proved, the equitable duty of payment of the mortgage is not shifted, and the land is chargeable only as surety.
    6. -Same — Effect of covenants on rights of grantee.
    The taking of covenants in a deed does not impair or destroy the equitable right of the grantee to be protected against the forced payment of a debt which he has not assumed.
    7. Witness — When competent under Code Civ. Pro. § 829.
    An owner of the stock of the defendant company who was grantee in the deed was a competent witness to disclose personal transactions with plaintiff’s intestate under the circumstances of the case.
    
      8. MORTGAGE — EVIDENCE OF PAYMENT — NEGLECT TO DEMAND.
    Where a mortgage had been disregarded for more than ten years and left ■without any claim made upon the mortgagors (one of whom was dead) or even a demand for interest, although the security was abundant, for any existing indebtedness and the surviving mortgagor was responsible for and able to pay the whole of it, Held, that these facts indicating payment were entitled to very considerable weight.
    9. Same — To secure notes — Failure to produce notes evidence of PAYMENT.
    ¡ Where a mortgage recited an existing debt but was intended also as a continuing security for further advances which were to be evidenced by notes or business paper and no such note is produced or proved, its absence justifies an inference either that it never existed or was paid previously.
    Appeal from a judgment of the supreme court, general term, fifth department affirming a judgment of the Erie county special term in favor of defendants in actions brought to foreclose two mortgages.
    These actions were brought for the foreclosure of two mortgages. The first action is based upon a bond bearing the date of December 14th, 1867, executed by Arthur W. Fox to Hugh Murray in the penal sum of $15,000, and as collateral security for the payment of said bond Arthur W. Fox and Horace Williams and wife executed a mortgage running to Hugh Murray, bearing even date with the bond, whereby they mortgaged certain real estate situated in the city of Buffalo. Part of this land was owned by Fox, and part by Fox and Williams as tenants in common. The second action was based upon a bond bearing the date of December 17th, 1868, executed by the same parties as the aforesaid bond to the same party in the penal sum of $27,000 secured by a mortgage executed by the same parties as the first mentioned mortgage.
    Arthur W. Fox and Horace Williams were partners, doing business under the firm name of Fox & Co., and the debts represented by these bonds, it was claimed, were partnership debts.
    On January 10th, 1874, the mortgagors conveyed the real estate, covered, by these mortgages, to the defendant company, the deed containing covenants of warranty. In 1881, said company executed to Horace Williams and the representatives of Arthur W, Fox, he being then dead, the following release:
    “For and in consideration of a valuable consideration to it in band paid by Horace Williams, survivor of Arthur W. Fox, deceased, the Buffalo Grape Sugar Company has released and discharged, and by these presents does release and forever discharge, the said Horace Williams and the personal representatives, heirs at law, and next of kin of said Fox, from all liability of every name and nature, past, present, and future, on account of any of the covenants contained in the deed given by Arthur W. Fox and Horace Williams and wife to Frank Hamlin, dated November 10, 1873, and recorded in Erie county clerk’s office in Liber 337 of Deeds, on page 181, and on account of any breach of any such covenant, past or future ; and from all liability for any cause on account of any covenants contained in the deed from the same parties to the Buffalo Grape Sugar Company, dated January 10, 1874, and recorded in Liber 327, on page 109, in the same clerk’s office, or on account of any breach of any such covenant, past or future; and from all liability for any cause on account of any note, bond, covenant, bill, acceptance, account, or demand, action, and claim of action, whatsoever, now or heretofore held by said company against A. W. Fox & Co., Fox & Williams, or said Horace Williams, and especially on account of the note for §5,000, dated August 22, 1S74 ; the note for $5,000, dated July 8,1874; the note for $5,000 dated July 21, 1874; the note for $5,000, dated JunelS, 1874; the note for $5,000, dated June 8, 1874; the note for $5,000, dated July 3, 1874; the note for $4,500, dated July 6, 1874; the note for $1,-274.50, dated August 1, 1874; and on account of any other note, bill, or demand, of any name or nature, to the date hereof, or on account of any other cause whatever. And the said company hereby for a like consideration undertakes and covenants that it has not parted with or impaired the title to any such debts, and that it has good authority to release the same. But it is expressly understood and agreed that nothing herein contained shall operate to release or transfer the right of said company to exact, demand, and receive from Bobert G. Stewart trustee, its divisional share of the fund in his hands described in the complaint in an action brought by said Stewart against Horace Williams and others, and which action was tried before George Wardwell as referee.
    “ In witness whereof the said company has caused its official seal to be affixed hereto, and this release to be signed by the president and secretary of said company, the twenty-fifth day of January, in the year one thousand eight hundred and eighty-one. ■
    “ O. J. Hamliu, Prest, [l. s.] {l. s.] “Wm. Hamliu, Sec.” [l. s.j
    October 28, 1881, the plaintiff executed a release to Horace Williams as follows :
    “This release, made this twenty-eighth day of October, 1881, between Mary Murray, sole surviving administratrix of all and singular the goods, chattels, rights, and credits which were of Hugh Murray, late of Buffalo, deceased, of the one part, and Horace Williams, of said city of the other part.
    “ Whereas, on the fourteenth day of December, 1867, Arthur W. Fox, in his life-time, and the said Horace Williams, with Eliza, his wife, executed and delivered to the said Hugh Murray, in his life-time, a certain indenture of mortgage bearing date on that day, as collateral to the bond of Arthur W. Fox; and whereas, on the seventeenth day of December, 1868, the said Arthur W. Fox and said Horace Williams executed and delivered to the said Hugh Murray their joint and several bond and writing obligatory, bearing date on that day, in the penal sum of $7,000, and on the same day the same parties, with Eliza, the wife of said Horace Williams, executed and delivered to said Hugh Murray a certain indenture or mortgage, with like date, and conditioned as collateral to said bond; and whereas, on the twenty-ninth day of January, 1870, the said Arthur W. Fox and Horace Williams, with Eliza, his wife, executed and delivered to said Hugh Murray a certain other collateral mortgage of that date;. and whereas, on the twenty-eighth day of January, 1870, the same parties executed and delivered to said Hugh Murray and Cicero J. Hamlin a certain other collateral mortgage; and whereas on the fifth day of January,1870, the firm of A. W. Fox & Co., which was composed of said Arthur W. Fox and said Horace Williams, executed and delivered to said Hugh Murray their promissory note, bearing date on that day, payable to the order of said Hugh Murray, at the First National Bank of Buffalo, N. Y., thirty days afterdate, for six thousand and five hundred dollars; and whereas, on the third day of January, 1870, the same firm executed and delivered to said Hugh Murray their other promissory note for six hundred and ten dollars, payable in thirty days, at the bank aforesaid, to the order of said Murray; and whereas, there were other dealings-between the said Hugh Murray and the said firm of A. W. Fox & Co. and the firm of Fox & Williams, in all which the liability of said Horace Williams, if any, including the security aforesaid, was either several or joint with said Fox, or as a partner in one or the other of said firms, which have both been dissolved by the death of said Fox; and whereas, the said Horace Williams desires to compromise his said liability, and be discharged therefrom, and the said administratrix is willing to accept from said Horace Williams a certain sum in compromise of his said liability, without affecting or discharging any other party or security ; now this release witnesseth, that the said Mary Murray, as such administratrix as aforesaid, in consideration of one dollar to her in hand paid by the said Horace Williams, and in consideration of the premises, and of other good and lawful considerations, has discharged, and by these presents does forever discharge and release, the said Horace Williams from all several liability on account of said bond, mortgages, notes, and all other dealings whatsoever, and has discharged and by these presents does forever discharge and release, the said Horace Williams from all joint liability on account of said bond, mortgages, notes, and other dealings and demands in connection with said firms, or either of them, or for any cause whatsoever, jointly with said Arthur W. Pox or otherwise ; but not intending hereby to affect or discharge the liability of said Arthur W. Pox or his estate therefrom, or to affect or discharge any other security for any of said demands other than the personal liability of said Horace Williams.
    “ In witness whereof, the said Mary Murray, as such administratrix as aforesaid, has hereunto set her hand and seal the day and year first above written.
    “ Mart Murray, Adm’x.” [l. s.]
    
      H. F. Allen, and Ansley Wilcox, for appl’t; J. G. Milburn and A. Moot, for resp’t.
   Finch, J.

Tbe most important question in these cases grows out of tbe release executed by tbe plaintiff, which purports to discharge the party primarily liable for the mortgage debt from all responsibility for its payment.. The bond in the first action was executed by Arthur W. Fox, and secured by the mortgage of Fox and Williams. The bond in the second action was executed by both, and secured in like manner. The mortgages incumbered parcels of land which had been conyeyed by Fox and Williams to the Grape Sugar Company by a full covenant deed, and for a price which covered the full value of the incumbered fee, — a fact which the trial court found upon sufficient evidence, and which is inferable from the character of the conveyance, and the scope of the covenants contained in it. Fox and Williams were partners when the bonds were given, doing business, at first in the name of Arthur W. Fox, and later in that of Arthur W. Fox & Co., and each of' the bonds was given for and represented an indebtnesss of the partnership. That fact is also found by the trial court'upon evidence quite sufficient to sustain it. The mortgage covered other lands of Fox, in addition to that conveyed to the Grape Sugar Company, which, upon the death of Fox, descended to his heirs, who were named among the parties defendant in the foreclosure actions.

Williams, as survivor of the firm, in possession of its assets and liable for its debts, was thus left a primary debtor for the bonds in suit. An action upon two notes of the firm was brought in another state where he chanced to be, and resulted in negotiations for a settlement of his liability, which culminated in the payment by him to the administratrix of the mortgage of $13,500, upon an agreement of release and discharge, put in writing and formally executed, the construction of which is to be ascertained and determined. That instrument recites the two bonds and mortgages now sought to be enforced; the execution by Fox and Williams of two other collateral mortgages ; the delivery of two notes of the firm to the plaintiff’s intestate, — one for $6,500, and one for $610; the existence of other dealings between the parties; and the willingness of the administratrix to release Williams, without discharging any other party or liability; and then provides that Williams is discharged and released from “ all several liability on account of said bond, mortgages, notes, and all other dealings whatsoever,” and from “ all joint liability on account of said bond, mortgages, notes, and other dealings and demands in connection with said firms,” and concludes thus : “ But not intending hereby to affect or discharge the liability of said Arthur W. Fox, or his estate, therefrom, or affect or discharge any other security for any of said demands other than the personal liability of said Williams.”

Previous to the execution of this release, the Grape Sugar Company had discharged the Fox estate and Williams from all liability on their covenants of warranty; and assuming — what is denied, and must later be considered — that the corporation stood in the attitude of a grantee buying for a full consideration, but without covenants, land incumbered by a mortgage, and so entitled on payment of the mortgage debt to enforce the bond against the mortgagor, (Wadsworth v. Lyon, 93 N. Y. 208,) it follows that the release of Williams by plaintiff cut off and destroyed the equitable right of subrogation belonging to the surety, unless the latter right is saved by the reservation. It is undoubtedly true that one of several debtors jointly, or jointly and severally, liable for the same debt may be released in such manner and with such reservation as will preserve the right of recourse against the others, even though sureties, when their rights and equities can be'said to have been also preserved and left unaffected, the release becoming a mere covenant not to sue. It is strenuously insisted that such a rule of construction cannot possibly apply to the release of a sole debtor, not jointly liable at the time with any one, and that a covenant not to sue him must necessarily discharge and release the debt. Brown v. Williams, 4 Wend. 365. But there is room for debate as to whether the liability of Williams, originally joint with Fox, has become in all respects sole and several within the meaning of the authority cited; and we prefer to proceed with the inquiry as to the construction of the reservation. If, by its terms, the equity of the Grape Sugar Company to pay the debt in exoneration of its land, and then recover that amount from Williams, is preserved, then the release did not affect the surety, and left its liability unchanged. However astonishing such a result would be upon the facts proven in the case, and however difficult it may be to believe that Williams meant and intended to pay $13,500 for a mere covenant not to be sued by Murray, leaving himself liable for the full mortgage debt to the Grape Sugar Company, and so paying that large amount for a mere choice of plaintiffs, that must be the effect of the reservation, unless something in it indicates a different intent, and admits of a construction more in accord with the obvious purpose and understanding of the parties. There are such expressions.

The release discharges “ all liability ” “ on account of” such mortgages: not merely some, liability, — as, for example, that to a specific person, — but “ all ” liability “ on account of the mortgages; evidently meaning every possible liability of Williams which could in any manner, or at anybody’s suit, spring from the existence of .the securities. And this meaning is sedulously preserved and carefully guarded in the peculiar phraseology of the .reservation. As we read it, that reservation of the right to enforce other securities is not absolute and unconditional, and so inconsistent with what precedes it, but is limited and restrained precisely as we should expect to find it, having in view the situation and expressed purpose of the parties.' The intent is declared to be “ not to affect or discharge any other security for any of said demands other than the personal liability of said Williams.” That qualifying clause was inserted to preserve the full scope of the previous provision releasing Williams from all liability on account of, that is originating in or springing from the mortgages. The obvious meaning is that the releasor discharges no security which may be enforced without involving the liability of Williams, and preserves all such as can be enforced without bringing as a result recourse against him. He was to be entirely discharged at all hazards from every liability, direct or indirect, and those securities were to be preserved, and those only, whose enforcement was consistent with that primary and dominant purpose. Both parties may have believed that since Fox was sole obligor in one bond, Williams would stand as a surety mortgagor as to that, and so remedy could be had against the Fox heirs without a recourse over to Williams. Both parties, too, may have thought — -what, indeed, is' now asserted — that the mortgages could be enforced against the Grape Sugar Company without peril to Williams, by reason of its release of covenants, and so it is easy to see why the reservation was made, and its existing form. At all events it is limited and restrained, and the presence of the concluding phrase can have no force or explanation except to preserve the consistency of the instrument, and its full force as a discharge of Williams. Tins construction seems to us not only natural and reasonable, but fairly explains the large payment made by Williams, and redeems it from the level of a marvelous and absurd folly.

But the appellant contends that, even upon this construction, the rights of the Grape Sugar Company were not infringed, because it had already parted with those rights by its release of the Fox beirs, and of Williams, previously executed. That release contains substantially two classes of'provisions. It discharges the liability of the Fox heirs, and of Williams, upon the covenants in the deed, and then from all existing debts matured and unmatured. A large number of these resting in notes of $5,000 each are specifically mentioned, and a final covenant relating to the liabilities intended to be released, that the releasor has not parted with or impaired its title “ to any such debts,” indicates clearly that debts existing, and to which the company had title, were those referred to.

It is not admissible to construe the release as operating upon debts non-existent but possible to arise in the future. The argument on behalf of the appellant is that a release of the covenants ipso facto discharged the equities possible to arise in favor of the covenantee against the covenantor. If that be true, the bare act of releasing the covenants made the land principal debtor for the mortgage, and amounted to an assumption by the Grape Sugar Company of the mortgage debt. No such agreement or intent is contained in the terms of the release, and must exist, if at all, as an inference from the bare fact of a discharge of the covenants for a valuable consideration. I think that fact standing alone does not justify or compel the inference. If the actual consideration had been shown, and it had appeared that the covenantors paid to the covenantee the amount of the outstanding mortgages, or that for a less sum they agreed to take the perü of a foreclosure, the inference would follow. But where the consideration is unknown and unexplained and may have been merely adequate to cover the technical breach of covenant already existing, and no agreement or purpose of assumption is proved, I think the asserted inference does not follow, the equitable duty of payment is not shifted, the debt remains the debt of Fox and Williams, and the land chargeable only as surety. It Is said that an express covenant destroys or restrains an implied one. That is true, but there are no implied covenants in a deed to be destroyed or restrained. The statute forbids them, and that fact demonstrates that the equities of a grantee whose land has been sold for another’s debt rest not at all upon any implied covenant, but upon the just needs of the situation as they appeal to the conscience of the court. Unless then the equities of the situation are changed by the fact of the release they must necessarily remain. That the taking of covenants does not impair or destroy the equitable right of the grantee to be protected against the forced payment of a debt which he has not assumed has been often decided, and is established by the eases which on a foreclosure have preserved to the grantee, although holding covenants of warranty, the equitable right to have the lands of the grantor covered by the mortgage first sold and applied to its payment. If one equitable right survives the taking of covenants — Clowes v. Dickenson, 5 Johns, ch. 235; Skeel v. Spraker, 8 Paige, 195 — why may not another? It is possible that an equitable right precisely equivalent to the legal right on the covenants might prove to be suspended during the existence-of such legal right, simply because equity does not waste its resources or act without necessity, but the equity would be merely suspended and not killed. Its death could only come from such a change in the relation of the parties as would throw justly upon the grantee the burden of the debt.

And so the question comes back, and seems to me to be the-ultimate inquiry, whether the bare fact of a release of covenants-of warranty, for a valuable consideration, compels an inference-that the releasor assumed as his own a mortgage debt of the grantor. I think not. Something more must appear to warrant the inference. In the present case, other and entirely different-purposes may have occasioned the release. There may have been defects in the title not here disclosed, and which the parties had principally in view ; it may have had reference to the technical breach which already existed ; or, what is more probable, it may have been given and received on the supposition that the grantors had already paid and settled the mortgage-debt, or, if not, that the releasors would have ample protection against loss in the very equities which they now invoke. For these reasons, I cannot accede to the inference sought to be drawn; and since the equity remained, and the necessity for its protection has come, I think it may be enforced.

From these views of the two releases it follows that the liability of the Grape Sugar Company in respect to its lands bound as surety was discharged; that Hamlin, although a large owner of its stock, was competent to disclose personal transactions-with plaintiff’s intestate, since he was not examined in his own behalf; that he was a competent witness on the question of payment for the Fox heirs; and they are discharged by the finding of fact that the mortgages have been paid.

But there is a further view of the case, leading to the same result, and perhaps desirable to be taken in deference to some doubts existing among us. The Grape Sugar Company and thn Fox heirs answered- separately, and each pleaded payment. Evidence was given tending to establish that fact, outside of the testimony of Hamlin. His testimony, when offered, was objected to under section 829 of the Code, and received explicitly in behalf of the Fox heirs alone, and excluded as to the-Grape Sugar Company. Nevertheless, the trial court found the-fact of payment generally and without distinction among the defendants, and not specially in behalf of the Fox heirs alone. That finding, therefore, must be construed to be, so far as the Grape Sugar Company is concerned, that, upon the evidence received in its behalf, and so excluding that of Hamlin, the payment of the mortgages was established. We must not construe the finding of the learned trial judge into an inconsistency unnecessarily. He refused to hear Hamlin on behalf of the Grape Sugar Company, and yet, in its behalf, as well as in that of other parties, he finds the fact of payment. He must, therefore, have found it upon the proof given outside of and excluding the testimony of Hamlin. The judge who dissented at general term realized the situation in that respect, and insisted that “ without placing full and implicit reliance on the evidence of this witness, it is difficult to see how the issue on the question of payment could have been found in favor of the defendants who rely on that particular defense.” » The learned counsel for the appellant also insist that the finding of payment is not supported in behalf of the plea of the sugar company, for whom Hamlin was not permitted to testify. A study of the evidence leads us to the conclusion that enough appeared to sustain that finding in its application to the Grape Sugar Company.

The trial judge very properly took into account, in approaching a consideration of the evidence that both Murray and Fox were dead, and the mortgages had been disregarded for more than ten years and left without any claim made upon them, or even a demand for interest, although the security was abundant for any existing indebtedness, and Williams was responsible for and able to pay the whole of it. Bean v. Tonnele, 94 N. Y., 385. Under such circumstances precise and direct evidence of payment was hardly to be expected, and the facts indicating it .are entitled to very considerable weight. The first mortgage recited an existing debt of about $5,600, but was intended also :as a continuing security for further advances. These, however, it was sufficiently declared were to be evidenced by notes or business paper, and no claim not so evidenced was within the .scope of the security so far as it covered future advances. The same characteristic is found in the second mortgage. The complaint in the first action described the existing debt as a loan of $1,500, one of $2,600, and one of $1,500, the latter made at the execution of the mortgage, and the former one and two months earlier. No note or memorandum of these was produced by the representatives of Murray, and while it is possible that none was ever given, the course of business, as proved by Damon, and indicated by the recitals, makes it probable that they were given, so that their absence becomes in some degree significant. The papers of Fox & Co. were burned and destroyed, which accounts for non-production by them, but those of Murray passed to his representatives. To the amount of debt existing at the date of the first mortgage theie is added by the complaint an accommodation note of $600, made half a year later. No such note is produced or proved, and its absence justifies an inference either that it never existed, or was taken up on payment.by Fox & Williams. At tbe date of tbe second mortgage there was apparently due on the first mortgage with its interest about $6,000. That second mortgage recites an existing indebtedness of $13,500 and covers additional parcels of land, and adds Williams as co-obligor in the bond, which were the probable reasons of its execution. Presumably that consideration included the $6,000 of original debt and an accumulation of $7,500 more but that accumulation was to be evidenced by notes or business paper, none of which, ante-dating the second mortgages, is produced, and the inability to produce it indicates its .payment.

A note of $6,500 and°one of $610 are produced, but these only. They are dated in 1870. The large note appears from the evidence of Damon to have represented an unpaid check drawn by Fox in February, 1868, upon which interest was paid until 1869 and which afterward went into the account of bills payable. What this check was given for we do not certainly know. It does not prove a loan made at its date but presumes a pre-existing debt. The only such debt disclosed is the $6,000 secured by the first mortgage. The check was outstanding when the second mortgage was given, and so must have been,, at least, a part of the $13,500, and inferentially identical with that part of it which constituted the consideration of the first mortgage if that was still unpaid. Whatever it was, it has been paid and canceled together with the note of $610. And that these two notes which constitute the only items of business paper in Murray’s possession represented the sole indebtedness of Fox & Co., at the date of Murray’s death is quite strongly indicated by another set of facts. Hugh Murray died, according to the complaint, in August, 1870, and when the widow, with her son and son-in-law, were about starting for Chicago, Mr. Fox said to her that whenever she wanted money she need not wait for the interest to become due, but might draw for it, and he would send it to her. She had all her husband’s papers, both the mortgages and notes. Her son and son-in-law were not unintelligent or blind to her interest or their own. Fox did not tell them the amount of his debt. He assumed that they knew, as they probably did. From that time on till 1874 the widow, through her son and son-in-law, drew semi-annual drafts for interest of $250 each, which Fox paid; the amounts indicating-almost precisely an understood principal debt in the sum of the; two notes produced. The trial judge adverts to the improbability that a business man like Murray, shown to have collected interest monthly, and at very high rates, would have suffered it to accumulate, and to the circumstance that Murray himself signed, a paper which postponed these mortgages, and gave precedence to one executed to himself and Hamlin. While the facts and inferences thus sketched are not beyond dispute and criticism, and are claimed to be explainable or inaccurate, yet we are of opinion that enough appears from the survey to show that the finding of payment had an adequate foundation upon so much of the evidence as was suffered to be given in behalf of the Grape Sugar Company; and we are not at liberty to suppose that payment would have been found generally and in behalf of both parties pleading it, if, as to one, no satisfactory evidence had been given. At least there was some evidence outside of Hamlin tending to support the finding and so to the benefit of that finding the Grape Sugar Company is entitled.

The judgment should be affirmed, with costs.

AH concur, Andrews, J., on second ground set forth in opinion. 
      
       Affirming 39 Hun, 108.
     